Money Monopoly

Rich Karlgaard at Forbes has been writing about the Cheap Revolution for some time. Andy Kessler picks up the theme in his new book and today's WSJ op-ed page. We now know that not only are manufactured goods getting cheaper fast but so are outsourced services.

Quality improvements are also accelerating and the "price level" and/or "output gap" calculations and analyses --and resulting monetary policies are more problematic as a result.

So, what do we know? Greenspan and Company misread conventional data and saw a deflation that was not there last year. Kessler and others now fear that they are as likely to misread conventional indicators now and in the near future.

If we are stuck with the public money monopoly, which indicators should they favor? Asset prices? Asset prices not skewed by the cheap revolution? Gold? Back to the future?

Airy Plans

A working paper from the St. Louis Fed (thanks, Wendell) reiterates the waste involved in "light-rail" urban transit. This is nothing new and echoes findings from a mountain of studies that have been accumulating for almost 40 years. In that time, hundreds of billions of dollars of public money has, nevertheless, been thrown at systems like this and transit use today is much lower than when the spending spree began.

Another thing that has not changed is the astonishing disconnect between plans and facts. This morning's LA Times reports on the LA region's latest plan: "'Compass' Points to New Direction for Growth ... Regional plan offers fewer suburbs, more high-density housing on transit lines ... The plan is named 'compass' because it is intended to direct Southern California's growth for the next 25 years ..."

Government Money

Add money to a barter economy and transactions costs fall dramatically. Yet, money is inevitably a commodity and its own price becomes the subject of bets. But the price of money affects all other prices so swings in monetized relative prices become much more complex.

Relative prices are supposed to change flexibly. "Price levels" are not supposed to change. But how can we tell which is which?

CPI reports, for example, feebly differentiate between measured inflation and "core inflation" once volatile food an energy prices are subtracted.

In truth, central bankers simply do not know what is going on. The Economist reports on a paper by economist Stephen King that points out that there was no threat of a U.S. deflation last year. Rather, there was, "a reduction in overall prices caused by rapid technological change, improvements in terms of trade and other factors."

Central bankers, like all central planners, have two problems: politicization and limited information. Alan Greenspan and Paul Volker are rightly given credit for avoiding the politicization that their predecessors had sunk to, but have they "solved" their information problems? Not if Greenspan and the FRB fought off a non-existent deflation last year -- and are not likely to read the tea leaves any better soon.

Privatize social security, the schools, the mails, water delivery, the highways, the radio waves --- and money. The sectors beset with the "crises" that we hear so much about.

Preferences or Policies?

Critics of modern American cities and Americans' overwhelming choice of suburban lifestyles like to blame peculiar U.S. policies (interstate highways, favorable tax treatment of home ownership, large-lot zoning, etc.) because they cannot concede that they are challenging the free choices of free people.

This line of attack is buttressed by breathless reports from those coming back from the Grand Tour of European capitals with the sure knowledge they have witnessed superior European lifestyles -- and, by inference, policies that we should mimic.

A good test of the assertion is to study urbanization abroad, analyzing real data rather than gossip.

A small set of research papers along these lines have been accumulating over the years. Most suggest that preferences dominate policies.

Now, Wendell Cox shows us the nature of urbanization in all of the world's "high-income" regions (U.S., Canada, Western Europe, Japan, Australia and New Zealand, Hong Kong and Israel). Growth for the areas' 101 largest metro areas shows that 96% was in the suburbs. Moreover, variation across the regions was minor, ranging from 92% of urban growth in the suburbs in Japan to 114.2% in the suburbs in Western Europe (where core city growth was negative).

Celebrated policy differences apparently matter very little. Preferences overcome them and are remarkably similar everywhere.

Flexible Land Markets

Between 1990 and 2001, highway miles in the U.S. grew by just 2% (Table 1076 of the 2003 Statistical Abstract).

In that time, U.S. population grew by 14%, passenger-miles via privately operated vehicles grew 33% and ton-miles via trucks grew 43%.

Give this mismatch of capacity and demand growth, traffic worsened. Over the 11-year span, worktrip travel times (privately operated vehicles) went up by 12% if you live in the suburbs and 20% if you lived in central cities (NPTS/NHTS data). Yet, suburban population grew by 55% while the central cities as a group lost population in the interval.

And the highways are mismanaged; access is mostly free and rationing is by crowding.

The glass is apparently half-full. Some have given credit to land market flexibility ("sprawl") that has allowed job sites and workers to co-locate in the suburbs.

Yet, as the sage said: "There's always something." As mentioned in yesterday's post, the "Smart Growth" game is now to apply more top-down planning so that flexibility can be replaced with management.

It's back to the Progressive Era in some quarters.

Growth, Sprawl and Planning

Year after year, the Census reports that the fastest growing cities in America are the ones that many might describe as the most "sprawling". Last year, Gilbert, Arizona, came in first. Do they sprawl because they grow or do they grow because they sprawl? Whereas elite opinion equates growth and sprawl with the lack of adequate top-down controls (revealing a touching naivete about the possibilities of top-down planning), it is probably safe to say that people are moving to these places because they like them.

So what is the problem? Are these places unduly subsidized? No. Most public subsidies, in fact, go to projects designed to prop up the older and declining cities and neighborhoods.

Another line of attack is that new and low-density settlements are expensive in terms of their infrastructure costs. Yet, whenever people bother to take a serious look, they find the opposite -- as recently reported by Cox and Utt.

Besides, are any of us simply cost-minimizers?

As if on schedule, this morning's LA Times reports: "Higher Density Projects Urged ... Regional Planners say such a strategy is needed to deal with growth issues ... To help Southern California cope with growth in decades to come, regional planners Tuesday unveiled a strategy that calls for more high-density development in urban centers and near transportation corridors ..."

Old Time Religion

Julian Simon won his famous bet with Paul Ehrlich re resource depletion almost 10 years ago. The bet and the win received media coverage but that was that. What looked like a neat refutation to economists (long-term commodity prices keep falling, corroborating the idea that human inventiveness staves off increasing resource scarcity) did not make much of an impact in the rest of the world. In a Letter to the Editor of last Sunday's NY Times Book Review, Don Boudreaux reminded the Review's readers (and editors) that a reviewer of Ehrlich's latest book had completely missed this episode as well as any of its implications.

This is common input selectivity and reminds us once again that we are talking about a modern secular religion rather than economics or biology or meteorology or any of the other relevant sciences.

The piece by Clifford Orwin in the Spring 2004 edition of The Public Interest makes a related and relevant point. We hear all the time that "that old-time religion" is still strong in the U.S. Not really, says Orwin, in a very thoughtful discussion of organized religion in modern America.

Envy, Politics, Economics and GPAs

Richard A. Epstein, writing on "It's Win-Win situation, Even if Some Win More Than Others", concludes that: "The threat of skepticism to human progress must be rejected. In its place I would adopt what might be termed a 'non-envy principle': If there are two states of the world, such that everyone in state A is better (or at least as well) off as everyone in state B, then choose world A, even if the resulting inequalities leave some people envious. Don't grouse because Bill Gates is richer than the average Microsoft employee -- instead celebrate the productive processes that continue to bring substantial benefits to all of us across the board."

Point taken. And it is probably the case that more Americans aspire than envy. If true, this is a remarkable achievement -- as well as an engine of further economic progress as well as an antidote to much poisonous politics.

People will always grouse -- and will always rediscover the truth that "material wealth does not bring happiness". Yet, talk is cheap and it is their actions that matter.

It is the American culture of striving that David Brooks celebrates in On Paradise Road. Many were weaned on the politics of envy in their schools but quickly disregard it on graduation. Brooks explains this by noting that undergrads have a bemused view of the professoriate's left-leaning, accepting it much like people had always associated absent-mindedness with the role.

He also notes that undergrads have discovered the benefits of their mentors' liberal mind-set: it means that -- in certain discussions, exams, papers -- anything goes and poor grades are less of a threat. Grade inflation.

Talk Radio

Writing in the current The Public Interest, William G. Mayer discusses "Why Talk Radio is Conservative" (not available at the link).

He surveys and rejects the standard explanations (the Rush Limbaughs are better show people than their liberal counterparts, there are fewer radio-sized liberal sound-bites, corporate owners block liberal talk shows, etc.). Mayer suggests, instead, that the easy answer has to do with the fact that there are simply more conservatives in America than liberals. He cites poll data on ideological self-identification that has conservatives dominate 1.8 to 1. He adds that this does not necessarily translate into electoral strength because most Americans' lack of a well developed ideology means that they can be all over the place on specific issues.

If true, it also suggests that national elections are conservatives' to loose.

He also mentions that other media are widely seen as liberal-biased, creating a demand that talk radio addresses. Also, the liberal side is more beset with fragmentation and identity politics; their minority constituencies are more likely to tune into Black or Hispanic radio than Air America -- which the WSJ reported last week has money problems.

One part of the puzzle that Mayer does not address is the following: in his of heart of hearts, I expect that Bill O' Reilly knows he is on the right ("fair and balanced" notwithstanding); most of his colleagues trumpet the fact that they are -- while I expect that most of the TV network news and national newspaper types actually see themselves as "fair and balanced" rather than the liberals that they are. The oldies come from the era of the FCC's "fairness clause" when open political bent was taboo. They may have come to believe their own posturing

The historical explanation helps to explain how the news media terrain has come to be settled the way it is. Much like the fact that the Northeastern U.S. remains heavily settled -- and the population center of gravity is only slowly moving towards the southwest -- because in 1620 the Pilgrims bumped into Plymouth Rock instead of Long Beach, California.

Wealth

How rich are we? The BEA's "Net Stock of Fixed Reproducible Tangible Wealth" series has recently been updated to 2000 and can be found at Table 679 at www.bea.gov/bea/an/wlth2594/maintext.htm.

Looking at 1980-2000 growth (in chained 1996 dollars), net U.S. wealth had grown from $14.269 trillion to $26.680 trillion, up 87%.

The breakdown for 2000 was:

Private 70%

Nonresidential equipment and software 16%
Nonresidential structures 21%
Residential structures 33%

Government 18%

Federal 5%
State and Local 14%

Consumer Durable Goods 11%

Not clear why the last entry is separate from private.

The fastest growing of these over the last twenty years was consumer durables, just beating out nonresidential equipment and software.

Milton Friedman has written, that all things considered, about half of U.S. GDP is directly or indirectly controlled by governments. That's depressing but there may be a better story when we focus on wealth.

Wal-Mart

In the minds of the zero-sum set, if I am rich, it is because you are poor, or vice-versa. So a successful Wal-Mart must be getting away with murder.

Whether it is their labor practices or their land use ("big-box") practices, or whatever, something must be amiss. Never mind that they are among retailing's most auspicious innovators.

One of the world's most successful enterprises chooses to discriminate against half of the planet's talent pool. In a better world, the assertion would be seen as laughable.

Yet, labor markets are now politicized. Bi-variate associations that show males and females of similar classification averaging different compensation packages are taken seriously. Lawyers, consultants, politicians, media representatives and the like pile on.

Add the normal control variables and the gender wage gap inevitably shrinks. Does it go to zero? Or, who to listen to? Those who specify the models or competing owners and managers who are daily judged by bottom-line performance?

Americans' material wealth is, in great part, due to the state of our economic freedoms. The ease with which markets are politicized these days and the fact that economic growth persists, nevertheless, attest to the amazing power of free enterprise.

Voting With Feet

International cross-sectional data are a headache, as are data about comparative migration. Stalker's Guide to International Migration is, nevertheless, appealing.

The Guide cites the UN as the source for the fact that 175 million people now live in a country not of their birth. For the US, it is 11.1% of the population (2001) which is 32 million which is 18% of all the world's foreign born.

People can be expected to migrate to the richer places. In the years 1998-2001, the G-7 nations took in 10.6 million immigrants. Most (30%) went to the US. Germany with its relatively open borders took in 25%. As a proportion of its native population, Germany took in more. In fact, as a proportion of native-born population, the US was fifth of seven -- just ahead of Japan and France.

While the picture is complicated by policy differences and geography, looking at how people vote with their feet is always instructive. Open borders are interesting but so are open cultures and open markets.

The Best of Times

Would you rather spend $100 at Sears (or a comparable store) today or spend the same $100 on items in the 100-year old Sears catalogue? It's an old econ exam question but I happen to be holding a facsimile (with an introduction by Cleveland Amory) of the 1902 edition (#111) in my hand. It is published by Grammercy Books (New York) and is a treasure of entertainment.

There are thousands of products listed and described, many with accompanying illustrations. Practically each one makes food for thought.

After some time with the catalogue, I thought I would have trouble writing a concise answer to the question. It might be easier to get to the point and admit that all the ways we use to make inter-temporal comparisons of well-offness are rough.

Would you want their best 1902 camera for $7.90? Probably not. High-end cutlery for 6 for $1.79? Why not? A great western saddle for $8.95? Sure.

It's the Sears "Drug Department" that is the real eye opener. "Fat Folks, Take Rose's Obesity Powders and Watch the Result ... $4.20 per dozen boxes." Herb laxative teas for 16 cents a box may be OK. Dr. Rose's Arsenic Complexion Wafers 35 cents a box may have few takers today. Vin Vitae for 69 cents ("Not a Medicine ... Not Merely a Tonic"). The "White Ribbon Secret Liquor Cure" went for $2.50 a box. The list goes on and does focus the mind.

At the celebration of the last millennium, the NY Times assembled various intellectuals and had each write a short essay on which century they would have preferred to live in and why.

I do not recall that any preferred the present century. The no-brainer response is, of course, to live in the present (preferably in the U.S., in my view) because the no-brainer "why" can be answered in just two words: medical science.

Progressives' Environmental Legacy

Fred L. Smith ("The Progressive Era's Derailment of Classical-Liberal Evolution" in The Freeman of June 2004)offers the most cogent summary I have seen lately of the problems that go with the environmentalist view and the politics it prompts. He concludes, "We must repair the impoverished state of our instititutional framework for addressing the environmental concerns that we all share. To fail in this task is to risk further losses to economic liberty. Eco-socialism is even more complex than traditional socialism. It will fail. Our challenge is to ensure that as this occurs, a free-market alternative is available and is understood. There is much work to do."

Smith reviews the policies of the Progressive era that set aside reliance on the accumulated common law of trespass and nuisance in favor of abridged property rights, statutory law and regulation. He notes that, at the time, this was quite acceptable as economic growth was a priority and environmental priorities secondary -- and much was simply misunderstood.

With Progressivism and the like, we put aside the evolutionary mechanisms whereby we had managed to innovate ways to bring what had been common properties into the exchange economy. Smith notes that underground oil rights were sorted out pre-Progressivism while underground water rights were not. "The result of those different treatments of comparable underground liquid resources is striking: The relatively scarce commodity (petroleum) has become ever-more abundant, while the relatively abundant commodity (water) has become ever scarcer."

Branding and Community

Economics textbooks (and lots of highbrow economics) bemoan the efficiency losses from "monopolistic" and "oligopolistic" industry organization. It is not until information asymmetries are examined that successful product differentiation is seen as having two sides: consumers are willing to pay for reputable goods and services and sellers can earn profits by maintaining that reputation. Both sides benefit.

Reviewing The Culting of Brands (by Douglas Atkin; WSJ 6/16), Daniel Akst notes that it often goes much further. Akst quotes Atkin: "People today pay for meaning more than they pray for it."

The reviewer notes that,"... Atkin has written an unusually readable book that focuses on how a cultlike devotion to products and brands arises from the human needs for belonging and satisfaction -- needs that may be especially acute in today's free-wheeling culture, in which ties to family, church, community and workplace are looser than ever. Cult brands such as Macintosh, answer some of these needs by helping people recognize who they are and form communities of their own kind. He observes that BMW motorcycle riders, whose cult is even more mysterious than that of Harley-Davidson, published a directory of 12,000 BMW owners ... willing to help other BMW owners who are hurt, lost or just have a flat tire far from home. This network is reminiscent of such fraternal groups as the Masons or Orthodox Jews who take in observant wayfarers on the Sabbath."

Again, what's not to like?

Cool Cities

In democracies, it is unlikely that governments (politicians) can actually live up to the ideal of doing few things and doing them well. The opposite usually occurs. Most big cities end up being badly managed and declining and/or loosing market share to powerful decentralizing forces.

Most big-city governments in the U.S. respond to their plight by committing to Economic Development campaigns, signing on special staff and really extending the reach of politics -- and, thereby, often making things worse. It is hard to find an Economic Development success. When areas do bounce back, it is often for reasons that have nothing to do with city hall's programs or it is after outlandish time and money have been invested. When advocates claim "success", it is never in cost-effectiveness terms. It's not their money, after all.

"Lonely Town Seeks Hip Young Professionals ... To Combat Brain Drain, Cities Boost Efforts to Court Graduates ... As college students and recent graduates ponder what to do next, a range of midsize and smaller cities -- and even some larger ones -- are launching new programs designed to lure them there ... Cleveland's program, which started last year, now offers 55 interns 10 weeks of living, working and schmoozing with civic leaders ... Other cities are looking into everything from building museums and art spaces to encouraging the development of loft apartments ... Michigan has even embarked on a statewide 'Cool Cities' initiative that hopes to remake overlooked communities into hip neighborhoods ..." reports yesterday's WSJ.

Very cool ... and much less boring than lowering taxes, cutting regulation, politics and bureaucracy (including the economic development staff), improving schools by offering choice to parents, etc.

Fat City

My colleague Harry Richardson is working on a piece on the sprawl-makes-you-fat silliness which he will call Fat City. People whom Tom Sowell likes to call "The Anointed" have never been happy with the choices that real people make, especially their lifestyle choices. So, these scholars throw caution (and all sensibility) to the wind and conjure attention-getting connections. Lawrence Frank of the University of British Columbia goes so far as to conclude that every extra minute spent commuting by auto makes us so much fatter. Wendell Cox (www.publicpurpose.com/pp77-fatubc.pdf) offers us a preview of this work.

I do my own research in this field on an almost daily basis. In Los Angeles, I notice that transit use also makes people (how can I say this?) un-svelte and, in growing proportions, it also makes them short!

I had once written off the field of commuting mode choice but am only now realizing that it is much deeper than I had ever thought.

Pessimists

Where do I line up to claim just $1 for every printed discussion of equitable distributions that focuses on statics and eschews the good news that comes from a dynamic analysis?

Donald Krueckeberg, writing in Housing Policy Debate ("The Lessons of John Locke or Hernando de Soto: What if Your Dreams Come True?"), offers an interesting summary of the Locke-deSoto position but worries that, "This theory lacks any criteria governing equity, limits, and balance." And (you guessed it) more homeownership in the U.S, would contribute to more, "urban sprawl and its inefficiency, waste, individual excesses and inequity in access to employment." (I have to quickly pull out David Brooks' "On Paradise Drive" if I want to balance the gloom that quotes like this bring on.)

Going back to yesterday's post, how is it that most Americans retain any optimisim? Are they fools? Or is Krueckeberg and company's focus on statics just plain misleading?

Optimism

On the heels of the week's discussions of Ronald Reagan's optimistic attitude, today's NY Times shows some of the evidence from a Pew Research Center 2002 international poll. Responding to the statement, "Success in life is pretty much determined outside our control," Americans were most likely to disagree. (Canadians and Japanese were among the few groups with a majority disagreeing; Britons were not, being apparently less optimistic than Venezuelans(!) but more optimistic than the French.)

Americans are more likely to aspire than to envy. This is why class-warfare politics is less successful here. Equality and liberty are less likely to be in conflict when people have reason to be optimistic about their future -- when they expect that their destiny is substantially under their control -- when they focus on dynamics and the future. Steve Hayward and Kevin Starr explain further in the thoughtful article.

In this setting, politics becomes less important and political participation is less attractive. The bad news is that interest groups are more likely to thrive when the rest of us have bigger fish to fry. There are always good news and bad news

Purchasing Power Parity

Over- or under- anything, such as overvalued or undervalued, evoke the old question: compared to what?

The Economist of May 29th asks: "How big is the world economy? That sounds like a straightforward question. Simply add up the size of the world's national economies would seem to be the obvious way to answer it. But how that is done yields radically different results, and therein lies a tale. The most commonly used method is to convert national economic outputs to a single measure, namely the American dollar, using the market exchange rates of all national currencies." Use purchasing power parity (PPP) conversions, instead, and the world economy grows from $36 trillion to $50 trillion.

Moreover, the Intergovernmental Panel on Climate change projects implausibly high future carbon emissions based on heroic growth assumptions for the poor countries -- and values their future GDP in U.S. dollars.

What to do? Trust market rates or PPP? No one has gotten rich using PPP as a guide to currency speculation. Do markets include knowledge (beliefs) that PPP misses? Apparently so; otherwise there would be no discussion.

The comparisons are, perhaps, interesting but it is unclear that are clear signals for personal or policy actions.

First Drafts of History

I am listening to Lady Margaret Thatcher's beautiful eulogy to Ronald Reagan as I post this.

A claim made for the Reagan legacy in recent weeks has been that he inspired resistors in the East bloc to stand up against Soviet power. This morning's column by Lech Walesa corroborates this important point: "Poles fought for their freedom for so many years that they hold in special esteem those who backed them in their struggle. Support was the test of friendship. President Reagan was such a friend. His policy of aiding democratic movements in Central and Eastern Europe in the dark days meant a lot to us. We knew he believed in a few simple principles such as human rights, democracy and civil society. He was convinced that the citizen is not the state but vice-versa, and that freedom is an innate right." This was supposed to be U.S. message all along but it was, apparently, a much more believable message during the Reagan years.

On the same page of the WSJ, Milton Friedman (who else?) does the obvious, correcting the pundits, who liked to point out that Reagan never did shrink the size of government, as he had promised. Separate defense spending from the rest and the federal government did shrink after 1984. There are two good reasons for making this simple point: i) extra defense spending in those years paid off handsomely; and ii) it is actually mandated by the Constitution, unlike much of the rest.

Outsourcing Eldercare

The dynamic U.S. economy continues to be a magnet for immigrants. The pluses and minuses of open borders will always be debated but there is no denying that this means that the U.S. labor force will not age as quickly as that of other advanced economies. This is no small advantage in light of all the fretting over how growing cohorts of the elderly will support themselves -- and how they will be supported.

Yet, international migration is a two-way street. Many U.S. social security recipients have already discovered the joys of taking their U.S. pensions and savings in some lower cost-of-living place. Calculators are available that give an inkling of the possibilities: move from Boston to Barcelona and cut your cost of living by 25%.

It's not for everyone (and it is not a political platform) but some of the pressures on our system can be alleviated as more people consider the options. Tomorrow's elderly will be more likely to have traveled abroad and many should be less averse to a new chapter of their lives in some semi-exotic place where they can kick up their standard of living.

Not only that but, as with most migrations, there will be economic gains at the origin as well as at the destination.

"Money, Sex and Happiness"

A brief discussion of the Blanchflower-Oswald NBER paper on "Money, Sex and Happiness" has been the WSJ's most downloaded for over a day. As far, as I can tell, the NY Times has not given it any coverage -- and if it had, would the sober Times readers have made it the #1 downloaded? (To be fair, last Sunday's NY Times reported on a survey by Men's Car magazine that concluded, "Porsche drivers get less action of a non-automotive kind than the drivers of VWs, BMWs, or even Volvos.")

Who says that contemporary economists overlook life's big questions? Blanchflower-Oswald process data from the National Opinion Research Center's General Social Surveys and find that (according to the WSJ piece), "going from having sex once a month to having it at least weekly is roughly equivalent to the amount of happiness an extra $50,000 of income would bring the average American. 'The effect of sex on happiness is statistically well-determined ... and large,' the authors conclude. 'This is true for males and females, and for those under and over the age of 40.'"

All of this goes to researchers' discussions of Revealed Preference vs Stated Preference as a good source of consumer information. The former is the traditional study of actual purchases; the latter is based on interview data -- and has been criticized as being less credible.

Consider that, at the margin, the study's findings imply that an extra episode is worth $1,300 - $1,400.

Ronald Reagan

Virginia Postrel's blog at Dynamist.com includes a perceptive memoriam and a few links to reflections on Ronald Reagan.

By being able to tap into much that is essentially and uniquely American, Reagan got elected and re-elected(usually by landslides) but also changed the course of history, mostly for the better. He did this in spite of the fact that his thoughts and values had been dismissed and denigrated by elite opinion, here and abroad.

Elite opinion is likely to be the last to get it -- and must now spend some weeks grappling with the Reagan legacy. At the looney left, you get the LA Times' Robert Scheer, describing "A Nice Guy's Nasty Policies". Others, invoke clear-eyed hindsight, and remind us that the USSR was weak, ready to fall, and did not need much of a push.

Yes, and who said so at the time? In those days, the further left on political the spectrum one went, the more likely it was that the view was that both sides are equally corrupt and that the wise policies were neutrality (the European left) or peaceful co-existence along with cultural exchanges (U.S. elite opinion).

It does not take much clear-eyed memory to appreciate the RR legacy.

Vermont

"National Trust Names State of Vermont One of America's 11 Most Endangered Historical Places". Why not? Dynamic Creative Destruction has given us unparalleled material wealth. And one vehicle has been innovative retailing, which includes "big box" stores and Wal-Mart.

The hard part is: how would statewide land use planning actually work? All land use decisions can be described as including some "externalities". So, everyone has standing to challenge any and all land use plans? This simply politicizes these plans -- moreso than they already are.

In a world of private communities, the Wal-Marts would deal directly with the neighborhood association. They would arrive at a deal that is acceptable to both sides. Yes, there are still (inevitably) association politics but standing in the dispute would not extend over the whole state.

Either-Or Choices

Dan Klein asked What Do Economists Contribute? Good question. Can applied economics affect the public policy discussion? Only if economists make it a point to address the "everyman".

Bjorn Lomborg (with support from The Economist) has assembled eight economist luminaries together in the Copenhagen Project to rank-order policy initiatives -- if $50 billion were available. The ranking puts disease control (HIV/AIDS), micronutrients (to limit malnutrition) trade liberalization and the control of malaria first. Global warming policies are all last.

Predictably, critics scorn the exercise as getting us involved in "either-or" choices. As they say: "Hello!"

Micropolis

According to this morning's WSJ ("New Outposts ... Granbury, Texas, Isn't a Rural Town: It's a 'Micropolis' ... Census Bureau Adopts Term For Main Street America, And Marketers Take Note ... Beans, Ribs and Starbucks"), census data are now compiled by geographic units that reflect the Great Dispersal.

The days of "downtown vs the suburbs" are long gone. Aside from a few assorted boutique downtown districts, ever more investors and households are now choosing between suburban, exurban and rural settings.

The new spatial definitions ought to make it possible for social scientists to catch up.

Scholarship and Clarity

UC Berkeley's Prof Mel Webber just keeps getting better. His editorial in Access, "Spread-City Everywhere", is the most concise summary of urban development trends that I have seen. My May 5 post offered some supporting data and the evidence keeps accumulating. Yet, as per yesterday's post, mounting evidence and conventional wisdoms can remain far apart for long periods. And it matters. We live in a world where hugely expensive policy mistakes are made in the service of serious misunderstandings.

What to do? Keep clarifying, just as Mel Webber has just done.

Doomsday Once More

Ronald Baily ("What Doom Will Look Like This Time Around") offers an interesting review of "One with Nineveh" by Paul and Anne Ehrlich. This time, they warn about the dire consequences of global warming.

Baily notes: "In the Ehrlich's simplistic summary, environmental Impact equals Population x Affluence x Technology, the notorious I = PAT identity. Impact is, of course, always negative. One notes that the three factors aren't merely added togther, their allegedly deleterious effects are multiplied."

I confess that I started some of the Ehrlich books but could not finish any of them. So, I may be (may be)missing something, but Paul Ehrlich's doomsday forecast track record is well known. He has even lost real money, betting against the late Julian Simon. Simon later wrote that the idea of cash bets was a sign of his own exasperation. Poor Julian has passed on and would probably be exasperated all over again. Doomsday tomes are likely to be with us for some time because there is a tremendous demand for them. Why?

I can only speculate:

1. Some people have a puritanical nature and expect that they will have to pay for their material comforts.
2. Others may be uncomfortable with (or suspicious of) the fruits of market successes but are attracted to Kyoto-style economic planning.
3. With the demise of socialism, many may have intellectual capital on hand which they would rather use than discard.

Perhaps it's all inevitable human nature.

Saddest is the occasional comment from a reputable scientist to the effect that hyperbole is OK when the stakes are so large. So, where's the science?

Externalities Everywhere

Real live politicians continue to outdo late-night comics and their writers -- not to speak of George Orwell, wherever he may be. The Guardian of May 26 reports the following:

"The good news for Singapore's army of clandestine chewers: gum is going on sale legally for the first time in 12 years. The bad news: if you want some, you will have to register as a gum user and show an identity card every time you buy a packet. ... Nineteen 'medicinal' brands of gum such as Nicorette will now be available as part of a free trade agreement with America, but only on strict tightly-policed conditions. Anyone found trading illicitly will risk two years in jail, and a $S5,000 (1,650 Sterling) fine."

The article goes on to mention unsightly splats of disposed gum on sidewalks, etc.

Externalities (and antidotes) everywhere.

Tort Costs

The Financial Times of May 28 (sorry, I cannot link without agreeing to a 15-day trial subscription) reports on international comparisons of tort costs as percent of GDP. They are:

Denmark 0.4
UK 0.6
France 0.8
Canada 0.8
Japan 0.8
Switzerland 0.9
Spain 1.0
Australia 1.1
Belgium 1.1
Germany 1.3
Italy 1.7
U.S. 1.9

Depending on how one counts, we are the champions.

What explains the differences? Is it culture? Is it economics? Can we ever know?

America's lack of a loser-pays (contingency fee) system has been thought to be one cause of the problem. Defenders of our system argue that it is the best way to level the playing field.

Interestingly, the U.K. is the favorite example of loser-pays, the EU countries are thought to be closer to the U.K. and Australia's is an amalgam of U.S. and U.K. approaches. Jane Stapleton gives many more details.

The FT data do show that the U.K. and the U.S. are at opposite poles and that Australia is about half-way between them.

Bigger samples and we can get beyond the anecdotal. Good international cross-sectional comparisons are still the way to go.

Easy Bets

One easy way to win bets with Europeans (or other takers) is to insist that the latest goofy U.S. trend will soon be taken up by the Europeans. Obesity is the subject of the current hand-wringing. The U.S. is no longer the only place on Earth where the rich are thin and the poor are fat.

The European papers are full of solutions. Ban fat people from restaurants? It is seen by some as the logical extension of banning smokers from bars. Talk about slippery slopes! Many English are concenred( embarrassed) that the Irish did it first.

In a recent satire piece in the WSJ, P.J. O'Rourke speculated on the many benefits of the U.S. recusing itself from the world (Iraq, the UN, etc.). He concluded with the thought that they would like us again; they would line up to see our films, buy or magazines, watch our TV shows (or copy them).

Actually, we export; they import. Trade surplus!

Three Hypotheses

Well done international cross-sectional comparisons (even better if via panels of data) are cropping up more and more often. There will be many more of these as the data improve. For the social sciences, this is the way to go. The influences of culture and policies can be more sharply identified if such studies are done well. Giuliano and Narayan recently did exactly that to show that UK and US personal travel choices are more similar than dissimilar.

Can it be that culture and politics take a back seat to people's preferences? That the latter are remarkably similar over the world? That markets everywhere respond and cater to these?

Visit the suburbs of European cities, not their touristy centers (Disneylands for adults). Absent better measures, consider that shopping,living and playing are much more similar than dissimilar.

One day we'll measure the extent of similarity. It is a good bet that the three hypotheses will stand up.

Cynics and Exploiters

University presidents are most sanctimonious and hypocritical when it comes to college athletics. It is well known that the big schools/programs raise huge sums while participating in a legally sanctioned cartel (the NCAA) that exploits some very poor people.

In fact, this episode is one that legitimately earns the label "exploitation", a term that is widely used but seldom so applicable.

The new NCAA President, Myles Brand, is a former university president and he explains all of this much better than I can. His words are cited in a piece in today's WSJ by Stefan Fatsis, who notes that Dr. Brand refers to critics as "self-anointed radical reformers and incorrigble cynics." Yup. It's very hard not to be cynical when colleges take in billions but hide behind sweetheart-deal exemptions from anti-trust rules that assure that the workers get almost nothing, rarely even a college education.

The real exploitation occurs when lawmakers regulate this way.

Light blogging while I am traveling. But, you never know.

More Democratization of Luxury

Dramatic productivity improvements have been translating into significant human welfare improvements for the last several hundred years. As the trend accelerates (not just in the U.S.), some have noted the Democratization of Luxury. Cox and Alm document much of it and Virginia Postrel finds it in ever more examples of improved product design.

My colleague Berokh Khoshnevis is close to developing usable robots that can build homes. He notes that construction is the last major industry to be untouched by modern production methods. His work will soon change that.

Not only will construction costs fall dramatically (Berokh envisions building a home in a day) but the design options available to most of us will also expand significantly. Both are auspicious.

This morning's LA Times includes a wonderful essay by Cara Mullio and Jennifer Volland about the Killingsworth home in Long Beach, California. Homes like this (and many others not even imagined yet) will soon be available to most of us.

Capital Markets, the Web, Human Well-Offness and ButtKickers

This morning's LA Times includes "Answer to the fuel crisis (maybe) can be all yours ... The rights to a motor conversion technology are for sale on Ebay. No minimum bid -- but it does need some work ... Would you like to own the rights to technology that will free this planet from having to rely on oil -- foreign or domestic? It's for sale! On EBay!"

Why not? Buy and sell intellectual property rights on the Web and cut out some more middlemen. Actually, middlemen and other specialists will always be on hand where they can add value. It's just that their fees will now be facing new pressures.

Anything that reduces barriers between investors and inventors is to be welcomed.

Speaking of an improved quality of life, the WSJ's Walter Mossberg writes about the ButtKicker: "A Killer Amp --for Your Desk Chair ... Device Attaches to a Seat To Let Users Literally Feel The Vibes of Music, Games ... Is this a Great country or what? Thanks to technology, you soon will be able to not only hear your favorite music and the sound effects of videogames, but to actually feel these sounds, and not just in your heart and soul."

In a busy shared office space, these would go well with the headphones.

Consumer Sovereignty

Reading "Neither TiVo nor the Xbox nor your Wi-Fi-ed laptop is remaking American culture the way this thing is ... Bet on it ... The Tug of Newfangled Slot Machines" by Gary Rivlin made me accept the premise. Slot machine revenues are way beyond porn's and bigger than McDonald's, Wendy's, Burger King and Starbuck's combined.

These are the new high-tech kind, enhanced with specially made video entertainment clips (Dick Clark's is big), programmable to dribble out winnings at an optimal rate to keep players playing even as they slowly lose -- and with a stylized old-slots look, complete with wheels, beeps and chimes that maintains the "feel" that players like. Rivlin's piece suggests that these devices have the same hold on the beyond-60s set that video games have on younger people.

"The makers of slot machines may rely on the lure of life-changing jackpots to attract customers but the machines' ability to hook so deeply into a player's cerebral cortex derives from the more powerful human feedback mechanisms, a phenomenon behavioral scientists call infrequent random enforcement, or 'intermittent reward' ... 'The slot machine is brilliantly designed from a behavioral psychology perspective,' says Nancy Perry, a professor of psychiatry at the University of Connecticut School of Medicine ..."

Rivlin's coverage mentions no cognitive scientists among the creators. There is a mathematician that helps to fine tune the odds but the creative side is all industry types. They somehow get it right without PhDs. It's their business and that's what profit-inspired competition routinely does.

I simply must compare all this to the white elephants alluded to in yesterday's blog which are failures because their creators have no clue about what people want. How can they? No competition, no profit and only specialized knowledge of what people should want.

Social Engineering is Hard Work

The ten-year anniversary of the opening of the Chunnel, reports Christian Wolmar, goes unheralded because it has been an underperforming disappointment.

Let's see. People cannot drive through it (they can "transfer" cars onto and off shuttles and they can ride the Eurostar train) and airline deregulation in Europe has dropped cross-Channel airfares. My London-Berlin flight last year cost $25 (and $35 to have the ticket express mailed to LA). And this is Europe where gasoline prices are much higher than anything Americans have seen.

What do planners in Los Angeles want to build? High-speed rail to remote airports and high-speed rail to compete with north-south intrastate air and auto travel.

Just like the Chunnel, the price tags quoted are in the billions, almost all local planners and politicians are on-board. The proposals are seen as good ways to "get people out of their cars."

Tough Mom Needed

The NY Times comments on Mercedes' slip in quality rankings, along with the same occurring for other German classic brands. The story also remarks that new EU rules may nix the Made in Germany label, in favor of the new Made in the EU. Economic integration may be a good idea but the EU example presents problems -- including an ugly currency replacing some much more intriguing designs.

The Economist also chimes in with respect to Germany's economic problems and the slow pace of labor market reforms. Writing about an important reform commission: " ... The Hartz Commission, established to reform the labour market and create new jobs, has sociologists on board but not a single economist."

Economists aside, is there a Margaret Thatcher in Germany's future? It took a very tough lady to change Great Britain's course. Germany's troubles require no less. Mother's Day is a good time to start the search

Postscript to yesterday's blog. Anna Schwartz adds that an important part of the story is Friedman's steady work as a popularizer of important ideas.

Ideas Matter

Milton Friedman reiterates his own changed view of the Fed -- because it has changed -- because economic thinking has changed -- because Friedman-Schwartz showed the way. All of this from Friedman's Reflections in the recent Cato restrospective, A Monetary History of the US: After 40 Years. From Friedman's brief opening essay:

"In an April 15, 1988 WSJ op-ed, I wrote, 'No major institution in the U.S. has so poor a record of performance over so long a period as the Federal Reserve, yet so high a public recognition.' That conclusion was, I believe, amply justified by our book and experience in the quarter century after its publication. Fortunately, as I wrote in a WSJ op-ed of August 19, 2003 ('The Fed's Thermostat'), it no longer is."

"Since the mid-1980s, central banks around the world have reacted to the mounting evidence of monetary research by accepting the view that their basic responsibility is to produce price stability. More important, they have succeeded to a remarkable extent as they have discovered that far from being a trade-off between price stability and monetary stability, they are mutually supporting. The variability of prices is less by an order of magnitude since the mid-1980s than it was before, not only in the U.S., but also in New Zealand (the first country to adopt an explicit inflation target), Great Britain, Euroland, Japan and elsewhere."

Ideas matter and good ideas have a way of being heard. It may take time but it is powerful.

Virtuous Cycles

There is increasing evidence that property rights are the most important basis of economic development. Surprise. Solow's 1956 paper still gets a lot of play but my undergrads are consistently reminded that technological advance does not descend on us spontaneously.

Indeed, there is increasing evidence for a virtuous cycle, whereby prosperity and property rights reinforce each other and co-evolve. This is probably the best explanation for our long-term increasing affluence, longevity, etc. The latest Cato Journal features yet another contribution to these ideas, by Bernard Heitger.

And the news is even better. The latest Journal of Economic Literature includes a survey by Brian Copeland and M. Scott Taylor which demonstrates that we also get more concern and care for the environment along the way. Higher incomes are also good for the environment.

What's not to like?

Productivity

The latest productivity readings (for the first quarter) look very good. When economists speak of "the fundamentals", this one has to be very near the top. We also enjoy a system where the fruits of these advances are quickly brought to market and the benefits disseminated to workers, investors and consumers. This is on top of the underlying good news that we live in a world where creativity and risk-taking are on the move.

There are always two "jokers" involved when one attempts to connect good news like this with rosy forecasts. They are the international scene and the oddball policies that politicians might come up.

It is, therefore, all the more remarkable that economic progress continues. The underlying economy is much stronger than the data show. We get over 5% of annual productivity growth in a system that has to discount the two jokers.

Livable Cities

Livable Cities are all the rage among planners. There are even lists of such places.

Consider that the top-ten U.S. counties in terms of adding most private sector jobs in 1991-2001 were Maricopa (AZ), Harris (TX), Dallas (TX), Clark (NV), Los Angeles (CA), Orange (CA), San Diego (CA), Cook (IL), Santa Clara (CA) and New York (NY). Not surprisingly, there is very little overlap between these (and the next 20) and the 30 "most livable". (Admittedly the jobs data are for counties, not cities, but the point holds.) Perhaps economic opportunity is no big deal for the list makers.

The most livable are described this way: "Each of this year's 30 Most Livable Communities have developed innovative approaches to prepare for the New Economy through creative strategies, actions, and visions of their leadership."

Is it any wonder that the two lists are distinct?

Growth

Pay me now or pay me later, (actually, "Pay Taxes, Be Happy") suggests Dan Akst in the NY Times. He is referring to federal deficits and unfunded liabilities with Medicare and Medicaid being the biggest worries. The policy options have been discussed for some time. Higher taxes, lower benefits, "reform" (which these days is the label of choice for all sorts of fixes, many of them not so good), or some combination of these.

So, can we "grow our way" out of these deficits? U.S. economic productivity over the last half century has approximately doubled. There are the usual measurement problems but the Cox-Alm data strongly suggest that material well-offness has better than doubled in that time. This performance has been in spite of politics as unusual as the scope and size of government has grown significantly.

No one can predict the future (goes the cliche) but we do all the time. We have no choice. We cannot "know" performance over the next fifty years (the stretch of many doomsday scenarios) but given the choice of a bet on slower growth vs faster growth, I would pick the latter.

Individuals' planning is over a shorter span and this rosy scenario may have limited relevance. Yet, societies do have a longer horizon and doomsday scenarios must be put into long-term perspective. Accelerating productivity is likely as is the relaxation of economic growth "speed limits". This sort of talk occurred in the late 1990s and is now in bad repute. Yet the recent recession was mild. We are all the time too preoccupied with recent events.

Industrial Policy

Industrial Policy has been post-Berlin Wall code for all sorts of government involvements in the economy. When the Japanese economy was doing well in the 1980s, socialists clung to IP, making much of the example of Japan's MITI, even though socialists had just experienced a bad decade (or century).

Much less was heard about the merits of IP when Japan's economy floundered in the 1990s. In fact, the term IP is not much used in the US anymore but, of course, its essence is all around us.

Some of our most regulated markets are land and housing in cities. Land use and land improvement is routinely thought to be the province of local (or state) governments -- which are thought to be implementing some sort of master plan. The nomenclature resonates with just enough people who put normal skepticism aside -- or who may see an opportunity for gain. This is why IP is simply the politicization of markets -- with all of the attendant problems.

Put Eminent Domain Abuse through Google and thousands of sites come up. Most depict episodes that restrict property rights, limit liberties, diminish market efficiency and raise serious equity concerns. What's not to dislike?

Can there be eminent domain without eminent domain abuse. Perhaps not. Bruce Benson has argued that holdout problems are not, by themselves, potent enough to warrant eminent domain powers. Perhaps the only way to limit eminent domain abuse is to jettison eminent domain.

Footprints and Brainwaves

I suppose it is possible to link education and affluence with a secular view and to link the latter with a weakness for environemtalist hokum. How else to explain Santa Monicans spending a pleasant Saturday afternoon at a public event that touts "The Ecological Footprint"? Visitors are taught how to calculate the amount of earthly space their consumption habits account for, multiply that by a growing population and contrast the product with the available space on earth. Any thought of subsitutions (in consumption or in production), especially those prompted by scarcity signals (or any thought of the role of technological change), is just not there. In fact, beyond multiplication, there is little discernable thinking at all in play.

The newspaper coverage goes along and reports that, "the 8.3-square-mile city has a footprint of 2,747 square miles, ... a swath that would take in most of California ... but the city announced last month that it had shrunk its footprint by 5.7% between 1990 and 2000."

Transportation Policy

A case can be made that the US has no urban transportation policy worthy of the name. Roads and parking are, for the most part, not priced rationally -- with predictable results. Public transit is seen as a jobs program -- also with predictable results. Cities regulate taxis, creating legally sanctioned monopolies -- also with the predictable results that service is expensive and poor and that city coffers and wealthy owners make monopoly profits.

The Economist reports the New York City story: "Higher fares for an unfair racket ... If a city goes to the bother of regulating its taxi industry, it should presumably have the interest of residents at heart. How, then, to explain the system in New York? It benefits neither passengers nor drivers. Instead, most of the proceeds flow to a third group of 'medallion holders' -- the people who own the aluminum badges that give a taxi the right to pick up passengers on the street. The going rate for a medallion is now about $300,000, so they are usually owned by investment companies, investors or partnerships rather than the driver.

"These monopoly franchise rights were granted back in the Depression, when then notion of using rationing to fight deflation seemed like a good idea. In 1937, 11,787 cab licenses were handed out at $10 each. Remarkably, no more medallions were handed out until 1996 when the city desperate for money (again), sold off another 400 ..."

Why does anyone expect politicized systems to do any better?

More Great Dispersal

Americans (and others) have been getting older, richer and more technologically enhanced -- all of these more rapidly than ever -- for some years now. Social scientists have more and better data, more powerful hardware, fancier software, and occasionally, better theory. But can we keep up? Natural scientists also have better tools but their subject matter (with notable biological exceptions) does not change. Certainly not as rapidly.

Much of what is interesting occurs in cities -- and is shaped by them as it, in turn, shapes them -- but even the "city" label is quaint. People are settling in ways and places that require new labels. The National Household Travel Survey copes with the Great Dispersal by placing all of us in either "urban", "second city", "suburban", "town: or "rural" places.

Comparing the 2001 NHTS with its predecessor (1995) NPTS, we see that trip times have been increasing, across the board (all places, all trip purposes). This is news because similar increases had not been apparent in comparisons over previous survey years. How have people coped? Predictably, they traveled less, across the board. Elasticities range from -0.7 to just less than -1.0. This is not a ceteris paribus comparison and we must be careful.

Is this a bad news or a good news story? A good news take suggests that cheaper communications help many of us avoid more expensive travel. But, are we better off? Social science is hard work.

Great Dispersal (contd.)

More and more professional sports teams in the U.S. now take on the names of their home state rather that their home town. I believe that the California Angels were the first, although they are now the Anaheim Angels, as that place has achieved some name recognition. Nevertheless, the Arizona Cardinals and the Colorado Rockies and Florida Marlins and many others are located in places that are suburban/exurban enough that a state identification makes sense -- part of the Great Dispersal.

David Brooks' appellation supersedes Joel Garreau's Edge Cities because there is now dispersal away from these, with smaller new sub-centers emerging in essentially unpredictable patterns.

Great Dispersal evidence is all around, including the demise of the idea of one old downtown "Chinatown". Rather, "For Asians in U.S., Mini-Chinatowns Sprout in Suburbia" as discussed in today's WSJ. The story notes, "Rice-loving shoppers from the suburbs are driving to about 70 stand-alone Asian shopping centers on the coasts -- not only in NY and LA, but Seattle, Baltimore and Miami -- and about 50 in such mid-American cities as Denver, Minneapolis and Phoenix."

Evolving lifestyle trends have overwhelmed planners' plodding discussions about how to contain and manage all of this. And they call their task "Smart Growth".

Homeownership and Immigration

U.S. homeownership rates are higher than ever. Interest rates are low and the economy is not as "bad" as the CBS Evening News and other media like to stress.

Moreover, homeownership rates are highest among naturalized immigrants. "Blacks, Asian and Pacific Islanders, and Hispanics who immigrate to the U.S. and become citizens are more likely to own homes than members of the same ethnic group born in this country ...," reports the State Dept.

The "immigration debate" has been complicated by all sorts of domestic and international politics. Yet, a simple barometer of what naturalized immigrants do for the U.S. -- and what the U.S. does for them -- is very clear. And yet much too rarely cited.

Evolving Variances

Asking, "Can Drug-Free Baseball Stars Smash Records?", Stephen Metcalf evokes Stephen J. Gould's "Why No One Hits .400 Anymore." Again, it takes good questions to provoke good discussions. Gould paid attention to changes in variances and came up with a good story. Not only are offensive and defensive abilities, on average, both improving but there are reasons to think that variances are getting smaller and fewer outliers are to be expected.

In most social science and related discussions, it is natural to focus on trends in mean values. Much less investigation is focused on whether variances have evolved in interesting ways.

Anomalous prices have shorter life spans in the global economy. But, this means there are more and better reasons to avoid price competition and product differentiate if at all possible. But quality advantages will be more easily emulated.

Evolving means are the staple of any and all statistical absracts. In a better world, we would also be looking at data on evolving variances. These data exist but are seldom published.

Tax Everyone Else

Monty Python used to suggest taxing all foreigners living abroad. Great parody.

The LA Times comes close with this Sunday's headline story "Most in State Expect Some Tax Increases". They report: "The poll found that the public strongly favors increasing taxes in at least several areas. Nearly four out of five Californians back higher taxes on cigarettes and by the same ratio, alcoholic beverages. An overwhelming 69% support raising income taxes on the wealthy."

The wonderfully open-ended question on the last item asked respondents if they would support, "Raising the state income tax rates for the highest-income residents."

Great unintended self-parody.

Internet Shopping

Traditional shopping at stores is down and internet shopping is up, just as we would expect despite all of the tut-tutting by dot.com "bubble" schadenfreude enthusiasts. It is only the beginning because people comfortable with electronics are replacing older people with little or no experience with them -- and this is happening worldwide. So, keep buying those internet stocks. Even better, figure out which the next eBay will be.

Virginia Postrel's NY Times discussion of recent MIT research makes the point that it is the huge increase in choice, not just more price competition, that is the real draw. Just looking at some of Amazon's sales, the researchers found that shoppers' consumer surplus (the difference between the maximum that people would have paid rather than do without and what they actually paid) was augmented by variety as well as lower prices. But, it was mostly variety. Postrel noted that Amazon's tag line is "world's biggest bookstore", not world's lowest prices.

No one is predicting the end of traditional shopping. Traditional bookstores are still a good place to browse, have coffee, and feel civilized and social. Many bookstores have wisely added a coffee bar and will evolve in other ways to stay in the game.

It is a near certainty that almost everyone on the planet gets it and wants to live in a market economy. Many are not given the option because they are oppressed by kleptocrats and worse. Others are blinded by ideologies (and hatreds) that wrongly stress that it's a zero-sum world.

The Price of Peace

The Economist alludes again to the Copenhagen Consensus project, the joint enterprise between it and Denmark's Environmental Assessment Institute. The effort appears to be an uninhibited application of cost-benefit analysis to the world's biggest problems. Among these are the horrific civil wars in some of the world's poorest places, averaging losses (all things considered, including the dollar value of lives lost) of $128 billion per year.

What to do? By a wide margin, the study's authors conclude, the most efficient policy is "military intervention by a foreign power."

Economic analysis, by definition, leaves out many considerations. And in the year of Iraq and elections, the infeasibility of the prescribed policy may be underscored.

Yet, in hindsight, reasonable people seem to agree that the Rwanda genocide was preventable and should have been prevented. In a better world, this discussion would take place first, way ahead of the ones that otherwise preoccupy most of us.

Cost-Effective Rail Transit?

Large-rail U.S. cities, notably New York City, have more transit riders than the others. People using transit also tend to own fewer autos and have lower out-of-pocket commuting costs. This is a large part of the argument made in Todd Littman's Comprehensive Evaluation of Rail Transit Benefits.

Yet, most people around the world overwhelmingly prefer personal transportation. This is why autos are a big hit everywhere. This is also why transit's share of U.S. commuting in the U.S. fell from 12% in 1960 to less than 5% in 2000 -- in spite of hundreds of billions of dollars of public subsidies over these same years. (Wendell Cox has assembled the relevant evidence and made it easily accessible.)

People (unlike some researchers) understand the trade-offs. They gladly spend more cash in return for the time savings -- and all of the satisfactions of personal transport.

This is all perfectly obvious. It is when "rail investments" are presented as cost-effective that the litany bears repeating.

By all means, tax auto use for any and all external costs. This is now easy to implement. Yet, unimaginative politicians in the U.S. cannot make the leap and expect (hope) that more rail transit will "get people out of their cars."

Studies like Littman's are available to rationalize this continuing public policy failure.

"The Great Dispersal"

David Brooks may have given the current suburbanization-exurbanization the label that sticks. Many of us have been documenting suburbanization-exurbanization for some years. It is the continuation, indeed acceleration, of longstanding and entirely plausible economic, demographic and social trends.

Ken Orski notes, "Nor is the exurban dispersal likely to lose strength anytime soon. The biggest factor influencing future population movements is the projected addition of some 64 million people by 2020. It is hard to conceive that this population bulge could be accommodated in existing built-up areas where neighborhood opposition to increased density through infill developments is already fierce. Future historians are likely to view the 'smart growth' movement as yet another example of a planning ideology that has foundered for lack of a realistic understanding of the power of demographic pressure, market forces and consumer preferences."

When ideologies are confronted with stark facts (in this case a ton of them), the ideologues work overtime to protect their human capital. Watch for "smart growth" to be taught and advocated for many more years.

The Real Monopoly

Economics textbooks, even many of the newer ones, still have the circa 1930s chapter about monopolies and anti-trust. Very few of them include concerns about politicizing the size-distribution of firms and/or losing the one that markets generate. Even fewer go so far as to suggest that the real source of monopoly power is the law -- and politics. In other chapters, these same texts extol regulation as a source of consumer safety.

Market critics add the occasional complaint about the lack of choice. (Too few low-mileage SUVs; too little low-income housing with an ocean view, etc.)

In Entrepreneurship Gets Slaughtered, Jonathan Turley offers an account that belongs in the textbooks:

"Creekstone Farms is a little slaughterhouse in Kansas with an idea that would have had Adam Smith's mouth watering. Faced with consumers who remain skittish over mad cow disease -- especially in Japan -- Creekstone decided that all its beef would be tested for mad cow, a radical departure from the random testing done by other companies. It was a case study in free-market meatpacking entrepreneurship. That is until the Bush Administration's Department of Agriculture blocked the enterprise at the behest of Creekstone's competitors ... Creekstone invested $500,000 to build the first mad cow testing lab in a U.S. slaughterhouse and hired chemists and biologists to staff the operation. The only thing needed was testing kits. That's where the company ran into trouble. By law, the Department of Agriculture controls sale of the kits, and refused to sell Creekstone enough to test all its cows. The USDA said that allowing even a small meatpacking company like Creekstone to test every cow it slaughtered would undermine the agency's official position that random testing was scientifically adequate to assure safety. ... The rest of the meatpacking industry was adamantly opposed to such testing, which is expensive, and had no desire to compete with Creekstone's fully certified beef."

Makes perfect sense -- in Washington DC.

Read on and it gets worse. This is not the Upton Sinclair meatpacking morality tale that has made it into American folklore.

Second Homes

More Americans than ever are buying or considering buying second homes. Increasing wealth and an aging population will do that. Recent estimates put the number of second homes in the U.S. at 7 million -- over 5 percent of the U.S. housing stock. Precise definitions do not yet exist; some people like the label "vacation homes" and it is unclear what occupancy characteristics define a second home.

Investors may want to consider the most likely locations of the next wave of second home development. The mountain states are a good bet, providing open spaces and recreational opportunities. Access to remote places will also improve as the airline industry continues to grow specialized niche carriers and services. Expanded broadband access will also make a difference.

Two or more cars per household in the U.S. were a luxury half a century ago and are common now. Two homes per household as a household staple is not far off.

The Nanny State(s)

Thinking about relocating to another state? The internet is your friend. Go to www.acinet.org to see what job prospects are like. There is even a link to help arrivals get licensed in order to practice in various professions.

It is possible to search by state or by occupation. I only looked at California's long list which includes barbers, manicurists, matchmakers -- and matchmakers' assistants. Each state of the union showcases its own peculiar nuttiness.

Licensing is often defended as a way for consumers to cut search costs. Or, elites like to remind us, most people are not equipped to make good choices.

These arguments are trumped by the actual lists of occupations with barriers. There is a demand for licensing but it comes from those eager to limit the competition -- and their political enablers.

Starpower in Government

The BBC's online market on celebrity (fame) futures does not (yet) include trades involving California's governor.

Arnold's recent successes in Sacramento should convince the remaining skeptics that traditional politicians are easily outclassed by cross-overs with starpower. And once trading in Arnold's popularity (at the BBC site or wherever) gets serious, old-fashioned political punditry will also take a hit.

Just when we thought that clumsy term-limits were the only way to curb the powers of incumbency, there is new hope. Old fashioned Sacramento politicos are no match for our Governator. To those who rue the demise of the professional political class, the best available answers used to involve references to the historical example of part-time pro bono political service. But that's all past. The new argument is that the oldies will not hold their own against celebrity cross-overs. Its no longer a discussion because it's now inevitable.

Will celebrity-politicians also become entrenched? Hard to say. The good news is that they generally hate to be seen in public once they age -- Reagan notwithstanding.

The Democratization of Taste

Today's WSJ includes a column about IKEA, sometimes blocked by NIMBYs, but increasingly a staple of Bobo (apologies to David Brooks) life.

Much has been made of the "democratization of luxury", the fact that middle class Americans now live better than the wealthiest did not so long ago (think medical science if there is any doubt). It seems that the democratization of taste is not far beyond; IKEA (and many others) have emerged to help the newly affluent to adapt to (and make the best of) their new status.

More, perhaps, than even the most optimistic market enthusiasts had ever dreamed.

World Poverty

The discussion of the degree of progress against world poverty in The Economist continues. For those who do not specialize in this field, the presentations have been enlightening. In this week's issue, the World Bank's Martin Ravallion replies to the coverage that the magazine ran on March 13. The two "sides" of the discussion, using different measures, do not disagree that world poverty is falling. They do highlight different methods of measuring and the degree of improvement. Ravallion points out that most of the world's progress is due to improvements in China.

This is no small thing. There could not be a more auspicious demonstration effect. India's progress is probably on China's heels and will only enlarge the demonstration effect. For all of the bad news about the world, this is great stuff.

The news will one day reach the overpopulation pessimists. If so, they may have to go the next step and realize that poverty comes from poor policies. The point about the power of receding statism could not be made more spectacularly than via the example of the world's two most populous countries.

Niches and Freedom

Tyler Cowan, recently writing in Forbes about high and low culture, evokes the idea of plenitude. High vs. low is irrelevant when contrasted with the large range of choices now available so widely to so many.

The most auspicious questions of this season revolve around the international role and actions of the U.S. They are described as promoting democracy, liberty and freedom. While there is an interesting discussion going on among scholars about how and why political freedom and economic freedom can or should be coincident, it is safe to say that powerful evidence for the integrity of individuals being recognized and respected is the plenitude of material choices that free markets offer them.

It is profound but not acknowledged in polite (political) company.

Not Bowling Alone

Assessing our stock of social capital, Robert Putnam famously concluded that we are essentially Bowling Alone. He was especially tough on "urban sprawl", blaming it for longer commutes and, therefore greater isolation as more people spend more time alone on the road in their single-occupant vehicles.

Recent research suggests that Putnam was wrong about the sprawl-commuting connection. So many jobs also relocate to the suburbs that many suburbanites actually have jobs nearby.

What about the rest of our interactions? Casual observation reveals that most of us are connected via cel phones and other wireless communications, much more than ever. Look at the recent performance of wireless stock funds if there is any doubt.

But, what about real person-to-person interactions? Are electronic links complements or substitutes for the real thing? The Federal Highway Administration's travel surveys (NPTS and NHTS) for 1995 and 2001 provide some of the answers. Trip rates per person per day (all trip purposes) are up. They are up most significantly for higher-income people -- but there were more of these in 1995 than in 2001 as more people moved into higher brackets.

Of all the categories of trip-making, the non-work trip types were shopping (down very slightly, across the board), "other family and personal" (down some, also across the board), "school and church" (mostly up), "doctor and dentist visits" (mostly up for a mostly older and richer population), vacations (up for most income brackets), "visits to friends and relatives" (down for the low-income groups; up for others). This leaves all "other social and recreational" which were up the most -- for most income groups.

It seems that there is more good news than bad. We may be tethered to our electronics but we also get out more --and do stuff, often with others. It takes all those cel calls to set up all those play dates.

Well Offness

Is social science an oxymoron? History will tell. To date, it is hard to make the call. Can the well-offness of the population be calibrated with any precision? GDP and national income accounts have taken their lumps but, at least, they use endogenous and plausible weights (market prices; it is still unclear what Soviet GDP stats were -- nor how serious people could take them seriously).

We now have all sorts of new indices of human welfare. The newest, reported in this morning's NY Times Magazine by Ann Hulbert, is the Brookings Child Well-Being Index (C.W.I). Hulbert questions how in the world all of the C.W.I. components (more obesity, less teenage pregnancy, etc.) can be weighted equally?

Equal weights are a sign of maximum uncertainty. How about this as an interim rule: If one is ever prompted to create a new index, forget about it if equal weights are all that are available.

Voting With Feet

Arguably the most important contribution to urban economics was by Charles Tiebout in 1956. Challenging the idea that "public goods" are a source of "market failure", Tiebout pointed out that there are, in fact, markets for local public goods. People shop for the packages they like best when selecting a place to live. This amounts to a "quasi-market", imparting demand signals to local governments.

The theory has been elaborated in recent years by economists Bill Fischel, Fred Foldvary and Robert Nelson, among others. We now know that demands for public goods show up in land value differences. Local school quality is one such auspicious market. Moreover, if it is a private community, developers benefit from market signals (and returns) when planning the best land use arrangements.

Whether a private community or a small city, leaders are most responsive to the wishes of homeowners who look to them to create the rules that protect home value, most people's biggest tangible asset.

So far, so good. What happens when big-city leaders try to fill the same role? Shades of Inglewood: San Francisco politicians now want to keep chain stores with eleven or more stores from setting up shop in any of selected SF neighborhoods. They argue that they are doing what they can to protect the cities prized neighborhoods.

What is wrong with this picture? Why not let the neighborhoods decide? Let them secede and hammer out their own rules. Top-down one-size-fits-all has never quite worked. Besides big-city politics is less likely to cater for local tastes and more likely to be hijacked in the name of various agendas that have little bearing on neighborhood life.

Underemployment

Appending the prefixes "under" or "over" to nouns and adjectives is mostly a rhetorical device that regularly appears in political discourse. The current example is political and journalistic analysis of the economy. First, the state of the economy is fretted over; then when recovery sets in, it is a "jobless recovery"; and now, when there are better jobs reports, these are not "good jobs" and many who are working are actually "underemployed".

Keynsian analysis or labor market search models can explain underemployment as well as they can explain unemployment. Yet, this is not what the political discussion is all about. Rather, it conjures vague and nefarious schemes.

Time to go back to Occam's Razor and Father Guido Sarducci who reminded those who may have forgetten that, "there's a supply and there's a demand". It even works in labor markets. The "good jobs" have a way of finding trained people. Those who are less productive can complain about the market wage that prevails in their own highest and best use but that does little good.

What makes the demogogery so unpalatable is the fact that so many young people are so poorly trained these days -- and that this sad state need not be addressed if enough people believe that one can catch "underemployment" mysteriously, somewhat like catching the flu.

The Demand for Dumb Policies

Many U.S. cities have Redevelopment Authorities that funnel large amounts other people's money to pet causes but which have very little positive effect. The politicization of development is a patently bad idea. As these cities slide further, they simply politicize more activities and the vicious cycle proceeds.

Politicized schools do not teach, their grads cannot produce and stay poor -- thereby creating a demand for umpteen new policies, etc. Things can quickly get out of hand and they often do.

Politicized land markets in most U.S. cities mean a costly "approvals process" that hobbles investment and development of the real sort. Poor places stay poor.

When Wal-Mart wanted to locate a new super-store on a white elephant parking lot in Inglewood, CA, they were quickly enmeshed in all sorts of local politics. The sorry ending was a ballot measure (initiated by the company) designed to short-circuit all of the hearings. This lost at the polls last night.

There will be fewer jobs in Inglewood, retail prices and variety will stay stuck where they have been for years and an empty eyesore parking lot will stay empty for a while longer. Oh yes, there will be more work for the City's Redevelopment Authority. Those unproductive jobs are safe.

Incoherence All Over Again

Coinciding with the morning of Pulitzer Prize press self-congratulation, Jerry Taylor and Peter Van Doren take many of the nation's top reporters to task for being astonishingly ignorant of basic economics. The two write about the "Gas Panic" and so many journalists' inability to differentiate between nominal, real, and relative price changes.

Beyond ignorance, there is incoherence. If prices are things to have opinions on, then high gas prices are "bad" because (among other things) they hurt "the poor"; yet, prices are never quite high enough because more people ride SUVs than public transit. So, if progressives' fondest dreams suddenly came true and they could actually fix prices, what would they do?

The only way out of that brain cramp is to consider their real agenda. Controlling prices are poor second to controlling people's choices directly. "Get people out of their cars," may soon be among the oldest of fools' errands. Or, treat Hummers like cigarettes; outright bans and/or full-blown campaigns, including half-truths, etc.

That approach, however, creates black markets (new ones for cigarettes all the time as politicians put the screws on smokes) and damages government's credibility, giving rise to increased cynicism, apathy, etc.

Bad policy choices typically create "crises" and the demand for fixes and more policies. Incoherence will do that.

Voting With Their Feet

David Brooks stands out because he is, both, insightful and fun to read. His Bobos in Paradise as well as Patio Man and the Sprawl People examined modern American lifestyles and, essentially, celebrated them. He does more of that in today's NY Times Magazine ("Our Sprawling Supersize Utopia"). Intellectuals have been sneering at suburbanization and associated lifestyles for many years. Many environmentalists have joined the chorus in recent years. Yet, not only are the new communities the result of free choices but they are also auspicious, once examined rather than dismissed.

Brooks sees the (mostly privately) planned communities cropping up in the exurbs as the modern realization of the American Dream and representative of a boldness of imagination missing in many other cultures, including the Province of Intelligensia. Yes, these places are even diverse.

"Suburban America is a bourgeois place, but unlike some other bourgeois places, it is also a transcendent place infused with every day utopianism. That is why you meet so many boring-looking people who see themselves on some technological frontier, dreaming of this innovation or that management technique that will elevate the world -- and half the time their enthusiasms, crazes and fads seem ludicrous to others and even to them, in retrospect."

Under the radar and/or dismissed by people whose vision is squarely focused on the pedestrian past (and the European cities that they have toured since high school art history), the new exurban/suburban places that Brooks describes so well are currently the destination of one of the biggest and most significant migrations of our time.

This is where new modes of living and socializing -- as well as new ways of land use planning and governing are being pioneered and tested.

HOT Lanes

Dan Klein and Gordon Fielding came up with the HOT-lane idea more than ten years ago. Introduce much needed time-of-day pricing on U.S. highways by converting underused HOV lanes; make access available to anyone willing to trade cash for time; make it a variable toll sensitive to regular changes in demand; even raise highway money this way. Bob Poole, Ken Orski and many others have been working hard to promote the HOT-lane idea since then. There are even a few in existence in the U.S. Southern California has two, a segment of the SR-91 in Orange county and another segment of the I-15 in San Diego county.

Yet, progress has been slow. The current federal transportation reauthorization bill is full of political pork favorites (3000 election-year hand-outs according to the WSJ). Politicians prefer to build rather than manage capacity because that is where the money is. They love rail transit, even though hugely wasteful (30 years of documentation notwithstanding), because, unlike highways, this is where they get points from builders AND from from Greens.

Why, then, be optimistic about pricing? Because good ideas do have a slow inevitability. The few U.S. HOT-lane demos and now London's pricing success have slowly moved the idea into the mainstream. Perhaps the biggest push has come from London where it has been promoted by the City's Mayor, "Red Ken" Livingston. Just as it takes a Nixon to go to China, a Rabin to shake hands with Arafat (not a great idea but a show of great courage), it takes a card-carrying Socialist to give us a serious road-pricing clinic.

City-center pricing as in London is not useful in the U.S. where few go to the traditional centers. Rather, HOT-lanes are the way to go. The next logical step is to have them over an entire metro area's highway system, not simply on an isolated link here and there. The results would be dramatic and eye-opening, just as in London.

The Pollies

It turns out that some folks actually track and rank campus silliness, in this case campus PC. The Polly Awards (Pollies) are given to the nuttiest campus PC episodes. The Collegiate Network gives first price to Yale for its "Sex Week". No kidding. Actually, just part of First Place (it's a tie) goes to Yale's Sex Week (see the site for the co-recipient).

My own favorite is Duke University and its Chairman of the Philosophy Dept who defends the school's 17-1 left leaning political line-up of faculty by claiming that Duke will not hire dummies -- and conservatives tend to be stupid (not a direct quote; see the web site).

How about an Unintended Self-Parody Award, the USPA. Well, perhaps Pollies sounds better.

A recent discussion in the NY Times Book Review about an author who had not been heard from in years, mentioned that he was working on an academic spoof. One of the commentators noted that this is always a sure sign that the poor author had run out of material.

Tall Tale

Prospects for personal freedom and economic opportunity have attracted immigrants to the U.S. for hundreds of years. Yet, the class warfare view requires that the mobility story is overlooked and the focus is on the widening gap between rich and poor. Statistical evidence that most people do not spend a lifetime in any one income stratum is treated as if it were not there. This is intellectually dishonest; comparing income distribution snapshots taken at different times makes no sense. It does not compare the progress made by real people. Yet, what is one to do if one's world view is at stake?

Just when you thought that the link between urban sprawl and obesity (claimed by CDC researchers, among others) is silly, have a look at the current New Yorker and discover that redistribution explains stature (The Height Gap). Americans used to be taller than Europeans because they were richer, ate better and were likely to be healthier. Yet, data now show that Europeans have surpassed Americans. How and why? We keep too many people poor (and short) because we do not redistribute the wealth as effectively as the Dutch, the writer speculates. Never mind that he does cite the fact that Mexicans in the U.S. are, on average, taller than the ones in Mexico.

When one's worldview is at stake, a few leaps are seemingly OK among the smart set.