Too good to be true?

Ron Utt at Heritage began circulating the idea some days ago that it is possible to address two problems at once. Divert the thousands of pork projects in the recent highway appropriations bill to the post-Katrina tasks at hand. Too good to be true -- and in clear violation of the laws of public choice economics.

The news this morning, however, is that at least some people (Montanans in this case)are turning pork into aid. Who would have thought?

Here is the WSJ summary:

"A 'Moronic' Proposal"
September 14, 2005; Page A20

"Some public-spirited folks in Bozeman, Montana, have come up with a wonderful idea to help Uncle Sam offset some of the $62 billion federal cost of Hurricane Katrina relief. The Bozeman Daily Chronicle reports that Montanans from both sides of the political aisle have petitioned the city council to give the feds back a $4 million earmark to pay for a parking garage in the just-passed $286 billion highway bill. As one of these citizens, Jane Shaw, told us: 'We figure New Orleans needs the money right now a lot more than we need extra downtown parking space.'

"Which got us thinking: Why not cancel all of the special-project pork in the highway bill and dedicate the $25 billion in savings to emergency relief on the Gulf Coast? Is it asking too much for Richmond, Indiana, to give up $3 million for its hiking trail, or Newark, New Jersey, to put a hold on its $2 million bike path?

"And in the face of the worst natural disaster in U.S. history, couldn't Alaskans put a hold on the infamous $454 million earmark for the two "bridges to nowhere" that will serve a town of 50 people? That same half a billion dollars could rebuild thousands of homes for suffering New Orleans evacuees. One obstacle to this idea apparently will be Don Young, the House Transportation Committee Chairman who captured the funds for Alaska in the first place. A spokesman in his office told the Anchorage Daily News that the pork-for-relief swap was "moronic." Sounds like someone who wants Mr. Young to become "ranking Member" next Congress.

"In all there are more than 6,000 of these parochial projects -- or about 14 for every Congressional district -- funded in the highway bill. The pork reduction plan is particularly appropriate as a response to Katrina, because we have learned in recent days that one reason that money was not spent on fortifying the levees in New Orleans was that hundreds of millions of dollars were rerouted to glitzier earmarked projects throughout the state of Louisiana.

"We're hearing all sorts of bad ideas about how to offset the $62 billion of spending already authorized for Hurricane Katrina relief. Cancel the Bush tax cuts, raise the gasoline tax by $1 a gallon, increase deficit spending, and sharply cut spending on national defense and the war in Iraq. In Washington, it seems, everything is expendable except for the slabs of bacon that are carved out of the federal fisc to ensure re-election.

"The glory of what is happening in Bozeman is that taxpayers are proving to be wiser about priorities than their politicians. We like the suggestion by Ronald Utt of the Foundation Heritage that, when the new levee is built to protect the Big Easy from future storms, it should bear a bronze plaque stamped: 'Proudly Brought to You by the Citizens of Alaska.'"

It's all about change. We live by it and mostly benefit from it but it scares many among us. Ronald Bailey's Liberation Theology: The Scientific and Moral Case for the Biotech Revolution argues persuasively that we have more to gain than to fear, biotechnical treatments will do more to enhance than to undermine human dignity.

What do we know?

The Katrina news and commentary keep piling up but some are worth repeating. This morning's WSJ (page B1, cannot link for non-subscibers) reports that: "At Wal-Mart, Emergency Plan Has Big Payoff ... The Federal Emergency Management Agency can learn some things from Wal-Mart Stores, Inc. On Wednesday, Aug. 24, when Katrina was reclassified to a storm from a tropical depression, Jason Jackson, the retailer's director of business continuity, started camping out in Wal-Mart's emergency command center. By Friday, when the hurricane touched down in Florida, he had been joined by 50 Wal-Mart managers and support personnel, ranging from trucking experts to loss-prevention specialists. On Sunday, before the storm made landfall on the Gulf Coast, Mr. Jackson ordered Wal-Mart warehouses to deliver a variety of emergency supplies, from generators to dry ice to bottled water, to designated staging areas so that company stores would be able to reopen quickly if disaster struck ..."

Yesterday's NY Times David Brooks piece is a nice complement. "The Best-Laid Plan: Too Bad It Flopped" looks at pre-Katrina planning, which Brooks finds to be impressive -- but reiterates the plain fact that there is only so much that government can do. Even well-meaning and competent officials (not to speak of the other) will not perform up to the level of a Wal-Mart.

Meanwhile in the LA Times, Niall Ferguson ("The Economic Hurricane") raises the sceptre that Katrina will plunge the U.S. (and the world?) into economic recession. No one knows and Murphy's Law can always kick in. Nevertheless, all doomsayers ought to carefully consider the Wal-Mart example -- as well as (drum roll) the perennially evoked and nevertheless widely neglected Econ 101.

Institutional Entrepreneur

Entrepreneurs make the world go round and insitutional entrepreneurs deserve special mention. Not only do they invent ways to overcome transactions costs and thereby expand property rights and the exchange economy but they also develop (and profit from) ways to overcome dumb policies.

I once blogged about the LifeSharers network, whereby precommitments by members make organ swaps possible.

Another example is in the current Forbes. "That's Hot" describes a way that one entrepreneur arbitrages electrical power between peak and off-peak in ways that skirt the official reluctance to do just that -- and thereby save and make money (all at the same time!).

"With the mercury peaking at 96 degrees, in New York's Central Park on an afternoon in late July, the city set a record for energy draw: 13 gigawatts. That is equal to the generating capacity of seven Hoover Dams.

"During spikes like this, New York's Consolidated Edison buys exensive energy from peak-usage power plants, sending the wholesale spot price of a kilowatt-hour of energy -- 3 cents on a cool day -- to $1 or higher. New Yorkers never notice the difference because the price they pay hardly varies on the hottest day of the year.

"The discombobulated pricing is a senseless waste and it might make Michael Gordon rich. His $12.5 million (sales) New York energy services shop, Consumer Powerline, is New York's largest " aggregator" of electricity savings contracts.

"Twice a year Gordon signs up huge office tenants ... to volunteer in advance to shut off nonessential lighting or turn down a building's chillers a bit on heavy usage days.

"When the New York State power grid is under stress, Con Ed calls in the favor with Gordon to ease demand -- and pays 50 cents a kilowatt hour for the energy he saves. That's half the price of juice on the spot market . In addition, Con Ed writes Gordon and his clients a check based on the avoided cost of building more peak-usage power plants. ... Such reductions stave off rate hikes for Gordon's clients. They saved $2.5 million in future electric bills that day ..."

Even when policy makers tremble from real deregulation, market participants still run circles around them -- to the benefit of all concerned, including the regulators. And I live in a world where the regulators are still looked to as the saviours. Good government is always just around the corner.

Automobility

Randal O'Toole's "Vanishing Automobile" series is always enlightening. Here is the latest installment.

"LACK OF AUTOMOBILITY KEY TO NEW ORLEANS TRAGEDY"

"Those who fervently wish for car-free cities should take a closer look at New Orleans. The tragedy of New Orleans isn't primarily due to racism or government incompetence, though both played a role. The real cause is automobility -- or more precisely to the lack of it."The white people got out," declared the New York Times today. But, as the article in the Times makes clear, the people who got out were those with automobiles (http://tinyurl.com/adgjx). Those who stayed, regardless of color, were those who lacked autos.

"What made New Orleans more vulnerable to catastrophe than most U.S. cities is its low rate of auto ownership. According to the 2000 Census, nearly a third of New Orleans households do not own an automobile. This compares to less than 10 percent nationwide. There are significant differences by race: 35 percent of black households but only 15 percent of white households do not own an auto (see http://tinyurl.com/bpw4z). But in the end, it was auto ownership, not race, that made the difference between safety and disaster."The evacuation plan was really based on people driving out," an LSU professor told the Times. On Saturday and Sunday, August 27 and 28, when it appeared likely that Hurricane Katrina would strike New Orleans, those people who could simply got in their cars and drove away. The people who didn't have cars were left behind.Critics of autos love the term "auto dependent." But Katrina proved that the automobile is a liberator. It is those who don't own autos who are dependent -- dependent on the competence of government officials, dependent on charity, dependent on complex and sometimes uncaring institutions.As shown in the table below, the number of people killed by hurricanes in the U.S. steadily declined during the twentieth century. Economists commonly attribute such declines to increasing wealth. Wealth differences are also credited with the large number of disaster-related deaths in developing nations vs. developed nations. But what makes wealthier societies less vulnerable to natural disaster? There are several factors, but the most important is mobility.Number of Deaths Caused by Hurricanes in the U.S.
1900-1919 10,000
1920-1939 3,751
1940-1959 1,119
1960-1979 453
1980-1999 57

Source: Atlantic Oceanographic and Meteorological Laboratory. Number for 1900-1919 is estimated as the exact death toll from 1900 Galveston hurricane is unknown.

"People with access to autos can leave an area before it is flooded or hit with hurricanes, tornados, or other storms. When earthquakes or storms strike too suddenly to allow prior evacuation, people with autos can move away from areas that lack food, safe water, or other essentials.Numerous commentators have legitimately criticized the Federal Emergency Management Agency and other government agencies for failing to foresee the need for evacuation, failing to secure enough buses or other means of evacuation, and failing to get those buses to people who needed evacuation. But people who owned autos didn't need to rely on the competence of government planners to be safe from Katrina and flooding. They were able to save themselves by driving away. Most apparently found refuge with friends or in hotels many miles from the devastation. Meanwhile, those who didn't have autos were forced into high-density, crime-ridden refugee camps such as the Superdome and New Orleans Convention Center.Rather than help low-income people achieve greater mobility, New Orleans transportation planners decided years ago that their highest priority was to provide heavily subsidized streetcar rides for tourists. *

"In the late 1980s and 1990s, New Orleans spent at least $15 million converting an abandoned rail line into the 1.5-mile Riverfront Streetcar line. * In 2004, New Orleans opened the 3.6-mile Canal Street streetcar line at a cost of nearly $150 million. * New Orleans was planning to spend another $120 million on a Desire Street streetcar line.These tourist lines do nothing to help any local residents except for those who happen to own property along the line. The city was not deterred by its own analysis of the Desire line showing that each new rider on this line would cost taxpayers more than $20 (see table 7.2 on page 8 of http://tinyurl.com/9cnc2).About 26,000 low-income families in New Orleans don't own a car. If all the money spent on New Orleans streetcars from 1985 to the present had been spent instead on helping autoless low-income families achieve mobility, the city would have had more than $6,000 for each such family, enough to buy good used cars for all of them. Add the money the city wanted to spend on the Desire Street streetcar and you have enough to buy a brand-new car for every single autoless low-income family -- not a Lexus or BMW, certainly, but a functional source of transportation that would have allowed them to escape the current disaster.

"While I don't think that buying low-income families brand-new cars is the best use of our limited transportation resources, it would produce far greater benefits than building rail transit. Studies have found that unskilled workers who have a car are much more likely to have a job and will earn far more than workers who must depend on transit (see, for example, http://tinyurl.com/dlqq4). That is why numerous social service agencies have begun programs aimed at helping low-income families acquire their first car or maintain an existing one (see http://tinyurl.com/b75nc).Yet when I point out the comparative benefits of providing mobility to low-income people vs. building rail transit lines to suburban areas that already enjoy a high degree of mobility, rail advocates often respond, "We can't let poor people have cars. It would cause too much congestion." Yes, as the Soviet Union discovered, poverty is one way to prevent congestion (see http://ti.org/vaupdate53.html).

"New Orleans is in many ways a model for smart growth: high densities, low rates of auto ownership, investments in rail transit. This proved to be its downfall. While the city was vulnerable from being built below sea level, many cities above sea level have proven equally vulnerable to storms and flooding. In the end, New Orleans' people suffered primarily because so many lived without autos, thus making them overly dependent on the competence of government planners."

---

Randal O'Toole The Thoreau Institute rot@ti.org http://ti.org

Loss accounting

This morning's NY Times reports: "First Estimate Puts Storm's Economic Toll at $100 Billion". Like it or not, incomplete and point estimates are part of the landscape.

The $100 billion are estimated property losses (mainly structures) that will be revised upwards. Business interruption losses are seldom estimated but these will also be substantial. There is, of course, life and limb and related traumas that will one day also be estimated.

But no one really understands the long-term consequences. Will GDP growth be bumped down to a lower trend? Will civil society take a hit? Or will it be reborn in an aftermath of soul-searching?

After the 1994 Northridge earthquake, a $20 billion guess came down from Sacramento officialdom almost immediately. Insurers were eventually on the hook for $16 billion and the structure (and contents) replacement cost estimates have hovered around $35 billion. Our own research found another $6.5 billion of business interruption effects. Heonsoo Park's co-integration analysis (no link found) suggested no long-term economic effects.

The long-term resiliency of market economies is usually the (mostly unsung) good news. Disasters, however, have the effect of prompting politicians (and acolytes) to undermine markets. So we get more controls and more programs and bureaucracies. Talk about cures being worse than diseases.

In the same NY Times, Maureen Dowd writes: "Stuff happens. And when you combine limited government with incompetent government, lethal stuff happens." She and many other seemingly toilet trained adults believe that less limited but competent government is an option.

On the same page, John Tierney saved my morning by concluding: "Here's the bargain I'd offer New Orleans: the feds will spend the billions for your new levees but then you're on your own. You and others along the coast have to buy flood insurance the same way we all buy fire insurance -- from private companies that have more at stake than Wasington bureaucrats. Private flood insurance has come to seem quaint in America but in Britain it's the norm. If Americans paid premiums for living in risky areas, they'd think twice about building oceanfront villas. Voters and insurance companies would pressure local politicians to take care of the levees, prepare for the worst -- and stop waiting for the bumbling white knight from Washington."

More than meets the eye?

There is always more than one theory.

My explanation of Hawaii's gasoline price controls, yesterday, was the standard political grandstanding story. R.S. Radford has another explanation, which brings with it an intriguing puzzle. R.S. sent the following (I quote with permission and I could not have posed it nearly as well):

"Hawaii's new gasoline price controls ... raise the most fascinating public-choice issues I've encountered in a long while. Surely it's a coincidence ... that these controls were trotted out barely two months after the Supreme Court's decision in Lingle v. Chevron? In Lingle, the Court upheld previous Hawaii regulations controling the rent gasoline producers (like Chevron) could charge the independent dealer-operators who lease producer-owned service stations.

"As we know from the example of mobile home park rent control [in California] , the operative effect of this sort of legislation in general is to allow the renters to capitalize the market value of the regulations into the price of their leasehold when they sell it to a new tenant. But what made the regs at issue in Lingle different from the mobile home park context is that there is a dual revenue flow between Chevron (and other producers) and their dealer-lessees: the dealers pay rent on their stations, but they are obligated to buy all of their gasoline from the landlord-producer. Thus, theoretically, Chevron could have prevented its dealers from capitalizing the value of gas-station rent control by jacking up the wholesale price of gas by an offsetting amount. Now, of course, the new price controls -- which inexplicably cap only the wholesale price of gas -- strip the producers of this offsetting market power, clearing the way for dealers to start pocketing windfalls by selling their rent-controlled dealerships to third parties.

"So far, pretty obvious. The puzzling part is, who could have made this happen? Unlike California mobile home park residents, the Hawaii gasoline dealer lobby cannot be an important force in state politics, either numerically or financially. I mean (and I'm totally guessing here), how many gas dealerships are there in Hawaii? Thirty-five? And assuming such a lobby even exists, it would be going toe-to-toe in Gucci Gulch (or whatever they wear in Honolulu) against a counter-lobbying cabal of multinational corporations listed on the NYSE.

"Anyway, I'm stumped. Even if some local service station operator had broken into the legislature at midnight and slipped this bill into a stack of papers to be voted on the next day, you'd think Chevron, Exxon, et al, would have spotted it and blocked it. I'd be interested in any theories you might have, the more conspiratorial the better. The Truth Is Out There!"

Possible cabals in exotic settings are much more fun than one more poke at economic illiterates.

The more things change ...

In 1947, Humphrey Michell published "The Edict of Diocletian" in the Canadian Journal of Economics (no link to the article found). The paper begins, "In 301 A.D., the Emperor Diocletian, with whom were associated his three co-rulers, promulgated an edict which fixed for the whole Roman Empire maximum prices for commodities, freight rates, and wages. According to the evidence available, and it is certain that the whole edict has not been recovered, price 'ceilings' for over 900 commodities, 130 different grades of labour, and a considerable number of freight rates were fixed and severe punishment promised to all 'black market' operators who dared to sell above the maximum. So elaborate a price scheme was not tried again until 1,600 years had passed ..."

Unlike 301 A.D., we now have a fairly solid body of economic analysis along with corroborating experience that price controls are simply crackpot. If price does not ration, something else will -- and the something else can be distasteful (arbitrary allocations) as well as costly (deadweight losses). But this improved state of knowledge matters very little because, following natural disasters and/or price rises that inconvenience the many (as in oil), like clockwork, politicians cannot resist temptation and jump into the breach to "do something" about prices.

People not only get the politicians but also the newspapers they deserve. On prices, they all seem to be on the same page. This morning's LA Times includes: "California Watches Hawaii's Effort to Cap Prices."

It is as though a rare and noteworthy experiment is in progress.

Sorting out

This morning's WSJ coverage of the Jackson Hole monetary policy confab cites Prinecton's Ricardo Reis and Alan Blinder, praising Alan Greenspan as "the greatest central banker who ever lived."

I have several times alluded to remarkable praise for Greenspan's monetary policies from, of all people, Milton Friedman. Part is the normal retirement well-wishing, part surely has merit. Historians will sort it out.

Historians are, of course, still sorting out the monetary history of the U.S., the causes of the Great Depression (I like the "Murphy's Law" explanation), and the 20th-century romance with top-down economic planning, part of Brink Lindsey's "Industrial Counterrevolution" (explained in his Against the Dead Hand).

If we are now emerging from the central planning optimism of the IC, then money managers' increasing sophistication is a part of this cycle. Richard Timberlake's "Gold Standard and the Real Bills Doctrine in U.S. Monetary Policy" (in the recent Econ Journal Watch) appears to be an important part of the sorting out. Economists' understanding of monetary policy and gold standards (real and imagined) helps us to better understand and learn from the monetary mistakes that have been made.

Consider this remark by the author: "A true gold standard provides an economy with a set of rules precsribing the conditions for the supply of common money. Once the rules are in place, the system works on the principles of a spontaneous order. Human design is limited to the framework for the standard, and must refrain from meddling with the ultimate product -- the quantities of both base and common money."

We live and learn.

Going where (almost) no man (or woman) has gone before

It's all so obvious -- once someone has done it. Networks can be fitted to many things, including webs of ideas and legal opinions.

The Economist ("Statistical modelling: The wisdom of Hercules") reports on legal research by Prof. Seth Handler that involves plotting networks that link large numbers of Supreme Court decisions, in order to detect patterns of precedent. Webs and central nodes emerge.

The research shows, not surprisingly, that the legal landscape changes in the 20th century. Cited work by James Fowler and Sangick Jeon reveals that, " ... before the American Civil War, the most authoritative cases involved freedom of contract. After the war and until the 1930s, when Roosevelt's New Deal was enacted, these were replaced by cases dealing with balance of power to regulate commerce between Congress and the states. Finally, around the second world war, as the Supreme Court shifted its focus to civil liberties, the most important cases became those concerning freedom of speech. According to the model, civil rights opinions remain ascendant today."

Along the way, the reliance on precedent decisions, the analysis shows, experienced a "precipitous drop." Yes, they do legislate from the bench.

Unintended self-parody (more)

You try to run a serious blog and this stuff comes along. And just when I had thought that public libraries were going to have trouble keeping up with e-books, cheaper retail prices of books and reading rooms at the local bookstore.

From today's WSJ:

"Not a Swedish Joke"

"If you find yourself in Malmo, Sweden, and happen to see a homosexual, an imam and a gypsy walk into a bar, it's not a joke. These are just some of the people who can be borrowed -- yes, borrowed -- from the local library for a 45-minute chat in a nearby pub as part of an effort to fight discrimination.

"Ullah Brohed pioneered the 'Living Library' project earlier this month. 'You sometimes hear people's prejudices and you realize that they are just uninformed,' she says. And since a library exists to educate, she decided to give Swedish bigots the opportunity to come face to face with the prejudice of their choice. The Malmo library also offers a Danish man (since some Swedes and Danes don't get along too well) and, to our great embarrassment, even a journalist. 'Maybe not all journalists are know-it-all and sensationalist,' Ms. Brohed says.

"Inspired by this example, a library in the Dutch city of Almelo plans to start its own human lending program next month. 'The customers can rent a veiled Muslim woman and finally ask her all the questions they would never dare to ask if they met her on the street,' says the director, Jan Krol. Of course, Mr. Krol must adopt his offerings to local tastes. So apart from the usual suspects -- a gay man, a Muslim and a gypsy -- there will also be a politician, a hard-drug user, a gay woman and a German (that World War II episode).

"Given the daily reports of widespread anti-Americanism in Europe, we are surprised that neither Mr. Krol nor Ms. Brohed has a Yank in stock. Should Americans ever become available in libraries in, say, Paris or Berlin, even Jacques Chirac and Gerhard Schröder could check them out."

Public service

Now that the California redistricting initiative (Proposition 77, which would take that authority from the politicians) is back on the Fall ballot, a momentous battle is underway. Dan Walters explains.

It's the Governator in his favorite posture, in an uphill fight, up against politicians from both political parties who are not gridlocked on this one, having joined hands to save their jobs. And they are supported by almost any lobby in sight. The left-leaning ones have been the most outraged, some expressing the fear that this will "hurt the working man."

When the re-election of California legislature incumbents hits 100% while the approval ratings of the same people hovers between 20% and 30%, disenfranchisement by high-tech redistricting is suspect.

For the next few weeks, there will be a great stretching sound heard from around the state as partisans invent story lines to protect their fiefdoms.

And they love to refer to it as "public service."

Rip Van Winkle investing

"If you're so smart, why aren't you rich?" This is the epithet that is especially irksome to economists, who are supposed to have some understanding of the economic tides.

Today's NY Times reports ("Be Warned: Mr. Bubble's Worried Again") that Yale's Robert Shiller went public with his "irrational exuberance" call in 1996 -- and the stock market collapsed less than four years later. He made the famous call when the NASDAQ Composite was near the 1,000 mark. We now know that it rose to over 5,200 in early 2000 and then fell precipitously. It is now back near 2135. Rip Van Winkle's $1 million dollars left in a NASDAQ Compsite index fund when Schiller made the call would have more than doubled in less than nine years and Rip, wiping the sleep from his eyes, would not be all that disappointed.

Van Winkle's peers, on the other hand, might have listened to Shiller and moved into ten-year Treasuries which were earning approximately 6.5%at the time -- and would be about one-half million dollars poorer than Rip today. Many others would have bailed when the NASDAQ hit bottom two years ago and would really be in bad shape.

Economic forecasting is no walk in the park. Even for economists.

Crazies, here, there and ...

Columnist Max Boot recently wrote, "Hamastan? Gaza pullout worth the risk ...For almost 40 years, the conceit has been growing around the world that Palestinian terrorism can be explained and even excused by Israeli occupation of the West Bank and Gaza Strip. This was always a dubious proposition in light of the fact that Arabs have been fighting Israel since its formation in 1948, not since its conquest by those territories in 1967. The PLO began its attacks while the West Bank was still part of Jordan and gthe Gaza Strip was part of Egypt."

Actually, there is a mountain of such conceits. Thomas Friedman once suggested that each side has to find the fortitude to "face down its crazies" to break the logjam. One side is now doing just that and Friedman and all those who cling to even-handedness -- and substitute mythical symmetry for analysis will have to regroup.

Symmetry is a stretch and it is dubious that anyone on the Arab side will soon face down their crazies. In fact, the nuts are often the ones in charge.

It has been suggested and debated that democracies do not make war on democracies. In that debate, the bar was set high by the suggestion that there were no exceptions. Excellent odds would not be bad. When will there be democracy on the other side?

If not in our lives, then a combination of walls, regroupings and focused offense may be all that is left. This seems to be the policy. It has, of course, to be wrapped in hopeful rhetoric. The plan, after all, must also face down the crazies among friends and international elite opinion.

Not just bowling alone

The Census Bureau has just released Examining American Household Composition: 1990 and 2000. The report makes interesting reading, although the lead sentence may cause some heartburn: "Householders living alone had become the most common specific household structure in 2000, ..." Yes, almost 26% were living alone but all the rest lived with someone else. It is just that the way that the remaining 74% are carved up does not give rise to a single category that tops 26%. I guess that Census tabulators want to make the news too.

One thing that the bad news bears seldom acknowledge is that more people now live alone because they can. Children in poorer times and places stayed with parents (and grandparents and others) because a separate household was not affordable -- not necessarily because they were better people.

Of the 45 relationship combinations enumerated, fairly high up on the list (#15 and #16) were households with adopted children. Over 1 million households included an adopted child. No comparisons with 1990 are possible because the question was not asked. Yet, I hope that we keep tracking this one and also that we see it trending up.

A little knowledge ...

Cold weather cities and regions in the U.S. have been relatively uncompetitive for some years. In "Smart Growth: Education, skilled workers and the cold-weather cities", Ed Glaeser finds links between human capital and growth and looks for an exogenous indicator and picks the number of local higher education establishments. (While the schools tend to be in place and established, their growth may be responsive to local conditions.)

Glaeser's analysis also points to the common sense guides for city growth: do not overregulate, lower taxes, fix the schools, limit crime.

Trouble is that the "educated classes" are also responsible for the crackpot policies that undermine Glaeser's policy guide. University communities (Berkeley, Madison, Cambridge, Austin, Tucson come to mind) often breed the silliest policies (rent controls, "living-wage" agreements and much weirder stuff like Berkeley's nuclear-free zone status, to name just a few).

Education can be a funny thing. Looking at its policy underside in more detail is a research agenda strongly suggested by Glaeser's findings.

Read your own paper

Many Greens celebrate high oil prices, hoping that they will cause us to come to our senses.

But the front page of today's LA Times reports: "No Drive to Mass Transit ... Raul Mercado loves his 2002 eight-cylinder Mustang convertible but hates the high cost of operating it. As gas prices hit record highs in recent weeks, the security guard has been shelling out $40 each time he fills the tank. To save money, he bikes or walks to the beach instead of driving, ... But leave the Mustang at his Long Beach home and take the bus to work in Inglewood? No way. 'I have to pay', Mercado said. Public transportation 'takes too long.'"

The lead editorial of the same edition announces "Pumped-up public transit ... Amid all the pain inflicted by skyrocketing oil prices, there is a silver lining in LA ... the jump in MTA ridership will give the mayor considerable ammunition when he goes looking for federal and state funds ..." ... for more transit projects, including rail -- which the editorial admits, is "underutilized."

No one can accuse LA Times reporters of bending to the paper's editorial slant. Nor can anyone accuse their editorial writers of reading their own front-page news.

Transit's decline through the last 60 years has been steady (in spite of huge subsidies), even through the various oil "shocks". In the 70s, Americans swtiched to smaller cars, rather than use transit.

While security guard Raul Mercado grasps the simple truth -- that his time has value and in dispersed cities, transit is incredibly time consuming -- it is still beyond the capabilities of LA Times editorial writers. Many of the latter have been singing the same tune for many years and, therefore, share the blame for multi-billion transit waste in LA.

Ethics and environment

Yesterday's WSJ included "Greenhouse Passes ... To Cut Pollution, Dutch Pay a Dump In Brazil to Clean Up ... Kyoto Treaty Creates Market In Gas-Emission Credits ..."

Problems create opportunities and, whenever possible, traders will see this and act. Going one better, potential traders will even do what they can to be inventive about lowering transactions costs so that trades that were once thought to be unlikely become routine. This is now happening on the internet fairly regularly. The history of wealth creation has lots to do with the scope of the exchange economy being expanded this way.

In the Summer, 2005, Independent Review, Mark Pennington notes that free-market envrionmentalism still has to persuade most of the environmental movement, whose members are likely to remain hostile unless there is what they consider an ethical argument and approach. Pennington's "Liberty, Markets, and Evironmental Values ... A Hayekian Defense of Free-Market Environmentalism" elaborates on the ethics of free market approaches.

There may be a widening, if grudging, acceptance of market efficiency but economists have been slow to remind others that markets are also a place of choice and liberty -- unless markets are corrupted by politics and politicians.

Religious freedom

Papers that report on tests of economic growth hypotheses across large international cross-sections keep cropping up. Ilan Alon and Gregory Chase have just published "Religious Freedom and Economic Prosperity" in the Spring/Summer Cato Journal.

There are many types of freedom and the power of economic freedom to generate prosperity has, not surprisingly, been well documented. What does religious freedom add? The authors test a religious freedom index in four models, where it competes with other freedoms to predict variations in prosperity (PPP per capita GDP). "All of the models using religious freedom as an explanatory variable had the predicted sign in the coefficient, and three of the four using the religious freedom variable exhibited significant results." (p. 405).

It seems that those who are eager to deny religious freedom already know the score.

Optimists and liberals

In yesterday's NY Times, David Brooks wrote on The Virtues Of Virtue, "According to the Bureau of Justice Statistics, the rate of family violence in this country has dropped by more than half since 1993. ..." In the same section, there is "Where Killers Are Out of Style ... The murder rate in New York is still falling. How low can it go?"

Brooks tries to explain the good news and notes: "The first thing that has happened is that people have stopped believing in stupid ideas: that the traditional family is obsolete, that drugs are liberating that every adolescent's social duty is to rebel."

I agree. These and other 1960s ideas (many still popular on the left to this day) are both stupid and ruinous.

Why do conservatives point to the positives where they exist while liberals do not? There are many reasons, but among them is the inability to stop believing in exactly the dumb ideas that Brooks cites.

Back to the future?

I am reading Fred Siegel's delightful The Prince of the City: Giuliani, New York and the Genius of American Life.

Siegel sets the stage this way. "Giuliani first saved the city from its own, apparently intractable, political pathologies well before he saved the city and country from the panic that could have followed the 9/11 attacks. Time and again, from reducing crime and welfare, to driving the mob out of the garbage industry and reforming City University, he achieved what the conventional wisdom had assumed was impossible. The third and by far the least known of his extraordinary accomplishments was to revive the idea of upward mobility for the poor in a city whose economy had been organized around servicing poverty."

Reading the early chapters, I confess that I had forgotten just how toxic liberal policies towards the cities were. Siegel reminds us of racial politics at its cynical worst, incited by armies of opportunists and economic know-nothings -- to name just the headliners.

Siegel demonstrates that Giuliano had the Machiavellian clarity of vision as well as the skills to take all of this on and to succeed.

He is to be reckoned with, especially (in Siegel's view) as 2008 will be a year when the Bush coalition will give way to a more centrist Republicanism.

Bill Frist has taken note -- and is surely reading The Prince of City, if he has not already done so.

London fallout

Governments can be predators and they can be incompetent. They are often both. Going to war unleashes multiple horrors, including the expansion of government's role and reach. This is why libertarians and others insist that going to war is a last resort, reserved for genuine emergencies.

The current debate is over the question of whether we are now in one of these. That sentiment will change when the next outrage occurs. Given how easy these are to perpetrate, what are the odds? No one knows but we now know how easy they are to mount. No one needs to learn to fly a jetliner.

The London subway attacks emboldened security forces as well as the many plotters. I fear that they were most inspiring to the psychopaths. 7/7 may turn out to be more ominous than 9/11.

No trade-offs in Portland -- reconsidered

Some weeks ago, I posted my skepticism re a NY Times columnist's gullible acceptance of a Portland claim that they had found a way to reduce greenhouse emissions at no cost. Just win-win.

Richard Posner's piece on the NY Times Book Review last Sunday nicely summarized the state of big media in the U.S. They bristle at the bias charge but it is clear that we all have predispositions (no one is pure) and the attitude of most big-media journalists is obvious. It gets weird when they pompously deny it -- and then jump at the chance to report news of the sort that had come out of Portland but which has now been exposed as resulting from a math error.

Rich Page called my attention to a news release from the Cascade Policy Institute, "Portland Now Admits Math Error in Global Warming Report". It appears that their carbon dioxide emissions had been going up, not down.

Will the Times print a correction? How big? What page?

The mother of all punch lines

The financial pages of major newspapers usually have plenty of fare to feed, both, bullish as well as bearish moods. What to make of the WSJ's inclusion (in their "Money and Investing" section) of historian Niall Ferguson's comparisons of 1914 with today, recently delivered to a gathering of Merrill Lynch executives and clients? There is a punchline at the very end. But it's worth reading the build-up first.

"The Big Picture: Circa 1914
Historian Sees Similarities In Today's Investment RisksAnd Pre-World War I Era"

"In a world that has become increasingly savvy in understanding and measuring all kinds of risks, investors often ignore what may be the biggest of all -- geopolitics.

"Big mistake, says Harvard University history professor Niall Ferguson.

"In a recent lecture to Merrill Lynch executives and clients, he contends that in analyzing financial and economic risks, forecasters tend to ignore geopolitical ones. And when they do take politics into account, investors usually stick to what they can personally recall.

"We need to go further back than living memory to understand the predicament in which we currently find ourselves," says Prof. Ferguson, according to a transcript of his lecture.

"That 'predicament' is the uncanny similarities between the current era of globalization and the original one of roughly 1880-1914, which first harnessed the powers of global communications and swift transport to link the world economically. That ended with the June 28, 1914, assassination of Austrian Archduke Franz Ferdinand and the onset of World War I.

"Then, as now, fears of inflation were negligible. The difference in yields on corporate and emerging-market bonds and those on benchmark government securities was shrinking. Stock-market volatility was abating. Commodity, especially energy, prices -- then it was coal, today oil -- were rising rapidly.

"Other parallels, notes George Magnus, senior economic advisor at UBS, include deregulated and integrated global capital markets, expanding international trade, strong foreign-direct investment flows and the search for new markets.

"As for geopolitics, the first era of globalization was marked by 'a dominant but financially overstretched global power, rival powers that defined themselves only in opposition to the dominant power, new regional powers with global aspirations, the Great Game in Central Asia [then over access to India, now to oil], a proliferation of 'failed states' and state-sponsored armed groups,' Mr. Magnus says. Then the global power was the U.K., now the U.S. Sound familiar?

"Add in anti-Western armed organizations -- in the 19th century, they followed the teachings of Karl Marx, today Osama bin Laden -- and "there is a striking resemblance between what is happening now and what was happening 100 years ago," Prof. Ferguson says.

"Of course, any parallels go only so far and no one is saying investors should dive under the bed. Still, in the years preceding the First World War, investors chose to ignore the threats that were brewing. The well-oiled global economic and financial machine had fostered a "sense of exaggerated security," Prof. Ferguson says. That's a valuable lesson to remember today.
In fact, back then the mood was so complacent that the first mention of the possibility of even a small war the Harvard academic could find in the financial press was an article in The London Times of July 22, 1914. That was just seven days before the Austro-Hungarian artillery began bombarding Belgrade and less than two weeks before Britain declared war against Germany. Major European financial markets closed for the rest of the year.
'Everybody thinks the biggest financial crisis was the [1929] Wall Street crash and its aftermath,' Prof. Ferguson says. 'But 1914 was far, far worse...if they had allowed the markets to reopen, there would have been a complete wipeout.'

"So what is today's investor to do? 'Gold would be the best thing to have as a long-term store of value,' says Eoin Treacy, a strategist at Fullermoney.com, a global strategy service. Investment strategists also say that commodities should perform well, along with investments designed to enable investors to bet on increased volatility. Meanwhile, stocks should do poorly, because a catastrophe probably would rattle consumer confidence and in turn economic growth.

"Investors currently regard bonds as largely a haven. Money managers warn that the threat of surging oil prices could fuel inflation, which could sink long-dated bond prices. For instance, bonds failed to offer investors any protection during the 1973 Yom Kippur War. Prof. Ferguson notes that in off-market trading from July 8 to Dec. 19, 1914, Austrian government bond prices plunged 23%, while French securities fell 15%, Russian ones 8.8% and U.K. bonds 9.6%.
To be sure, there have been some improvements in the past 100 or so years. There are many more democracies, and warfare is on the wane. What is more, many economists think policy makers have learned from past mistakes.

"Even so, Prof. Ferguson says, "Globalization could end in our time, not with a whimper but with a bang." The hard part, he acknowledges, is designing "a perfect portfolio for coping with the outbreak of World War III."

Property, development, law, endowment and fun

The link between property rights and economic development has been recognized for many years, elaborated by Adam Smith, yet stranegly ignored by much of neo-classical economics. But it is now back, again being taken seriously by many scholars. Douglass North and many others share the credit.

Particularly interesting in this light, is a recent NBER working paper by Ross Levine, "Law, Endowments and Property Rights."

Levine sums up his investigation this way:

"Property rights affect individual liberty and national prosperity. While scholars have hypothesized about the sources of variation in property rights for over 2500 years, researchers have begun to test theories empirically only recently. Researchers have made enormous strides in empirically assessing different theories of the determinants of property rights, but these investigations are in their nascent stages. The law and endowment views offer compelling theories of how legal heritage and natural selection endowments shape property rights today. I see no reason to neglect either explanation but believe that considerably more work is needed in each."

The paper includes a splendid overview of a wide range of relevant background literature for each of the two main hypotheses.

Economics may never have been this much fun.

Do they know? Do they care?

The 2002 Census of Governments reports that there were 87,525 local governments in the U.S., of which almost 36,000 were cities or townships. I have never seen a survey that determines how many people know what city they reside in. Postal city addresses often do not match municipalities.

We do know something about voter turnout. It tends to be small for local elections. Table 419 of the Statistical Abstract of the U.S. (2003) shows percent voting in even-year elections only. In the 1998 Congressional elections, 41.9% of the voting age population voted; as expected, it was slightly higher in 2000 (the last year reported in this Table) with 54.7% of eligible voters voting.

Data on off-year local elections are harder to come by. We calculated that for just California, in 2001 only 15% of eligible voters went to the polls (114 local elections); in 2003 it was 24% (96 local elections).

Researchers still estimate rank-size relationships from city population data. Why? These are seldom economic units, being defined by arbitrary boundaries. And the voting statistics suggest that cities also lack political significance for most people.

Really scary numbers

The July employment report arrives on Friday and these things often move markets. They also move policy makers. Then there is all of the speculation of how markets guess policy makers will respond -- and vice-versa.

In all of the talk of Alan Greenspan's succession, one WSJ op-ed ended by posing the rhetorical question: when Greenspan leaves, would we rather have his computer or his frontal lobe? The writer preferred the latter.

Who processes which tea leaves and how do they do it? Rote reactions to low unemployment as signaling "overheating" have often been blamed for an overeagerness by the FOMC to "step on the brakes".

This week's Economist shows OECD data on long-term unemployment, the proportion of those unemployed for 12 months or longer as a percent of total unemployment in 2004. The U.S. is near the bottom (top) with a proportion that appears to be just over 10%; only Norway, Canada, Iceland and New Zealand have lower proportions. It is the other tail that is revealing. Japan, Ireland, Spain, France, Hungary, Belgium, Italy, Germany and Greece all had proportions over one-third.

Of all the things that should get policy makers' (and market participants') attention, this index should be high on the list.

The cost of our politics

Both houses of Congress have now passed and agreed on an Energy Bill and a Transportation Bill. In both cases, mega-bucks go to large numbers of projects that could not pass a benefit-cost test nor could many of them pass any sensible federal role test. The motivations of the Congressional reps involved is self-aggrandizement and re-election. Business as usual in an atmosphere of stunning rational ignorance and/or superficial due diligence from voters.

Yet, we manage 3.4% quarterly GDP growth (probably to be revised upward), even while oil prices top $60/barrel, more than one costly war engages us (here and abroad), most urban public schools remain dysfunctional, unfunded liabilities are practically ignored in the face of the cold demographic facts of life, bizzare tort settlements abound, etc. One wonders, how rich would we be if our politics could generate just a few common sense policies?

We will never know but researchers have often benefited from cross-sectional studies of the 50 states. For example, the Fraser Institute's Economic Freedom of North America: 2005 Annual Report points to an answer. More economic freedom means greater prosperity -- and they tell us how much: "... a one-point improvement [on a scale of ten] in economic freedom on an all-government index increases per capita GDP by US$ 5,907 ..."

As near to a free lunch as we will ever get? Back in the real world, members of Congress are now flying home to bask in their accomplishments.

Close the public libraries?

Now that Amazon's quarterly earning's report came in better than expected, some of the worriers can relax. The WSJ's "Ahead of the Tape" Justin Lahart had shown concern yesterday that Amazon now faces the prospect of e-commerce competition from just about anyone. E-bay and copycats make that a possibility.

When Amazon came out of nowhere ten years ago to compete with established book retail giants Borders and B&N and others, a new business model had to be acknowledged. Yet, Lahart has a point. Amazon's well deserved customer loyalty will be up against the most intense price competition imaginable once the thousands (or more) who had always dreamed of running a bookstore set up a virtual one.

You may have noticed that most books on Amazon these days are damned cheap. Borders and B&N fight back with coffee bars and reading spaces.

Time to think about closing the public libraries?

Death of distance (not)

In a previous post, I noted that the top-75 U.S. cities' share of the total population peaked in 1940. This makes sense because people have been suburbanizing beyond (almost) fixed city boundaries for many years.

The Census Bureau also tracks population by urbanized areas which are not defined by political boundaries but which follow actual development -- "where the lights start when you fly in at night."

And the amazing Wendell Cox makes it easy for everyone to track and compare the top 33 UAs since 1950. Their share of the total population has grown over the last 50 years -- from 33% to 40%.

Urban economists rely on agglomeration economies, the all-purpose and all-manner of "glue" that binds all sorts of activities together. Interestingly, these effects have not gone away, even as communications costs have plummeted. Rather, they have become available over larger areas. The "death of distance" has been overrated.

Globalization

International ties via voluntary commercial contracts evoke a warm glow in some of us. What can get in the way? Many things: distance, trade barriers, currencies, items "falling of the truck," etc. The Economist cites recent research by Luigi Guiso and colleagues that documents another limit: cultural biases.

"The economists find that cultural biases do drive wide variations among trust among European countries ... and ... cultural driven trust does shape trade and investment."

Yet, even trade between former antagonists is up. So there may be hope that trust follows trade even though trade is impeded by mistrust.

Realities and TV

Irshad Manji writes "Is Islam to blame?" and chastises "moderate Muslim leaders" who have been silent through the carnage. They were mostly silent when Israeli civilians were targeted and now have trouble finding their voice when others, including Muslims, are targeted.

London's "Red" Ken Livingston and others on the left have long equated Israeli air strikes with Arab suicide bombers. Tragically, civilians die in each case but it is not too subtle to add that they are specifically targeted in only one case.

Meanwhile "Sleeper Cell" is coming to a cable TV station near you. The terrorists are: "... a wealthy blond ex-student from UC Berkeley, a former skinhead from France, a Bosnian Muslim whose family was murdered -- and a practicing black Muslim secretly dedicated to thwarting their plans as an undercover agent for the FBI."

They say that TV audiences get the programming they deserve (or demand). Sleeper Cell will surely be an important test of this idea.

Mercenaries

Interesting discussion re mercenaries for the U.S. military at Marginal Revolution. Alex Tabarrok asks if U.S. business can do well outsourcing, then why not the U.S. military?

Around the world, many young people would kill to get into the U.S., now they legally could. Offer full U.S. citizenship to anyone serving honorably for, say, five years or more. Gurkhas and many others would galdly take up the offer, perhaps even weighing it against the one they have from Great Britain.

There would be an end to putting reservists and others who have qualms about going to the front in harm's way. The MR post mentions that many now sent are the wrong ones for the job anyway. It is simply win-win all around.

Bowling Alone -- Not

The Economist features "Survey of America: Degrees of Separation" in the July 16 issue.

One of the topics taken up is the Bowling Alone thesis. As many had suspected, there is also good news and it has to do with the internet.

"... if you go to meetup.com, you can type in where you live and what your interests are -- say Young Republicans, Chihuahua fanciers or Brazilian reggae -- and the site will tell you where and when Young Republicans, Chihuahua fanciers and Brazilian reggae enthusiasts are meeting up withing 15 miles of your home over the next two weeks. ... Since 2002, Meetup has been the forum for over 100,000 clubs with 2m members. This spring there were 2,400 Meetup meetings of the like-minded, of people with particular tastes in common ..."

The pessimists do not even have to get out more. It's all there on your browser.

Local democracies

In 1963, Mel Webber published "Order and Diversity: Community without Propinquity." In this and related papers, he noted:

"The enlarged freedom to communicate outside one's place-community that the emerging technological and institutional changes promise, coupled with an ever-increasing mobility and ever-greater degrees of specialization, will certainly mean that urbanites will deal with each other over greater and greater distances. The spatial patterns of their interactions with others will undoubtedly be increasingly disparate, less and less tied to the space in which they reside or work, less and less marked by the unifocal patters that marked cities in an earlier day. ... I contend that we have been searching for the wrong grail, that the values associated with the desired urban structure do not reside in the spatial structure per se. One pattern of settlement is superior to another only as it better serves to accommodate ongoing social processes and to further the nonspatial ends of the political community ..."

This morning, I found this from Randy Cohen: "The congressman from $37,000 ... Why shouldn't our political districts reflect our incomes instead of our ZIP codes? ... Because it is our 1040s not our ZIP Codes that best express our political interests, congressional districts should be re-imagined to comprise not the people who happend to live within a few miles of one another, but whose earn within a few dollars of one another."

Granted we would be rid of re-districting controversies and granted Webber's prescient insights from over 40 years ago, Cohen's proposal scares me for its class warfare assumptions and implications.

Why not the other extreme? Just as modern data and computing can carve districts that provide safe havens for incumbents, we could also write code to draw geographically cogent and compact districts that maximize the income diversity of the voters.

Congressional (and perhaps local) politics would be more about finding common ground than manning the barricades. Representatives might have to spend more time in their districts and they might have to help to develop common visions rather than exploiting anatgonisms.

A harsh world

The morning after 9/11, I was at a meeting where no one really knew what to say. One learned man asserted that we will now embark on massive racial profiling, something that he suggested we were very good at. This turned out to be standard leftist silliness. Almost everyone has by now witnessed the TSA charade at U.S. airports. Old ladies in wheelchairs are searched, etc. Europeans as well as Americans are trading political correctness for security.

Charles Krauthammer explains that there is now a civil war within Islam that necessarily involves the rest of the world. Christianity's reformation and counter-reformation, coming about when the religion was approximately as old as Islam is now, were also long and bloody.

The recent Pew survey of Muslim attitudes is hardly comforting; the LA Times reports: "Poll Finds Less Support for Terrorism". Even then, the newer numbers on how many Muslims assent to the use of terror and suicide bombings denote much more than just a fringe -- 57% in Jordan, 39% in Lebanon, 25% in Pakistan, 15% in Indonesia, 14% Turkey, 13% Indonesia. That is a lot of people.

When large numbers of people cope badly with the modern world, there is, unfortunately, no simple way to bring them into modernity. The Bush people have a plan and there are many reasons to be skeptical of it. Yet, I have heard nothing from the other side -- except perhaps the admonition that we go easy on the profiling.

Political competition

Competition is a very good thing, in everyday markets as well as in political markets. The insights of public choice economics are clear once articulated and even more appealing once corroborated by serious research. This is why "Political Competition and Economic Performance" by Timothy Besley, Torsten Persson and Daniel Strum deserves attention.

EU planners and constitution drafters might take note. The free flow of goods, labor, capital and ideas is a wonderful thing. Top-down management is not.

On this side of the pond, Brookings scholars (and many others) are exploring the benefits of metropolitan government. People, moving to small cities in outer suburbs and exurbs, on the other hand, are doing what they can to get out of harm's way.

Who knew?

From Forbes (July 25, 2006): "Don't Invest After Sex ... Investors exposed to oxytocin, a hormone commonly released during childbirth, breast feeding, and sexual activity, start acting like dupes in financial matters, says a study just published in Nature. Swiss-led researchers let test subjects play a simple trading game with real money. Those administered a dose of the hormone were twice as likely to overcome any fears of betrayal and display 'maximal trust level.' meaning they were more prone to being hosed by an opponent ..."

I have not read the original article but expect that someone, somwhere, has the evolutionary psychology explanation.

Planning analysis

The segment of I-405 near my home is being worked on (at great cost) so that a diamond lane can be added. Why?

"Carpooling good!" is a pretty good representation of the tone and depth and extent of the underlying analysis.

Carpooling is also unpopular and down by 16%, between the 1990 and 2000 census. As origins and destinations become ever more dispersed, the 11.2% carpooling level of 2000 will fall even further -- no matter how many diamond lanes are built.

Any one can play the game. Here is my contribution: "pricing good."

But here is more: during the Monday-Thursday 6am-9am peak only 35% of the trips are worktrips without a nonwork trip attached. Add the worktrips that are "chained" to an errand and the total rises to 45%. That means that there are a lot of trips (at least 55%) that are candidates for being priced to the off-peak (2001 NHTS is the source).

The idea is old. The numbers that make it compelling continue to pile up.

New ideas not in old bottles

In 1970 (and practically in another galaxy), the grad students that I knew were grappling with Burmeister and Dobell's Mathematical Theories of Economic Growth. About the only thing that now rings a bell is Robert Solow's introduction. The founding member of the neo-classical economic growth school had kind words for his students' work, noted all the intellectual progress since his own, and ended by extrapolating and noting that the mind boggles when thinking about how far his students' students might go.

Neo-classical growth economics has been supplanted (thank God) by the New Institutional Economics which asks, bigger questions, looks to anthropology, cognitive science, geography, history, you name it -- and is a lot more fun.

Douglass North's just published Understanding the Process of Economic Change (thanks, Lanlan) is one of those books that I plan to re-read -- for the pure delight of its many fascinating insights and the thinking that they prompt.

Institutions matter, as does culture, and smart people have good ideas on how each evolve. The jargony "multi-disciplinary" now makes sense -- and sets the stage for lots more interesting work as we continue to grapple with differences in the performance and the wealth of nations.

No trade-offs in Portland

I suppose that one must put up with public discourse that does not acknowledge trade-offs. How about forbearance for the discovery of big-time "solutions" that are perfectly obvious but that the rest of the world had not noticed? And all this from the authority of a NY Times columnist?

Nicholas Kristof writes about Portland: "A Livable Shade of Green ... Tackling global warming need not wreck the economy ... Newly released data show that Portland, America's environmental laboratory, has achieved stunning reductions in carbon emissions ... What's more, officials in Portland insist that the campaign to cut carbon emissions has entailed no significant price ... This was achieved partly by a major increase in public transit, including two light rail lines ..."

Mr. Kristof must dig beyond the assertions of these Portland officials. Portland's light rails are among the most lightly traveled on the planet. And they are not cheap. The literature on all this is quite public and volumnious (demographia.com, cascadepolicy.org, americandreamcoalition.org).

Randal O'Toole likes to share the famous photo of a coyote relaxing on the seats of one of Portland's MAX trains (taken Feb 13, 2002). Confronted with the fact that there several photos of notoriously people-shy coyotes in and around these light rail cars, Portland officials dismiss this as having taken place before the trains were open for business. Well, no. The photos were taken five months after the trains opened for business.

Campaign promises

LA's new Mayor Antonio Villaraigosa is now in office and the LA Times reports that "Promises, Promises Could Cost LA Millions, Billions." These include extending each one of the area's rump rail system lines. The Red Line subway would be among these and the cost of that one alone is projected to be $2.7 billion.

This is the line that was to carry 3760,000 riders per day (1983 EIR) but actually serves about 25% of that. Construction costs went over $300 million/mile and the bus system had to be curtailed to make ends meet.

But who's counting? In a low-turnout election, a heavy union vote was essential and the faithful must be rewarded. That much makes sense.

What make no sense is support for this silliness from quarters that do not even have the excuse that they are on the take. Green groups fall into this category and now invoke the threat of global warming to make the case for projects like this.

Trouble is that low transit ridership, negligible impacts on auto use, high-energy heavy lifting during construction and (gasp) high levels of electric power use to run the underused trains do not add up to any atmospheric benefits.

There's a lower standard when other people's money is involved.

Sea change?

Here is an interesting take on Kelo (from Instapundit): the decision is so bad that it will eventually have huge repercussions, including a "sea change" in laws and attitudes. Cited in the discussion are Dred Scott and the Bowers case re permissible private sex.

Each decision (it would be interesting to see how many others) is notorious for the effects if had on changing the world -- in directions contrary to the rulings. Something to think about.

Urban renewal

Richard Epstein's analysis of Kelo vs. City of New London (today's WSJ) is not to be missed -- and repeated below.

Jane Jacobs famously articulated the problems with top-down urban redevelopment in 1961. She, more or less, approximated a Hayekian analysis: no way could top-down planners have a clue on how to build attractive and functional neighborhoods. It is much too complex

Oddly, Jacobs was embraced by most city planners -- who drew all the wrong conclusions. Their view has been that the idea of top-down redevelopment is a fine one -- but it had simply fallen into the wrong hands ("greedy developers", etc.).

Fine a writer as she was, Jacobs did not deliver the knockout punch. It is no simple task to do away with large-scale coerced redistribution. The only thing that could stop that would be a court that begins with the presumption that the Constitutional guarantees of private property are fundamental. Like, for example, the 1st Ammendment guarentees of free speech.

We now know that the Justice Stevens and his colleagues presumed precisely the opposite. They did not get property rights and they did not get Jane Jacobs.

Here is Epstein:

"Supreme Folly"

By RICHARD A. EPSTEIN June 27, 2005

"Last week's regrettable 5-4 decision in Kelo v. City of New London marks a new low point in the Supreme Court's takings jurisprudence. The Constitution allows private property to be taken for public use only on payment of just compensation. But what counts as public use? In Kelo, Justice John Paul Stevens held that courts, especially federal courts, should be hugely deferential to a government decision, done after comprehensive hearings, to displace one private property owner in favor of a second private party in the name of overall economic development.

"To understand why Kelo is truly horrible, it is necessary to look both at Kelo and the constitutional logic of public use requirement. On the former, the declining economic fortunes of New London spurred the city elders to embark on a general urban development plan, underwritten by $73 million in state money devoted to general planning, physical infrastructure and environmental cleanup. The plan lacked only one ingredient -- some real live developer prepared to risk his own capital to build any office or hotel on part of the 90 or so acres the City already had.

"Not content with its overheated vision, New London's plan envisioned taking down about 15 old homes overlooking Long Island Sound, to be used for some unidentified form of "park support." Fancy new private homes were not listed on the plan. None of the endless frustration and delays in implementing its grand plan were attributable to the decision of some landowners to fight New London. Quite simply, the slow rate of development made obsolete some of the original projects, such as a luxury hotel to support a new nearby Pfizer facility. Pfizer could not wait 10 years to house its visiting dignitaries. One obvious compromise position, therefore, should have appealed even to the five member majority on the Supreme Court: to force the City to postpone the condemnation of these private homes until the City revealed its hand.

"No such luck with Justice Stevens, for in his view New London had made its case when it asserted, without evidence, that the new projects would both increase tax revenues and create new jobs. It hardly mattered that its projections had been pulled out of thin air and were already hopelessly out of date when the case reached the Supreme Court. All that need be shown to Justice Stevens was procedural regularity and some claim that the proposed project served some 'public benefit.'

Astute readers will quickly note that the phrase 'public benefit' is far broader than the constitutional words "public use." That last phrase clearly covers only two situations. The first arises when land is taken to build government facilities, such as forts, or to construct infrastructure, such as highways, open to all. The second covers those cases where property is taken by, or conveyed to, private parties who are duty bound to keep it open to all users. Private railroads and private grist mills, both of which are subject to the common carrier obligation of universal service, are two obvious examples. Note too that once a given use is properly identified as public, it does not matter for constitutional purposes whether the project is wise or is as foolish as New London's redevelopment program. The constitutional inquiry is over once it is proved that the project falls into these categories. Factually, the standard of review hardly matters, for it takes little genius to prove that a given structure is a fort or a highway.

"There are, however, good reasons why the public use language has long been extended to cover some cases of takings for private purposes with indirect public benefits. One recurrent problem of social coordination arises when one party is in a position to blockade the productive ventures of another. To take a real historical example, assume that the owner of a mine (who has no choice on where to dig) can only get his ore to market by ferrying it over scrub lands owned by another individual. That second landowner can demand a huge chunk of the mining profits for his trivial contribution to the overall venture. For over 100 years, the Supreme Court has allowed the state to condemn the obstructing property for the mine owner upon payment of just compensation, here measured by the trivial losses sustained by the obstructing landowner. The net gains from blocking the holdout are huge.

"The great intellectual blunder of the public use law over the past 50 or so years is that it has wrenched the public benefit language out of this narrow holdout context. In the mid-1950s, the Supreme Court held that takings were for public use when they were intended to relieve various forms of urban "blight" -- a slippery term with no clear constitutional pedigree. Thirty years later, the Court went a step further by allowing Hawaii to force landlords to sell their interests to sitting tenants, as a means to counteracting ostensible "oligopolistic" market conditions. Now any "conceivable" indirect social benefit would do, without regard to the attendant costs.
Given this past legacy, Justice Stevens found it easy to take New London at its word. Any comprehensive public project will produce some benefit for someone, so that -- as Justices O'Connor and Thomas stressed in dissent -- his test always allows the legislature to gin up some rationale for taking public property for just compensation (which alas falls far short of making the individual landowner whole: legal, appraisal and moving costs, for example, are systematically ignored). But the slightest bit of reflection should have shown just how the new public use cases have migrated from the old mining cases, or even under the Hawaii statute, which did not displace sitting tenants.

"In the present case, Susette Kelo and her fellow plaintiffs have not tried to extract some unconscionable gain out of some sensible business venture. They have no desire to sell their homes at all. At the same time their subjective losses have been enormous. It was a perfectly sensible line for the Court to say when subjective values are high, and holdout problems are nonexistent, the requisite public use is not present.

"The Court could only arrive at its shameful Kelo ruling by refusing to look closely at past precedent and constitutional logic. Courts that refuse to see no evil and hear no evil are blind to the endemic risk of factional politics at all levels of government. And being blind, this bare Supreme Court majority has sustained a scandalous and cruel act for no public purpose at all."

Unruly world

Some rightly worry that a government that cannot fix potholes is unlikely to fix the world.

Others, such as Michael Ignatieff (in today's NY Times) write: "Who Are Americans To Think That Freedom Is Theirs To Spread? ... Around the world (and among some critics at home), America's long-held desire to export liberty and democracy is called hubristic, messianic, imperialistic and worse. But try imagining a world without it."

It's an unruly world and has always been so. Yet, unruly now poses a bigger threat than ever. Our responses (and those of our allies) are also unruly -- to say the least.

Read the whole Ignatieff piece. He reviews and arranges the arguments nicely.

Junk mail

Everybody knows it but it can still hit you like a ton of bricks (just about literally). It's the volume of junk mail, especially what's accumulated after some days away. At home and at the office. Most, I guess, goes straight from the mailbox to the trash bin.

Private delivery services carry most of the important bulk mail and electronic mail takes care of just about everything else. That leaves the hugely subsidized U.S. Postal Service to deliver mostly junk mail. The U.S. Statistical Abstract's Table 1112 shows the lopsided relationships beteeen pieces handled and revenues. "Standard A" (formerly 3rd class) accounts for almost half of all the pieces handled but brings in only about a quarter of USPS revenues.

And USPS is the sort of politicized jobs program that will probably be around forever, no matter what.

Sellers looking for eyeballs also cash in on the subsidy to junk mail. I note that most solicitations now contain the bribe of a postage stamp inside so that we do not automatically toss them on arrival (on the chance that some might want to recycle this much of the junk).

Further, I can report that railing against wasteful government subsidies does not make them go away. Yet, William Baldwin, writing in Forbes (July 4) suggests that we can divert some of the stuff to electronic spam by offering to pay to receive it. "Someday, the experts who design e-mail software will figure out how to attach a user-chosen entrance fee to every e-mail inbox. If you don't like getting spam, you might set your fee at 40 cents rather than 4 cents. This could be the ultimate end of both the spam crisis and, once we get used to paid spam, printed junk mail. Save the trees!"

USPS would never really downsize it's work force but most postal workers would carry a lighter burden. Second-best, but way better than the status quo.

High culture and low politics

Now that a U.S. Senator has used the Nazi analogy to U.S. policy, intemperance in high places has crossed the Atlantic Ocean.

Here in Europe, the commentary that I can fathom is as shrill as Sen Durban's. Paul Johnson's piece in the WSJ made the point that the "no" vote on the EU constitution suggested an unfocused discontent. Few are drawing the lessons drawn in the U.S. that the "social market" is a disastrous construction. Rather, a not-so-vague anti-Americanism-anti-Semitism emerges.

My hotel manager in Paris kindly (but unsolicitedly) instructed me that "Bush is the worst dictator of the century". He did not make clear whether he meant 20th or 21st. I avoided the impulse to tell him that the competition for 20th century's was stiff and includes an almost all-Europe slate (consider Hitler, Stalin, Lenin, Franco, Petain, Mussolini, Milosovic, etc.).

What are you going to do when high levels of education and high culture do not pay off?

Froth, fizz and New York city.

Labor and capital in the U.S. have been moving from "frostbelt" places to "sunbelt" destinations for many years. Climate matters.

A recent paper by Gyourko-Glaeser (I still cannot link from my European hotel computer but the paper is easy to find) made the point that much of urban captal stock, including housing, is durable and takes many years to whither. Simply cover variable costs and this stuff (including many old U.S. cities) hangs on for many years. And variable costs can be covered by low-income and/or welfare populations. Old and run-down places will be around for years to come.

What about the exceptions to the rule? Ed Glaeser's recent NBER paper cites New York City and the productivity gains from high densities of human capital. Tom Wolfe famously asked whether the CEOs like Manhattan because the great chefs are there or whether it is vice-versa.

Densities, however, are a funny thing. They vary drastically as geographic definitions change. New York has the nation's highest city density while Los Angeles has the highest urbanized area density. Agglomeration economies surely matter for Silicon Valley but the place, according to some, straddles San Francisco Bay.

Apparently, it takes both insights -- the long life of the NYC building stock that houses immigrants and other low-income families and the propinquity of CEOs, chefs, sex-and-the-city types, etc. -- to explain the Frostbelt success stories. Besides, even the sunbelt-to-frostbelt migration cannot go to the point where it empties half the country. There will always be some outposts.

Also, Fred Siegel's writings re New York City politics point to much that is dysfunctional -- and a continuing challenge to the area's peculiar advantages.

When the housing "froth and fizz" dissipate, differential rates of slowdown will be worth studying.

Markets and pessimists

As there are usually two or more explanations for almost anything, it is interesting to look at how commentators divide on the surprisingly low long-term interest rates.

Some (pessimists and left-leaning commentators) see a signal of an economic downturn.

Others (optimists and others, including Greenspan himself) see price pressures from increased global competition.

As if on signal, these three events were reported in rapid succession over the weekend (sorry, links cannot be attached from this computer in Old Europe): i) Toyota announced plans for price increases and suggested that this will give GM an opening to raise prices; ii) the U.S. Justice Department made plain their suspicions of possible price fixing in the auto industry; iii) GM announced plans for lower new-car prices.

Stay tuned but in matters of markets, better to be optimistic.

Poor people and rich people with dumb ideas

The sad state of much of Africa is once again in the forefront. Tony Blair, entertainers, editorialists and many others are posturing for the opportunity to be seen as on the side of the angels. "The boys and girls with guitars will finally get to turn the world on its axis", the NY Times quotes Sir Bob Geldof this morning.

In the same paper, David Brooks reports on his surprisingly positive findings ("Braced for despair and finding hope.") on a recent visit to South Africa.

Missing from the hoopla are the wise words of George Ayitttey ("Betrayal: Why Socialism Failed in Africa"; excerpted below but do go to the link and read the whole speech):

"Free at last! This euphoric cry rang across Africa in the 1960s as one country after another gained independence from Western colonial rule. New national flags were unfurled to the strains of new national anthems. Leaders who fought gallantly and won independence were hailed as heroes. The dream of self-rule, political freedom and economic progress was finally to become a reality. Africa was now free to develop in its own image: but into what? The challenge was daunting.

"The dream never came true. The astonishing natural wealth of the continent (gold, diamonds, palladium, titanium -- name the mineral and you will find it in Africa!) was never used to lift the people out of poverty. By any standard, the vast majority of African people are worse off today that they were 40 years ago. The only thing that changed was the skin color of the oppressor: from white to black.

"Africans feel betrayed, yet it's nothing we can talk about in America because it is not politically correct.

"What went wrong? First democracy and pluralism were denounced as both 'Western invention' and 'imperialist dogma'. In all but four countries, a one-party state rule was imposed, concentrating power in the hands of one individual. You don't have to be a rocket scientist to know that any political system with such concentration of power will degenerate into tyranny. The Soviet Union gave us a perfect example of it.

"Second, new African leaders rejected capitalism. They harbored a deep distrust and distaste for capitalism, falsely perceiving it as an extension of colonialism and imperialism. To them, freedom from colonial rule meant freedom from capitalism, free enterprise and foreign investment, which was viewed as 'foreign exploitation.' To them, Soviet-style socialism with the state determining the economic destiny of the people seemed the most adequate and fair way to protect their hard-won sovereignty and to move African toward economic prosperity ..."

Needless to say, government-to-government aid in this context did more harm than good.

On the plus side, Forbes includes "Trickle-up Economics ... How low-cost designs are helping the poorest farmers on Earth grow their way out of poverty ..." Not dams, but practical low-cost devices such as better bicycle racks and clever water transport devices and many others that large numbers of poor people can use to great advantage right now.

Entrepreneurialism and ingenuity do better than socialism. Explain that to the boys and girls with the guitars?

PUPs

Instapundit.com points to Arnold Kling, who points to Dan Klein, etc. In any case, it's a discussion worth having. James Buchanan mentioned the "romantic view of politics" some years ago. Kling's post is a wonderful summary of thinking and feeling in politics -- to get us thinking.

The bad news is that as people get richer, they are more likely to be rationally ignorant -- and more inclined to take up unexamined views, which are often the romantic tales and postures that Klein writes about.

We get the stock of Popular Unexamined Propositions (PUPs), many of them taught in our schools and universities. Fewer than ever believe that the Moon is made of blue cheese but most accept that the Great Depression forever indicted market economics and that the New Deal forever vindicated top-down economic planning for the democracies.

Kling's good news is that blogging and easy communications may be an antidote. The fight against blogging that totalitarians around the world are trying to pick provides the evidence.

Writing about an earlier conflict, Robert Massie noted that when WW I sailors spotted another ship on the horizon that was both faster and mounting longer-range guns, they knew that they were doomed.

Green Cities Declaration

The San Francisco Urban Environmental Accords Green Cities Declaration (June 5, thanks to Wendell Cox for the pointer) has to be read in its entirety (all 21 proposed Actions) to be fully appreciated. It assembles all of the feel-good proposals that the green-left has come up with (more "renewable" energy, city-wide greenhouse reduction plans, reduce the use of disposable, toxic or non-renewable products by 50% in seven years, zero-waste landfills by 2040, accessible public parks or recreational open spaces within one-half km of every resident by 2015, the same for "affordable" public transit, etc.).

Sorry, no trade-offs cited. One has to read all of it to appreciate it.

I know that politics is weird and that economic thinking competes badly in terms of feel-good nostrums.

And just last week, the NY Times (May 29) ran a front-page piece on "Goals Reached, Donor on Right Closes Up Shop", reporting that the John M. Olin Foundation had a "mission accomplished" moment.

Perhaps it's all Machiavellian: the SF Accords are actually a very clever ploy to keep the Olin (and other) money flowing. Of course.

Policy analysis -- not

"Downtown? L.A. Doesn't Need One" writes Joel Kotkin in today's LA Times. He points out that times have changed and downtowns are, with very few exceptions, not significant or particularly useful.

This at a time when everyone in sight has signed on to another multi-billion dollar downtown renewal project that will have about the same effect as all of the other ones that we have been through since the 1950s. Insiders will cash in; taxpayers will be ripped off; politicians and their acolytes will preen -- and downtown L.A. will remain what it has been for the last 50 years: of very minor importance.

There is no perceptible learning curve on these matters and (textbook economics aside) there is no equity-efficient trade-off. Just less of both.

"The worst economy since Herbert Hoover"

The Economist (June 4) weighs in on current interest rates.

"Can bond yields fall further? ... Think the unthinkable: America's long-term interest rates may be heading down, not up. ... Are rates low and curves flat because inflation has been broadly tamed? Is it because economic activity is expected to slump? Or has the link between growth and inflation been changed in some more or less permanent fashion, so that faster growth can take place with slower inflation than in the past?"

One can go on. Is the available capital growing faster than the available (perceived) investment opportunities? Will more money flow into housing? Will the "housing bubble" continue to expand? Will house price appreciation continue to fuel consumption and all the rest?

The flat-yield-curve-predicts-recession literature that we all grew up with did not include the housing appreciation-economic growth link.

Why are there economic fluctuations? My favorite undergrad textbook asks: "why not?" In this tumult, it's nice when things continue to go right. Last year's loosers cited, "[t]he worst economy since Herbert Hoover." Did the people who came up with this stuff sell their homes?

Third way or third rail?

I have always been somewhat suspicious of the various "social pacts" that describe the way western Europeans were supposed to divvy-up the spoils. Labor union reps sit on coporate boards of directors and the chieftains of labor and capital are well represented in the various political establishments. Very clubby. Along the way, entitlements and high taxes add up to the sweet life that Americans should envy -- and emulate. Really?

The recent "no" votes on the proposed EU constitution suggest that it is not that simple. High unemployment rates and so-so growth performance, mass immigration, paranoia about the U.S. and more have added up to considerable and not-yet-focused disaffection.

David Brooks sums it up in this morning's NY Times.

"Fear and Rejection"
By DAVID BROOKS

"Forgive me for making a blunt and obvious point, but events in Western Europe are slowly discrediting large swaths of American liberalism.

"Most of the policy ideas advocated by American liberals have already been enacted in Europe: generous welfare measures, ample labor protections, highly progressive tax rates, single-payer health care systems, zoning restrictions to limit big retailers, and cradle-to-grave middle-class subsidies supporting everything from child care to pension security. And yet far from thriving, continental Europe has endured a lost decade of relative decline.

"Western Europeans seem to be suffering a crisis of confidence. Election results, whether in North Rhine-Westphalia or across France and the Netherlands, reveal electorates who have lost faith in their leaders, who are anxious about declining quality of life, who feel extraordinarily vulnerable to foreign competition - from the Chinese, the Americans, the Turks, even the Polish plumbers.

"Anybody who has lived in Europe knows how delicious European life can be. But it is not the absolute standard of living that determines a people's morale, but the momentum. It is happier to live in a poor country that is moving forward - where expectations are high - than it is to live in an affluent country that is looking back.

"Right now, Europeans seem to look to the future with more fear than hope. As Anatole Kaletsky noted in The Times of London, in continental Europe "unemployment has been stuck between 8 and 11 percent since 1991 and growth has reached 3 percent only once in those 14 years."

"The Western European standard of living is about a third lower than the American standard of living, and it's sliding. European output per capita is less than that of 46 of the 50 American states and about on par with Arkansas. There is little prospect of robust growth returning any time soon.

"Once it was plausible to argue that the European quality of life made up for the economic underperformance, but those arguments look more and more strained, in part because demographic trends make even the current conditions unsustainable. Europe's population is aging and shrinking. By 2040, the European median age will be around 50. Nearly a third of the population will be over 65. Public spending on retirees will have to grow by a third, sending Europe into a vicious spiral of higher taxes and less growth.

"This is the context for the French "no" vote on the E.U. constitution. This is the psychology of stagnation that shaped voter perceptions. It wasn't mostly the constitution itself voters were rejecting. Polls reveal they were articulating a broader malaise. The highest "no" votes came from the most vulnerable, from workers and the industrial north. The "no" campaign united the fearful right, led by Jean-Marie Le Pen, with the fearful left, led by the Communists.

"Influenced by anxiety about the future, every faction across the political spectrum found something to feel menaced by. For the Socialist left, it was the threat of economic liberalization. For parts of the right, it was the threat of Turkey. For populists, it was the condescension of the Brussels elite. For others, it was the prospect of a centralized European superstate. Many of these fears were mutually exclusive. The only commonality was fear itself, the desire to hang on to what they have in the face of change and tumult all around.

"The core fact is that the European model is foundering under the fact that billions of people are willing to work harder than the Europeans are. Europeans clearly love their way of life, but don't know how to sustain it.

"Over the last few decades, American liberals have lauded the German model or the Swedish model or the European model. But these models are not flexible enough for the modern world. They encourage people to cling fiercely to entitlements their nation cannot afford. And far from breeding a confident, progressive outlook, they breed a reactionary fear of the future that comes in left- and right-wing varieties - a defensiveness, a tendency to lash out ferociously at anybody who proposes fundamental reform or at any group, like immigrants, that alters the fabric of life.

"This is the chief problem with the welfare state, which has nothing to do with the success or efficiency of any individual program. The liberal project of the postwar era has bred a stultifying conservatism, a fear of dynamic flexibility, a greater concern for guarding what exists than for creating what doesn't.

"That's a truth that applies just as much on this side of the pond."