Supply and demand not an option

Growth control advocates have always been stymied by the pesky fact that their policies push up housing prices and limit housing affordability -- and hurt families at the lower end of the income distribution most.

There are many other areas where the controllers' positions make no sense -- such as the notion that it is a good idea to "get people out of their cars." People like their cars and mobility and choice.

And the externalities can be managed by pricing.

Today's NY Times Magazine covers all this and more in (in "Home Economics"), citing Ed Glaeser and research by him and his colleagues that exposes the costs of a dumb agenda -- one that presumes that paying attention to supply and demand is an option.

We can only hope that the news does not cause fainting spells all the way from Boston to New York.

Wal-mart, the critics, and time machines

The Economist (Feb 25, 2006) includes a review of the latest Wal-Mart books as well as an Economc Focus column that summarizes some of the recent research. Creative destruction is not popular in polite company so economic efficiency, innovation, low prices, consumer satisfaction -- as evidenced by high profits -- come in only as occasional after thoughts.

The focus is onWal-Mart's impacts on the status quo, wages employment, etc. "There are two sides to every penny it pinches."

It's a no-brainer but what if all of the critics (enjoying their current longevity and lifestyles) were somehow able to subject all of (or just some of) the many past innovations that contributed to their present well being to the same scruitiny -- and the ensuing politics?

Ignorance of historical fact is always a problem -- and we do not have time machines. Yet.

Before his time

George Dantzig had already established his reputation as one of the most important applied mathematicians of our time (think linear programming) so he can be excused for writing a dumb book. Compact City: A plan for a liveable urban environment (1973) is one of those instances where smart person overreaches and embarrasses himself.

Just a little urban economics would have been sufficient to reveal to the great man that there are agglomeration-congestion trade-offs -- and they are peculiar to each setting. In downtown NYC, the trade-off is met via one urban form and in Silicon Valley it is met via another. One size does not fit all.

USC's Bumsoo Lee reports that in 2000, drive-alone commuters to Manhattan's CBD averaged 56 minutes each way; at the other extreme (among the largest U.S. metros) were those driving to dispersed places of employment in Phoenix (25 minutes each way).

Which is better? What are we optimizing? The point is that (fleeting) equilibria work out differently in light of history and available infrastrucutre.

Why bring all this up? Because compact settlement is still the implicit or explicit prescription in hundreds of today's New Urban plans and projects.

In that sense, Dantzig was not simply wrong but wrong and ahead of his time.

Too many ironies

I recall encountering some former east Germans while in Leipzig, three years ago, entering into an interesting conversation with them, asking the inevitable question about their impressions of life before and after 1989, and being bemused when they brought up that they now have "too many choices."

Then there is Barry Schwartz and co-authors, who ask (and answer) "Is Freedom Just Another Word for Many Things to Buy? ... That depends on your class status." in today's NY Times Magazine.

Yikes! I have no idea what the right number of choices is. And I have no idea who would decide. The authors do not even address these pesky questions.

What the authors do think about is class and status. But the most magnificent achievement of modern America is that class and status matter less than ever and less than anywhere. People expect to move between strata and many do.

Our borders and entry points continue to be magnets. And I have never seen any studies of large-scale migrations that conclude that, all things considered, the migrants made a dumb mistake.

It is not about too many choices. It appears to be about too many ironies when smart people can be so dim.

Rewarding read

My "to do" and "to read" lists keep getting longer so there is not a "to re-read" list. Yet, I have had occasion to have another look at Chris Webster and Lawrence Wai-Chung Lai's Property Rights, Planning and Markets and find it thoroughly rewarding.

They expand on five orders that they see. "Organisational order emerges as individuals pool property rights to form firms. Institutional order emerges as society invents systems of rules and sanctions that reduce the costs of competition. Proprietary (ownership) order emerges as those insitutions allocate property rights over scarce resources. Spatial order emerges as individuals and firms seek locations that minimise both travel-related transaction costs and information search costs and that balance these against congestion costs in crowded cities. Public domain order emerges as individuals engage in collective action through governments and other agencies to clarify property rights over jointly consumed goods ... and thereby reduce the costs of competition, and in the extreme, the costs of anarchy." p. 11. Much of the rest of the book fills in the details.

What a fine way to introduce readers and students to Smith-Mises-Hayek-Coase-Williamson-North and many others.

Back to the future

Two weeks ago, Ray Bradbury wrote in the LA Times that monorail was the way to go for LA. Very silly.

Today, Tom Kirkendall shares the latest news from Las Vegas, re its monorail and, you guessed it. But this is less silly because there is real waste involved.

Today also, the LA Times reports our mayor's views: "Tall, Green, Vital: L.A. as Mayor Dreams It ... Villaraigosa sees a city of parks, high-rise housing, a subway to the sea ..." This view suggests that we try to buck some very powerful trends. But spend enough money and you can put a man on the Moon.

Twenty-five years ago, all of elite opinion saw downtown L.A. as the future financial capital of the Pacific rim. To that end, tons of other people's money were spent on downtown-serving rail and office high-rise. Those investments were wasted. Visionaries spending other people's money are always a problem.

In the past 35 years, LA county's population grew at an annual rate of 1.02%, lagging the U.S. as a whole which posted 1.09%. The outlying counties, where the densities are lower, grew at over 2.8% per year. For private sector job growth over the same period, the numbers were 1.43 % for the county, 4.28% for the outlying counties and 2.02% for the U.S. And L.A. city's growth usually lags the county's.

The county and its four outlying counties divide the whole metro at about 60/40 in terms of the area's population and jobs; it is not the case of comparing growth rates in very unequally sized units.

So, it's back to the future. The elites and the know-nothings will embrace visions that entail the transfer of resources from the public at-large to those who will gain from the construction of projects that have little economic rationale.

We should not forget that the movers are usually the same people who don't miss a chance to posture on behalf of "equity".

Don't do as I do ...

I suspect that the voyeuristic fantasies of professors include wondering what goes on in the classrooms of their colleagues. Just sitting in is perfectly legal but done by very few. We would probably find uplifiting as well as depressing experiences.

At Harvard, the most popular course is now Psych 1504 and, from this review, it sounds like therapy masquerading as academics. But does it matter?

We hear the steady lament about too few domestic students bothering with engineering and science. But international students are more than happy to take the places that American students cannot be bothered with. And many of them stay and work here, enriching us all.

My only worry is that the rest of the world has a way of wanting to copy what we do. What then happens to our supply of budding scientific talent when courses like Psych 1504 become the fad in Asia?

Divided about being divided

James Q. Wilson asks "How Divided Are We?" in the Feb. Commentary and worries that "Polarization is a force that can defeat us."

Arthur C. Brooks writes about "Extreme Makeover" in this morning's WSJ. "... [T]here is abundant evidence that extreme political opinions lead to personal demonization of fellow citizens. ... For our political leaders, a bit of anger management would be in the public interest."

And I had bought into much of the popular red state-blue state thing. It turns out that we can all learn about real people in the real world from Hallmark. Here is part of the AP report, from today's LA Times.


"This Card Says It All, Everywhere

From Associated PressFebruary 14, 2006

"KANSAS CITY, Mo. — Turns out love may actually be a universal language.

"The world's largest greeting card maker, Hallmark Cards Inc., has for the first time analyzed individual cities' data for top-selling Valentines, and it yielded a surprising result. They were all the same — a result of the exhaustive research Hallmark carries out before any card goes on the shelf. It's a process of analyzing sales numbers and trend hunting in search of the perfect valentine.

"Researchers at the Kansas City-based company expected the choices of customers to be as different as the cities they call home. But it turned out V330-5, one of the thousands of options Hallmark offered last Valentine's Day, was the top choice of card buyers in New York and Los Angeles, Minneapolis and Miami, and virtually every other city in the country.

"'We thought it would be a different card in every city,'" spokeswoman Rachel Bolton said.

"Jessica Ong, product manager for the company's Valentine's card line, said, 'It speaks to the fact that people are more alike than they are different.'"

And, right on time, in the same edition of the LA Times, its editorial writers declaim "Massacre Valentine's Day".

Gatekeepers keep loosing

Update Apple's brilliant 1984 Super Bowl ad. Today's WSJ reports that more individuals are swinging more sledge hammers at more gatekeepers than ever. As expected, the gatekeepers don't get it and keep trying to hang on. That's the bad news. The good news is that time is not on their side.

"Great Firewall...Chinese Censors Of Internet Face 'Hacktivists' in U.S.
... Programs Like Freegate, Built By Expatriate Bill Xia, Keep the Web World-Wide ... Teenager Gets His Wikipedia"

By GEOFFREY A. FOWLER February 13, 2006; Page A1

"Surfing the Web last fall, a Chinese high-school student who calls himself Zivn noticed something missing. It was Wikipedia, an online encyclopedia that accepts contributions or edits from users, and that he himself had contributed to.

"The Chinese government, in October, had added Wikipedia to a list of Web sites and phrases it blocks from Internet users. For Zivn, trying to surf this and many other Web sites, including the BBC's Chinese-language news service, brought just an error message. But the 17-year-old had loved the way those sites helped him put China's official pronouncements in perspective. 'There were so many lies among the facts, and I could not find where the truth is,' he writes in an instant-message interview.

"Then some friends told him where to find Freegate, a software program that thwarts the Chinese government's vast system to limit what its citizens see. Freegate -- by connecting computers inside of China to servers in the U.S. -- enables Zivn and others to keep reading and writing to Wikipedia and countless other Web sites.

"Behind Freegate is a North Carolina-based Chinese hacker named Bill Xia. He calls it his red pill, a reference to the drug in the 'Matrix' movies that vaulted unconscious captives of a totalitarian regime into the real world. Mr. Xia likes to refer to the villainous Agent Smith from the Matrix films, noting that the digital bad guy in sunglasses 'guards the Matrix like China's Public Security Bureau guards the Internet.'

"Roughly a dozen Chinese government agencies employ thousands of Web censors, Internet cafe police and computers that constantly screen traffic for forbidden content and sources -- a barrier often called the Great Firewall of China. Type, say, 'media censorship by China' into emails, chats or Web logs, and the messages never arrive.

"Even with this extensive censorship, Chinese are getting vast amounts of information electronically that they never would have found a decade ago. The growth of the Internet in China -- to an estimated 111 million users -- was one reason the authorities, after a week's silence, ultimately had to acknowledge a disastrous toxic spill in a river late last year. But the government recently has redoubled its efforts to narrow the Net's reach on sensitive matters. ..."

Around the blogosphere

Randy Crane of UCLA has launched his urban planning research blog. Randy may be more optimistic about urban planning than I am but he is always smart and thorough. Good luck, Randy.

Econbrowser includes an interesting discussion of oil prices, consumer spending and the housing boom. Revenues from home refinancing enabled consumers to keep spending in spite of higher oil prices. A nice coincidence of home and oil price movements.

Becker-Posner go through the standard discussion of traffic congestion externalities and the argument for time-of-day pricing. Yet, they only consider commuting when the problem has most to do with the growth in nonwork traffic (more income, more cars, more nonwork errands on the highways). In fact time-of-day pricing is likely to be more potent because so many non-work trips occur during the peak hours.

Cafe Hayek includes an antidote to widespread fretting over trade deficits. Capital imports can be wealth creating -- and after 30 years of trade deficits offset by capital imports that seems to be what has happened.

The closer you get, the worse it looks

"The antidote for bad cost-benefit analysis is good cost-benefit analysis." This is from the usual introductory lecture on CBA to public policy students. The remark obscures the analytical problems that go with CBA (what are "existence" values?, which discount rates?, etc.) and the bigger problem of inevitable politicization.

Bent Flyvbjerg recently visited USC and reported on some of his work on the topic. Ex poste, he finds the "megaproject disaster gene": vastly underpredicted costs and vastly overestimated benefits. Bent notes that this is an international problem and cites recently published work on the Chunnel (by R. Anguera, Transportation Research A40, 2006) that its NPV and IRR are both in the bizarre-negative area ($-17.8 billion; -14.5%, respectively).

On a very different note, Frank Ackerman, Lisa Heinzerling and Rachel Massey ("Applying Cost-Benefit to Past Decisions: Was Environmental Protection Ever a Good Idea?" http://ssrn.com/abstract=576161) cite three recent episodes where the "right" policy choices were made in spite of (not because of) CBA.

I imagine that one can easily find many more where CBA (done right) would have had the opposite effect. But Flyvbjerg's work shows that CBA (done any which way) by itself is never a barrier; ex ante, it can be all smoke and mirrors and awful mega-projects go forward.

I read this morning that "... in 1987, President Reagan vetoed a spending bill because it contained 121 earmarks. The number of earmarks has skyrocketed over the past decade, from 4,126 in 1994 to 15,268 in 2005 ..." (WSJ op-ed by Sen. Tom Coburn, p. A18).

Who or what will stop them?

Romantics vs. fanatics

We all know that Tookie Williams was nominated for the Nobel Peace Prize but that it went to the IAEA. In today's WSJ, former Swedish deputy PM Per Ahlmark makes the case for a recount. No, not to give it to Tookie (he's no longer with us) but, instead, to Kenneth Timmerman and John Bolton -- who had been right all along about the mullah's nuclear ambitions.

We do not know if the romantics of the world will be the death of us all but who wants to find out?

Speaking of Nobelists, economics laureate Tom Schelling has been citing the post-WW II history of the nuclear taboo and has been arguing that if and when Iran gets the bomb, they can be held to honor it with the right kind of diplomacy. To me, this is a very thin reed. These are primitives and fanatics with Armageddon fantasies.


Let the Nobel Go Nuclear
WSJ, By PER AHLMARKFebruary 7, 2006; Page A26

"Let us focus on the good guys. The fools of the Iranian nuclear tragedy we already know. The International Atomic Energy Agency was duped for 18 years. Since its start in 1985, Iran's atomic program has been an ambitious, highly deceptive project. However, the IAEA gave the regime a clean bill of nuclear health, over and over again. The first 12 of those years, gullible Hans Blix, IAEA director general, believed in almost everything Tehran told him. He arrogantly dismissed warnings. The likely Blix legacy: atomic bombs in the hands of the mullahs. His successor, Mohamed ElBaradei, inherited the illusions in 1997 and proceeded on a similar path. But disclosures by experts in the West -- confirmed by militant groups within Iran -- made the IAEA denial absurd. Mr. ElBaradei revealed the truth on Nov. 10, 2003, in a stunning report to the IAEA board of governors: Iran had been lying to the IAEA for almost two decades.

"Who, in all this, are the good guys? Did the Norwegian Nobel Committee realize the gathering storm in Iran when it last year decided to give its peace prize to the IAEA? Maybe they chose to award a U.N. agency, which had been a fiasco for so long, hoping the prize would speed up its recovery. If so, a beautiful idea. My feeling is different. It's time to express admiration of personalities who have not been cheated by the Iranians. That's why I have nominated two Americans for the Nobel peace prize for 2006. One is an independent researcher who never gave up his quest to uncover the truth, the other a government official. Separately, but on parallel tracks, they have been alerting us that a tremendous threat to peace is in the offing.

"Kenneth Timmerman has for 20 years exposed Iran's nuclear intentions. In books, reports, speeches, articles and private meetings he has told us of specific detail as well as the big picture -- a full-fledged, official plan to game the system of international safeguards. His latest book, 'Countdown to Crisis: The Coming Nuclear Showdown with Iran,' lays this out in chilling detail; and it was his report for the Wiesenthal Center in 1992 that first detailed Iran's ties to Pakistani nuclear scientist A.Q. Khan.

"John Bolton, former undersecretary of state, has with unusual energy tried to find ways to counter this threat. Friends and foes agree -- he never gives up. He has repeatedly underlined the threat of Iran pursuing two paths to nuclear weapons: One is the use of highly enriched uranium, achieved by thousands of centrifuges, which Iran has developed and tested. A large buried facility at Natanz is intended to house up to 50,000 centrifuges. Iran resumed activities there just four weeks ago (in direct defiance of the IAEA). The second is through plutonium. Mr. Bolton knows that a heavy-water production plant and the Bushehr light-water reactor can be exploited as cover for sensitive nuclear fuel cycle activities. He says another 'unmistakable indicator' of nuclear intentions is Iran's habit of 'repeatedly lying to and providing false reports to the IAEA.'

"The danger is even more serious as Iran is a leading sponsor of terrorism. Mr. Bolton, now U.S. ambassador to the U.N., is also a father of the Proliferation Security Initiative, an international effort to interdict shipments of WMD components, materials and the ballistic missiles needed to deliver them. Thanks to this PSI, the U.S. and others managed to seize centrifuge components en route to Libya in 2003. This led to the breakup of the network of A.Q. Khan, mastermind of the proliferation business in recent years.

"European leaders have become a bit more active than before when supporting united efforts to prevent Iran from going nuclear. But there is still a sense of wishful thinking around them. Don't they understand that Iran's messianic President Ahmadinejad is serious when he says "wipe Israel off the map"? Appeasing fanatics does not work. We have learned that already in the last century. The work of John Bolton and Kenneth Timmerman provide stark reminders of that most important lesson of history."

Transit fact and fiction in L.A.

The L.A. newspapers (yes, there is more than one) this Sunday have three op-eds re transit in this area. The Daily News includes "Rail wrong way: LA's system costs more than it saves" (not yet up on their site) by my colleagues Jim Moore, Tom Rubin and myself. The piece reiterates the point that the $7.6 billion of rail added to LA county's transit system over the last 15 years serves between one-quarter and one-half percent of all daily county trips but stacks up net losses of $575 million per year -- which can be pared to a $560 million a year deficit if favorable assumptions about nonrider benefits are invoked.

Why go over this again? On the same day that our piece appeared, the LA Times has two op-eds re LA transit. Ray Bradbury writes in "L.A.'s future is up in the air" that "Sometime over the next five years, traffic all across L.A. will freeze," and "The answer to all this is monorail." The link to this one works, so am not making any of this up.

Nearby, Times editorial writer Dan Turner writes about local transit service, "An Antarctic expedition is tough, but try going to LAX by train or bus." From his home to LAX by transit takes him two hours and 47 minutes -- and he reports that he was not carrying any luggage.

I can offer three bets. First, all LA traffic will not freeze in five years. Second, more wasteful rail transit will be built, surely worsening the bottom line that we estimated. And the second outcome will have nothing to do with the first.

Please, Ray Bradbury or anyone, I can use the money.

Man bites dog and economist discovers free lunch

In his January 27 op-ed, Paul Krugman delivers his "Health Care Confidential".

"... I know about a health care system that has been highly successful in containing costs, yet provides excellent care. And the story of this system's success provides a corrective to anti-government ideology. For the government doesn't just pay the bills in this system -- it runs the hospitals and clinics."

He likes our VA as a model for health care provision. And here is one of the secrets: "... the veteran's health system bargains hard with medical suppliers, and pays far less for drugs than most private insurers."

This is very cool. I imagine that nearly everything could be obtained cheaply if only the federal government were put in charge to "bargain hard."

Silly me. I fear that the government is an expensive middleman. I fear that it is a highly politicized middleman. And I fear that with enough hard bargaining, suppliers will leave the industry -- as many have ever since Medicare and Medicaid began to "bargain hard."

Think of the many readers of the NY Times op-ed page, many predisposed to this silliness, who get their public policy economics from Krugman.

Thanks to Teri Burgess for the pointer.

Bearish for theory

The Greenspan farewells are interesting, most of all (in my view) Milton Friedman's, as in his WSJ op-ed today:

"Over the course of a long friendship, Alan Greenspan and I have generally found ourselves in accord on monetary theory and policy, with one major exception. I have long favored the use of strict rules to control the amount of money created. Alan says I am wrong and that discretion is preferable, indeed essential. Now that his 18-year stint as chairman of the Fed is finished, I must confess that his performance has persuaded me that he is right -- in his own case."

Computer algorithms cannot translate languages because they cannot capture context and nuance. Can algorithm's (programmed by whom?) guide money growth? The original Friedman view was that rules are better than the hash that previous FRBs served up. Faint praise for rules. But a really good governor can beat simple algorithms.

The WSJ front-page adds: "Greenspan's Legacy Rests on Results, Not Theories ... Fed Chief's Biggest Idea Was to Avoid Having One: Embracing Ambiguity".

Can this wisdom be bottled -- and served to the new Chairman? The whole story is bearish for economic theory.

Preferences over policies

The tireless Wendell Cox assembles more interesting urban data than anyone. His graphic on metro area population density trends, comparing London, Los Angeles, New York and Paris shows long run convergence -- to now. In other words, policy differences matter very little. Preferences are more similar than different -- and they trump policy differences.

The graphic also shows that big density differences were in place about 100 years ago. Yet, this is the contrast that most "experts" still believe in. They spend too much time in the old cores of the European capitals when they travel -- and not enough time studying Wendell's numbers.

Urban problems

We know that getting the prices wrong can be disastrous and we also know that when pricing is by planners, instead of markets, they are very likely to get them wrong -- setting off all sorts of problems. This is of course ironic because most planners think of their work as greatly beneficial.

Putting some meat on all of this has been the steady work of Don Shoup who looks at parking in cities and shows how many urban problems can be traced to planners misallocating scarce urban space because they have arrogated allocation functions to themselves.

Don makes a huge point, one that has been overlooked by practically everyone writing about land use and transportation.

Dan Klein's review (in the Independent Review) of Shoup's book adds interesting context and some elaboration. When it comes to ham-fisted municipal management of curbside parking, Shoup suggests that parking benefit districts, created to replace the city's role, would lead to better pricing. Klein adds: "It seems [that] in-vehicle meters could easily be adapted such that the driver punches in a parking-merchant code, which is then displayed by the meter. This system could operate nationwide among anyone who wanted to participate. Call it the Acme system. For example, if you wanted to rent out space in your personal driveway as parking space, you simply put up a sign announcing rates and saying that the customer must have an Acme-system meter and punch in the merchant code (provided by the sign). You then monitor parked vehicles for compliance. A car without an in-vehicle meter, or with the wrong merchant code, or perhaps the wrong rate code displayed would be a trespasser, and could be booted or otherwise held to account. You then collect your payments from the Acme system, who like American Express, takes a cut. With such an Acme system, we will easily be able tio imagine a reform movement in favor of capturing the potential revenues of parking supply."

New technologies can easily expand property rights, exchange, wealth and welfare. And there would be less work for the hamfisted.

Size and growth do not (much) matter

My student Bumsoo Lee knows more about traffic in cities than anyone I know. I asked him to look at U.S. metro areas (pre-2003 definitions) with over 500,000 population in 2000. The largest was New York and the smallest was Fort Wayne. The ratio of their populations was 42.2:1; the ratio of their 2000 drive-alone commute times (based on census tract averages) was 1.3:1.

In the ten years leading up to 2000, the fastest growing was Las Vegas and the opposite (greatest decline) was Scranton, 83.3% vs. -2.1%. The ratio of their commute times was 1.1:1.

Do faster-growing and larger places have worse traffic? Not nearly as bad as the alarmists suggest. The alarmists tend also to be central planners who have no use for markets or road pricing.

Yet in the absence of pricing and without the levels of transit use that all right-thinking people prescribe, size and growth do not deliver doomsday traffic.

How will they get their plans right when their prognoses are wrong?

Catch-22

Market efficiency (and all of the associated benefits) hinge on the rule of law. Trouble is that the making of law is often politicized and that works against market efficiency. This is the catchiest of Catch-22s, one that has driven many smart people (including James Buchanan) to contemplate desirable Constitutional amendments.

Writing in the latest Regulation, Daniel A. Crane elaborates "The Perverse Effects of Predatory Law". His point is that the law should not get in the way of competition that actually lowers prices. In fact, legal rulings that challenge alleged predatory pricing usually preserve a high-price status quo.

Crane's summary makes perfect sense. Yet it is up against anti-competitive coalitions made up of all the usual suspects, including those who gave us "... advances in game theory and behavioral economics ..." (Crane, p.26).

New science and old science

In this morning's WSJ Letters to the Editor, Andrew Morriss responds to a recent op-ed by James Heckman. The latter wrote a policy piece advocating early schooling for disadvantaged children. Morriss worries that the education establishment, notably the teachers' unions, will make a hash of this and invites readers to ponder the insights of public choice economics.

Take anyone's list of the top-100 economists or the top 100 economic policy papers, and it is a safe bet that most pay no attention to the public choice insight.

When new science devastates old models, what to do but ignore it? It has happened before.

War is hell

The op-ed version of the Bilmes-Stiglitz AEA paper on the costs of the Iraq war ("War's stunning price tag") has been running in various newspapers.

The authors report that a proper economic accounting puts the price tag at much higher than the adminstration has admitted. It is actually in the trillions of dollars and rightly includes the dollar valuation of death and injury.

We are on well-tread cost-benefit ground. First, good CBA is comprehensive and usually comes up with bigger cost figures than those doing the spending. Second, economists place an explicit dollar value on lives lost when many others cannot bring themselves to do so. Finally, economic analysis identifies boundaries between aspects that avail themselves of economic analysis vs. those that do not.

Economists and others can agree that lives lost -- here, there and everywhere -- matter. They can also agree that lives lost today vs. those that may be lost tomorrow matter (although discounting the future may enter).

And this brings us back to where the whole discussion began. What are the losses (among Iraqis and others) vs. the risks from doing nothing?

Many of my friends believe that if we only leave the bad guys alone, they will leave us alone. I believe that many of my friends are wrong to the point of naivete. Let's admit that we have some awful choices: war on our terms vs. war on their terms. And I agree that the conduct of the war on our terms is always an area for discussion.

When we look at big or small government and clean or corrupt government, we are tempted to conclude that there are four cases. A moment's reflection suggests that big but clean is likely to be an empty set. Do governments as we know them conduct wars efficiently? Probably never. This is why we have two bad options.

Taxis

Air travelers are often perplexed when they pay almost as much (or even more!) for ground transportation (taxi, parking, car rental, etc.) at the two ends of the trip than for the air fare.

We all know that air travel is less regulated than the ground transport that services airports. Once again, it is not just another inefficiency but also a resource transfer to connected suppliers and their political co-conspirators. Rent-seeking and rent-extraction associated with ground transportation survived the deregulation of the 1970s and 1980s.

The latest Econ Journal Watch, includes "Do Economists Reach A Conclusion on Taxi Regulation?" by Adrian Moore and Ted Balaker. Most economists who have published on the matter favor deregulation.

Well, it's a start.

If wages were a moral issue ...

It is probably inevitable that the near-ancient discussion of "just" prices, wages, rents, interest rates will continue to be a staple of small talk as well as the other. Never mind the fact that we now know that the wheels come off when we eschew market prices and legislate them instead.

Man-bites-dog is always newsworthy. So is Law-of-Demand-has-exceptions, elasticities-are-negligible, free-lunches-are-available, trade-offs-are-for-the-hidebound, etc.

Not only does this stuff open the gates to the politicization of wages but it also animates the preening of the "progressives". Today's New York Times Magazine feature "Is How Much You Pay a Worker a Moral Issue?" evokes both.

It is, in fact, a moral slam dunk -- once you buy into the fiction that it is a free lunch.

Evidence matters and econometricians debate the exact magnitude of wage elasticities.

But, speaking of evidence, does anyone deny large and growing off-the-books employment in the U.S.?

Industrial policies

The U.S. economy has been growing nicely in spite of our very own industrial policy. Europeans and others like to scoff at our "cowboy capitalism" but they have no clue. Nearly half of U.S. GDP (including mandates) is subject to politics.

And politicization favors "the rich" and suggests anything but some progressive wonderland.

We have regressive plus inefficient -- rather than the equity-efficiency trade-offs that are still textbook staples.

Contra cowboy, there is widespread agreement that cities are too complex to be deprived of industrial policies. Joel Kotkin summarizes all of this in today's WSJ and is well worth quoting.

"The War Against Suburbia"
By JOEL KOTKINJanuary 14, 2006; Page A8

"Suburbia, the preferred way of life across the advanced capitalist world, is under an unprecedented attack -- one that seeks to replace single-family residences and shopping centers with an "anti-sprawl" model beloved of planners and environmental activists. The latest battleground is Los Angeles, which gave birth to the suburban metropolis. Many in the political, planning and media elites are itching to use the regulatory process to turn L.A. from a sprawling collection of low-rise communities into a dense, multistory metropolis on the order of New York or Chicago. Mayor Antonio Villaraigosa has outlined this vision, and it does not conform to the way that most Angelenos prefer to live: 'This old concept that all of us are going to live in a three-bedroom home, you know this 2,500 square feet, with a big frontyard and a big backyard -- well, that's an old concept.'

"This kind of imposed 'vision' is proliferating in major metropolitan regions around the world. From Australia to Great Britain (and points in between), there is a drive to use the public purse to expand often underused train systems, downtown condominiums, hotels, convention centers, sports stadia and 'star-chitect'-designed art museums, often at the expense of smaller business, single-family neighborhoods and local shopping areas. All this reflects a widespread prejudice endemic at planning departments in universities, within city bureaucracies, and in much of the media. Across a broad spectrum of planning schools and practitioners, suburbs and single-family neighborhoods are linked to everything from obesity, rampant consumerism, environmental degradation, the current energy crisis -- and even the predominance of conservative political tendencies.

"Acolytes of such worldviews in our City Halls are now working overtime to find ways to snuff out "sprawl" in favor of high-density living. Portland's 'urban growth boundary' and the 'smart growth' policies promoted by former Maryland Governor Parris Glendening, for example, epitomize the preference of planners to cram populations into ever denser, expensive housing by choking off new land to development. More recently, this notion even has spread to areas where single family homes and suburbs are de rigueur. Planners in Albuquerque have suggested banning backyards -- despised as wasteful and 'anti-social' by new urbanists and environmentalists, although it is near-impossible to find a family that doesn't want one. Even the mayor of Boise, Idaho, advocates tilting city development away from private homes, which now dominate the market, toward apartments.

"Perhaps the best-known case of anti-sprawl legislation has been the 'urban growth boundary,' adopted in the late '70s to restrict development to areas closer to established urban areas. To slow the spread of suburban, single-family-home growth, the Portland region adopted a "grow up, not out" planning regime, which stressed dense, multistory development. Mass transit was given priority over road construction, which was deemed to be sprawl-inducing.

"Experts differ on the impact of these regulations, but it certainly has not created the new urbanist nirvana widely promoted by Portland's boosters. Strict growth limits have driven population and job growth further out, in part by raising the price of land within the growth boundary, to communities across the Columbia River in Washington state and to distant places in Oregon. Suburbia has not been crushed, but simply pushed farther away. Portland's dispersing trend appears to have intensified since 2000: The city's population growth has slowed considerably, and 95% of regional population increase has taken place outside the city limits.

"This experience may soon be repeated elsewhere as planners and self-proclaimed visionaries run up against people's aspirations for a single-family home and low-to-moderate-density environment. Such desires may constitute, as late Robert Moses once noted, 'details too intimate' to merit the attention of the university-trained. Even around cities like Paris, London, Toronto and Tokyo -- all places with a strong tradition of central planning -- growth continues to follow the preference of citizens to look for lower-density communities. High energy prices and convenient transit have not stopped most of these cities from continuing to lose population to their ever-expanding suburban rings.

"But nowhere is this commitment to low-density living greater than in the U.S. Roughly 51% of Americans, according to recent polls, prefer to live in the suburbs, while only 13% opt for life in a dense urban place. A third would go for an even more low-density existence in the countryside. The preference for suburban-style living continues to be particularly strong among younger families. Market trends parallel these opinions. Despite widespread media exposure about a massive 'return to the city,' demographic data suggest that the tide continues to go out toward suburbia, which now accounts for two-thirds of the population in our large metropolitan areas. Since 2000, suburbs have accounted for 85% of all growth in these areas. And much of the growth credited to 'cities' has actually taken place in the totally suburb-like fringes of places like Phoenix, Orlando and Las Vegas.

"These facts do not seem to penetrate the consciousness of the great metropolitan newspapers anymore than the minds of their favored interlocutors in the planning profession and academia. Newspapers from Boston and San Francisco to Los Angeles are routinely filled with anecdotal accounts of former suburbanites streaking into hip lofts and high-rises in the central core. Typical was a risible story that ran in last Sunday's New York Times, titled 'Goodbye, Suburbia.' The piece tracked the hegira back to the city by sophisticated urbanites who left their McMansions to return to Tribeca (rhymes with 'Mecca'). Suburbia, one returnee sniffed, is 'just a giant echoing space.'

"Such reports confirm the cognoscente's notion that the cure for the single-family house lies in the requisite lifting of consciousness, not to mention a couple of spare million in the bank. Yet demographic data suggest the vast majority of all growth in greater New York comes not from migration from the suburbs, but from abroad. Among domestic migrants, far more leave for the 'giant echoing spaces' than come back to the city. As a whole, greater New York -- easily the most alluring traditional urban center -- is steadily becoming more, not less, suburban. Since 2000, notes analyst Wendell Cox, New York City has gained less than 95,000 people while the suburban rings have added over 270,000. Growth in 'deathlike' places like Suffolk County, in Long Island, Orange County, N.Y., and Morris County, N.J., has been well over three times faster than the city.

"So as he unfolds the details of his new urban 'vision,' Mr. Villaraigosa might do well to consider such sobering statistics. Californians, too, like single-family homes. According to a 2002 poll, 84% prefer them to apartments. Instead of dismissing the suburban single-family neighborhood as 'an old concept,' L.A.'s mayor might look to how to capitalize on the success of such sections of his city as the San Fernando Valley, where a large percentage of the housing stock is made up of owner-occupied houses and low-rise condominiums. The increasingly multi-ethnic valley already boasts both the city's largest base of homeowners, as well as its strongest economy, including roughly two-thirds of the employment in the critical entertainment industry.
It is time politicians recognized how their constituents actually want to live. If not, they will only hurt their communities, and force aspiring middle-class families to migrate ever further out to the periphery for the privacy, personal space and ownership that constitutes the basis of their common dreams."

Perspective

Findings from the 2001 National Household Travel Survey (NHTS) have been pored over by some of us with as much interest as the JPL people have in photos from the Mars Rover.

The sponsoring Federal Highway Administration has just released a helpful summary, Our Nation's Travel: Current Issues.

Here are some tidbits worth thinking about (page nos. refer to hard-copy version):

From 1969-2001 (the years of the various surveys), U.S. population grew 41% and auto use 191%, but, "[t]here was a 43% decrease in carbon monoxide, a 59% decrease in volatile organic compounds (VOC), and a 5% increase in nitrous oxide (NOx)". p. 3.

"Since 1969, the number of households without vehicles has declined (to about 8% of all households), while the majority of households now have two or three vehicles. In 2001 the number of household-based vehicles, 202 million exceeded the number of drivers by 12 million. In fact, in 22.7 million or 21.2% of all households, there are more vehilces that drivers." p. 6.

"Travel time for a 10-mile trip does increase as area size increases, but a larger dterminant seems to be the density of population." The accompanying graphic shows that the longest trip durations are in the largest, densest metros with rail. p. 15.

"The NHTS asked respondents how much of a problem congestion was in their life. Almost half (49.3%) of the survey respondents reported that congestion was not a problem or a little problem. ... For those living in the largest metro areas (three million or more population) only 37.2 percent said congestion was not a problem or a little problem ..." (p. 16).

Good news

Some of my friends interested in road pricing remain perennial optimists. Perhaps they have a point.

The Economist (Jan 7) reports on "Jambusters ... New technology could improve London's congestion charge ... Despite the doubts, and despite complaints from shop owners, London's congestion charge -- introduced in February 2003 -- has managed to ease the gridllock in the city centre. Traffic is down by 18%, jams by 30%. ..."

The story also reports that fine-tuning is coming via time-sensitive variable-charging approaches. This means that the numbers will get even better.

Yes, it took road pricing to relieve traffic -- in a city that has some of the best public transportation in the world.

And yes, Richard Nixon normalized relations with mainland ("Red") China and "Red Ken" Livingston introduced road pricing to London.

Brain cramps and speed bumps

I am being repetitive but this stuff has to be hit (and hit hard) whenever it appears in print. In today's NY Times, Ann Hulbert ("Speed Bump") writes about traffic congestion and gets almost everything wrong.

She frets over the prospect of peak-load pricing in the DC area -- in place of "farsighted congestion control strategies like improving public transportation or regulating land use and development." It would have been nice to include as little as an iota of evidence that the "farsighted" stuff ever worked. Or try to address all the evidence that it has only made matters worse.

She goes on to raise the specter of $30 tolls ... while the "hoi polloi" suffer ever worse traffic. She cites the California experiments with tolled lanes but does not mention that the tolls were nearer $5 than $30, nor that many of the non-rich paid the $5 when it was worth it to them, nor the fact that general-purpose lanes move faster when some of the demand is serviced by tolled lanes.

Elite opinion is disdainful of flat-earthers and and creationists but is nothing but ignorant when it comes to the economics of public policy.

Corruption

Compared to many places on Earth, corruption in the U.S. is tame. This does not absolve the thieves on K-Street or in Congress or in a thousand other places.

But perhaps the worst corruption involves liberal politicians and schools; their obeisance to the education establishment (lobby) condemns the poorest to the worst schools. The costs (human, fiscal, economic, you name it) are staggering.

In today's NY Times, John Tierney (requires TimeSelect) writes:

"Democrats once went to court to desegregate schools. But in Florida they've been fighting to kick black students out of integrated schools, and they've succeeded, thanks to the Democratic majority on the State Supreme Court.

"The court's decision on Thursday was a legally incoherent but politically creative solution to a delicate problem. Ever since Florida's pioneering statewide voucher program began, Democrats have been struggling to deal with the program's success."

The complete article is worth reading. Those who are the most shrill (and sanctimonious) when advocating "social justice", "the children", "people of color", "equity", etc. work the hardest against their causes (slogans, actually).

They do anything they can to protect a favored constituency. That's corruption.

A grand bargain

Against all evidence, many still believe that it is possible to have big government that is also good government. They do not accept a trade-off between the two. This is why it is called the romantic view of government.

The many trillions of dollars now available to politicians creates insurmountable temptation and inevitable problems of pork, graft and corruption.

Tom Sowell suggests that the combination of very high salaries ("I don't make a million dollars a year but I think every member of Congress should be paid at least as much. It's not because those turkeys in Washington deserve it. It's because we deserve a lot better people than we have in Congress.") to politicians along with term limits that work (one term in any political office per lifetime, period).

We are unlikely to shrink government but politcians just might vote themselves a pay raise. In other words, we agree to accept the idea that they vote themselves a million-dollar salary and in return, they enact tough term limits that apply to them and to all of their successors.

For taxpayers, this would be money well spent.

What matters

The latest NBER Digest includes commentary on The Happiness of Nations research. David Blanchflower and Andrew Oswald find the following:

"1. For a person, money does buy a reasonable amount of happiness. But it is useful to keep this in perspective. Very loosely, for the typical individual, a doubling of salary makes a lot less difference than life events like marriage.

"2. Nations as a whole, at least in the West, do not seem to get happier as they get richer.

"3. Happiness is U-shaped in age -- that is, it falls off for a while, then stabilizes and rises later in life. Women report higher well-being than men. Two of the biggest negatives in life are unemployment and divorce. More educated people report higher levels of happiness, even after taking account of income.

"4. At least in industrial countries such as France, Britain, and Australia, the structure of the happiness equation looks the same.

"5. There is adaptation. Good and bad life events wear off -- at least partially -- as people get used to them.

"6. Comparisons matter a great deal. Reported well-being depends on a person's wage relative to an average of 'comparison' wage. Wage inequality depresses reported happiness in a region or nation. But the effects is not large."

It is nice to have one's priors corroborated. So why is this report not satisfying? Because it is big-think research that seems to miss the bigger picture.

In my view, the bigger picture was nicely portrayed in the NY Times Magazine piece of January 1, "The Case for Contamination: No to purity. No to cultural protectionism. Toward a neo-cosmopolitanism" by Kwame Anthony Appiah.

A world in which more people are free to make more choices -- even ones that dilute some heritage -- is what matters the most.

While I cannot connect these actions to responses that the individuals involved might give to a happiness survey, I suspect that they are happy (there's the word) to be able to choose.

The Friedmans did title their book Free to Choose.

2006 and beyond

The Skeptical Optmist cites a beguiling Paul Romer quote.

"If we can make the choices that increase the rate of growth of real income per person to 2.3 percent per year, in fifty years we can get extra income per person equal to what in 1984 it taken us all of human history to achieve. "

The related big story of the year (easily corroborated by hopscotching around economists' blogs) is productivity growth. Add Pete Boettke's discussion of the robustness of markets and we can meet Romer's fifty-year mark -- or better.

The jokers in the deck are the possibility of bizarre events abroad (or from abroad) and/or bizarre policy choices at home. In fact, these may not be independent events.

The good news, however, remain under the radar. Consider the really big news stories of 2005 as compiled by the BBC.

More on the failure of market failure

Fred Foldvary and Dan Klein recently published The Half-Life of Policy Rationales: How New Technology Affects Old Policy Issues, which shows how new technologies continue to undermine the standard market failure chestnuts.

Foldvary-Klein are right and it's an important argument. Connecting auto drivers to GPS-data not only helps them navigate but also reduces transactions costs to the point where proper pricing is easily done.

In "Navigating future road charges", BBC reports:

"Motorists are already beginning to embrace the idea of satellite-navigation units in their cars.

"This week the first test satellite in Europe's 3.4bn-euro ... Galileo satellite navigation system blasted off in a Soyuz rocket from Baikonur Cosmodrome in Kazakhstan.

"The final global network of 30 Galileo satellites is crucial to prviding high volumes of time- and location-based data needed for new services such as advanced sat-nav, mobile location data, natural disaster surveillance and air traffic control.

"Powerful applications are expected on the roads; the Galileo network would allow a vehicle's exact movements to be tracked, presenting new possibilities fo road-user charging and tolling ... The time signal produced by Galileo would also allow different chanrges for driving at different times of day."

Not only will economists have to stop including highways as inevitable market failures but politicians may actually have to confront the idea that there is one less excuse for them not managing the road system -- as well as one less rationale for building useless rail transit systems or expensive "Big Digs".

What's not to like?

From "Bye-Bye, Kyoto" (Forbes, January 9, 2006):

"... The Kyoto rules say that western Europe must get their emissions to a level 8% below those prevailing in 1990. But virtually all those countries -- the only significant exception is Germany -- are going in the wrong direction. The latest available data, covering emissions through 2003, tell us that in the years since the treaty was negotiated, carbon dioxide levels have increased by 7% in France, 11% in Italy and 29% in Spain. The increase for western Europe as a whole was 5.4%.

"After many years of European chatter about the monstrous evil perpetrated by George W. Bush in rejecting Kyoto, it is of possible interest that the increase in carbon emissions in the U.S. during those years was slightly lower (4.7%)."

I know very little of the science involved but have read enough to know that climate change is complex and that there are competing views. But I do know that all the doomsday forecasts ever made have been wrong.

And I know am wary of social engineering. And double that if it comes to us via the "international community".

Add insufferable green/left/European preening and fretting and what's not to like about the quote?

Lethal economic ignorance.

The (too) common notion that there are savings to be had from "cutting out the middleman" is grist for any principles of economics class. We highlight the pervasiveness of transactions costs and the value added from reducing them.

Yet, many cannot conceive of value added without a tangible visible product. It is also true that ignorance of economic principles can be lethal.

Thomas Sowell masterfully addresses both problems in his essay, "Are Jews Generic?" to be found in his recently published Black Rednecks and White Liberals.

Sowell is typically scholarly yet clear.

"In any given country, a particular minority may be hated for any number of reasons peculiar to that country or that group. However, in a worldwide perspective, the most hated kinds of minorities are often defined not by race, color, religion, or national origin. Often they are generically 'middleman minorities,' who can be of any racial of ethnic background, and in fact are of many. Many of the historic outbreaks of inter-ethnic mob violence on a massive scale have been against the Jews of Europe, the Chinese minorities in various Southeastern Asian countries, against the Armenians in the Ottoman Empire, the Ibos in Nigeria, and against other middleman minorities in other times and places."

Interestingly, he adds that the Nazis were typical but simply more technologically advanced than the others who went about victimizing middlemen. Sowell also re-tells Eric Hoffer's re-telling of E.A. Voigt's recounting of the Japanese mission that tried to study the Nazi movement in the early 1930s. A member of the mission is quoted saying: "It is magnificent. I wish we could have something like it in Japan, only we can't, because we haven't got any Jews."

The law of many prices

David Brooks writes that we are Bobos in Paradise, no longer satisfied with a "cuppa joe" but at home with the complex Starbucks menu.

David Harford, The Undercover Economist, notes that "Starbucks doesn't have a way to identfy lavish customers perfectly, so it invites them to hang themselves with a choice of luxurious ropes." In other words, it's all about price discrimination. (Harford is most entertaining when he calls attention to all the ways that sellers pull it off.)

Which author is correct? Both, of course. Brooks emphasizes demand and Harford addresses supply. Leave the land of the Law of One Price behind and discover the really interesting stuff about how a complex economy allocates (and continuously reallocates) resources that facilitate evolving lifestyle choices.

"The Peacock Mind"

A holiday present to its readers from The Economist is "The proper study of mankind: A survey of human evolution" (Dec 24, 2005).

The survey covers many of the evolving ideas in anthropology, biology and evolutionary psychology.

I particularly liked this "... the human mind is like a peacock's tail, a luxuriant demonstration of its owner's geneitc fitness." And "[p]erhaps the founding father of economics is not really Adam Smith, who merely explained how to get rich, but Charles Darwin, who helped explain why."

Women are drawn to high-status successful males. These males (may)know that money will not make them happy but it does help them to procreate. Male striving, in turn, animates comparative advantage and economic growth.

The money buys (or does not buy) happiness discussion may be interesting but also beside the point when put alongside such heavy weights as sex and evolution.

Spilling ink

At the end of each year, we get the inevitable lists of top-this-and-that (including Time magazine's weirder and weirder person-of-the year and people-who-mattered) and resolutions and forecasts, etc.

David Wessel in today's WSJ forecasts the following:

"Ben Bernanke's first interest-rate move as U.S. Federal Reserve chairman will be to cut rates ... A big bankruptcy will rattle the U.S. and shake political support for unfettered global trade ... Health care will emerge as a big issue in the 2006 congressional elections, forcing 2008 presidential candidates to promise action ... The gap between winners and losers in the U.S. will keep widening."

Here is what he says about the latter:

"The gap between winners and losers in the U.S. will keep widening.
In a 1998 book, a colleague and I predicted technology would propel faster economic growth and a growing supply of educated workers would narrow the gap between high- and low-paid workers over the ensuing 20 years. We were right on the first, and only temporarily (in the late 1990s) right on the second. Next year won't help our case.

"By nearly every measure -- the ratio of CEO wages to those of ordinary workers, the share of income going to the top fifth, differences between health and retirement benefits at the top and bottom -- inequality is growing. Why? Technology, globalization, the premium employers pay to hire the educated and workplaces where old-style loyalty is replaced by rewards for solo performance.

"The politicians in charge believe resisting these forces is counterproductive or wrong. But even Mr. Greenspan, a card-carrying conservative, sees a need to do more than we are. 'Equal opportunity requires equal access to knowledge,' he has said. 'We cannot expect everyone to be equally skilled. But we need to pursue equality of opportunity to ensure that our economic system works at maximum efficiency and is perceived as just.'

I hope we make it through the year. I also hope that all "gap-between- winners-and-losers" discussions take note of the following:

Labor migrations between adjacent rich and poor countries with long borders are very hard to limit. Data about wages at the low end for the U.S. are tricky because they include many immigrants who have improved their lot. Also, wages at the low and are depressed because of immigration, which is mostly by the unskilled.

If we are to discuss changes in the U.S. income distribution, then it is only reasonable to control for the latter effects. Otherwise we are just spilling ink.

The beat goes on

Lopsided left representation among U.S. college faculties is well known. Dan Klein and Charlotta Stern sum it up in "Narrow-Tent Democrats and Fringe Others: The Policy Views of Social Science Professors."

Their survey finds that academic economists are 3:1 left, political scientists almost 6:1, historians 8.5:1, political and legal philosphers 9:1 and anthropologists and sociologists 21:1.

They also find that both groups lean to statist views.

Paul Krugman had once explained this state of affairs with the suggestion that conservatives are too dumb to serve on decent faculties.

Many have commented on the subtle and the not-so-subtle screenings that are at play in many academic units. A variety of research specialities and topics are code for politically correct and this often gives applicants a leg up.

But what animates the process? Many people are happier to be surrounded by like-minded colleagues that reinforce their world view -- in spite of the diversity mantra. And many others, to their great discredit, probably believe that Krugman is right.

Clarity on Kelo

I have long been a fan of The Freeman: Ideas on Liberty but the November 2005 issue is a keeper. Mostly devoted to the problems highlighted by the U.S. Supreme Court's Kelo decision, it brings together wonderful analyses by Richard A. Epstein, Donald J. Boudreaux, Andrew P. Morriss and others.

These writers remind us that even if eminent domain (and eminent domain abuse) is Constitutional, it is unnecessary as well as bad policy. Developers assemble parcels all the time without resorting to eminent domain, real urban redevelopment is more likely with property rights intact than not, and takings are generally distasteful if we care about liberty.

How refreshing.

Devolution, property and development

Robert H. Nelson has long written about the benefits of private neighborhood associations and has espoused that state laws be changed so that inner city property owners can also gain the benefits that suburban owners of their neighborhoods enjoy. He elaborates all of this in his recent Private Neighborhoods and the Transformation of Local Government.

Writing in the December 12, 2005, Forbes, ("Privatizing the Inner City: Forget condemnation. Here's how to bring housing, Costco and Ikea to urban areas"). He shows that this is the best alternative to the awful prospects made possible by Kelo vs New London, Connecticut.

"... allow homeowners to privatize their neighborhoods and sell en masse directly to developers."

Trouble is that most advocates of the inner city have such a low opinion of its residents that they would work hard to block this devolution of power (and wealth) -- away from themselves.

There is also the small problem that none of the traditional approaches to inner city revitalization have had much effect.

Oh yes, that is because they have been "underfunded". Or perhaps they have been overfunded.

Pesky facts

It's official. The census reports that Americans at all levels became materially better off in the years 1981-2002. So says "Supplemental Measures of Material Well-Being: Basic Needs, Consumer Durables, Energy and Poverty, 1981-2002" (link at http://www.census.gov/prod/2005pubs/p23-202.pdf). This will astound (and depress?) class warriors. But that will be momentary because they cannot debase their intellectual capital.

The report's Table 4, "Percent of Consumer Units Reporting Ownership of Selected Appliances and Vehicles by Expenditure Decile, 1992-2002" documents across-the-board improvements. The report also acknowledges that the numbers understate the improvements because they cannot capture signficant quality improvements.

But are they happy?

"Sound financial footing" ... my foot

The recently released Milken Institute report on the L.A. economy finds that the county's biggest employer is local government (462,960) which also tied for first place in job creation in the years 1980-2003, adding over 111,000 jobs

Local government employment, however, is surpassed by the county's informal sector which Milken researchers estimate now employs 679,000.

The L.A. Times' lead editorial re the Milken report fails to connect these dots.

High taxes and onerous regulations explain and support government employment and they drive businesses underground.

Times editorial writers rue instead the fact that off-the-books companies do not pay sales taxes.

But "[b]usinesses can be offered amnesty for past transgressions. Business education programs could offer both strategic advice and help in obtaining capital for those willing to comply. If such efforts were even half successful, public attitudes about the underground economy could shift, the city and the county would be on a sounder financial footing and Los Angeles would be a better city, even if lunch might be a dollar more."

A "sounder financial footing" and more taxes collected, perhaps to support even more government jobs. All that is missing from the reverie is an end to declining newspaper readership.

Trust busting is hard work

The Economists's Economic Focus column ("Matchmakers and trustbusters") comments on two recent articles (by Jean-Charles Rochet and Jean Tirole and by David Evans) that analyze two-sided markets. Many businesses depend on concurrent success in two markets. The article cites credit card companies (enough vendors and enough customers must use them) operating systems producers (users and software writers must both flock to them) singles bars (males and females must both show up). To make it all click, suppliers are prompted to discover pricing schemes that do the job. Fine as far as that goes.

But what will the trust-busters and other regulators say (and do)? Free drinks to the ladies? Looks like pricing below cost and grounds for prosecution.

It is again clear that trust-busting is a fool's errand. Absent legalized market closure, there will be competition and innovation and discovery, etc.

BTW, the same issue of The Economist includes "Bats and balls" re scientific work on the (lower) mammals that finds that the sizes or brains and testes are inversely related. Why do we care? Because the research was conducted by males -- and should be cited when we hear that science is just another arena in which males oppress females.

More on more money buys more happiness

There is more wonderful material on money and happiness in Dwight R. Lee's refreshing "Who Says Money Can't Buy Happiness?" in the Winter, 2006, Independent Review.

First, Lee reminds us that Adam Smith reminded us that ambitition moves us out of a zero-sum prisoners dilemma to animate comparative advantage and wealth and welfare. These, by the way, tend to make us less miserable.

Second, Lee reminds us that Voltaire reminded us that when we strive to accumulate via trade, we do much less pillaging.

He could have included WW II Germany and Japan, each of which made no bones of the fact that they were after resources -- and both of which belatedly discovered the path to wealth via trade. That lesson learned came at devastating cost them and many more of their victims.

Most people, it turns out, are not self-inflicting wounds by striving. And, Lee concludes, "[h]appiness can also be heightened and extended by taking a little time out from our struggles each day to appreciate how much we have achieved already and how blessed we are in comparison to most people who are alive today and almost all who came before us. Consider how much the pursuit of wealth has added to the length, comfort, health, beauty, and meaning of our lives and the lives of our loved ones. If that competition does not increase your happiness, then do not expect that higher taxes and more government spending on mass transit and recycling programs will do so."

Money buys happiness

Causation is tricky but we love it. It is no surprise that the ancient money-makes-you- (or does not make you) happy discussion is now taken up by economists and other social scientists. In fact, my colleague Dick Easterlin has done some of the most careful work in this area.

This morning's WSJ includes "Money Buys Happiness" by Arthur C. Brooks. He reports evidence that the richer are happier to the extent that they donate more (money and /or time) to good causes.

To be sure, paying more in taxes does not make them happier. Apparently they exclude this from the good causes category -- and it leaves them less to donate.

"Money Buys Happiness"
By ARTHUR C. BROOKS
WSJ, December 8, 2005; Page A16

"During the holidays, we will give thanks for the important things in our lives. For most people, money is not one of these things -- at least this is what we would like others to think. We are after all constantly reminding each other that 'money doesn't buy happiness.'

"Economists aren't so sure. They note that people with a lot of money tend to express a higher subjective happiness than people with very little. According data from surveys by the National Opinion Research Center, for example, people in the top fifth of income earners are about 50% more likely to say they are 'very happy' than people in the bottom fifth, and only about half as likely to say they are 'not too happy.'

"There is, however, generally very little change in the average level of happiness in populations getting richer over the years. For instance, the percentage of the U.S. population saying it was 'very happy' in 1972 was exactly the same as it was in 2002: 30.3%. Social critics of 'consumerism' explain this by claiming that what makes rich people happy is not money per se, but rather the fact that they have more of it than others -- so if everybody gets richer, happiness remains unchanged. The critics go on to say that income differences lead to unwholesome feelings of superiority, so taxes can improve our moral fiber simply by bringing us closer to the same income level.

"Perhaps you're unconvinced. In fact there is another explanation for unchanging happiness levels over time which is rather less supportive of income redistribution. As incomes rise, so generally do levels of government revenues and spending, and there is evidence that these forces work against personal income on the overall level of happiness. For example, a $1,000 increase in per capita income is associated with a one-point decrease in the percentage of Americans saying they are 'not too happy.' At the same time, a $1,000 increase in government revenues per capita is associated with a two-point rise in the percentage of Americans saying they are not too happy. In other words, not only can money buy happiness, but it may be that the government can tax it away as well.

"But beyond earning, taxing and spending, there is an even clearer link between money and happiness: charity. The evidence is unambiguous that donating money (and time) is one of the best ways to buy happiness. People who donate to charity are 40% more likely to say they are 'very happy' than non-donors. Psychologists have even tested whether charity makes people happy using randomized, controlled experiments -- the same procedure used for testing pharmaceuticals, except that, instead of administering a drug to one group and a placebo to the other, researchers randomly assign one group to act charitably toward another. The results are clear: Givers of charity earn substantial mental and physical health rewards, even more than do the recipients of charity -- empirical evidence that it is indeed more blessed to give than to receive.

"The bottom line is that the old axiom about money and happiness, properly understood, is quite wrong. So if you are so fortunate, enjoy the blessings of your abundance this holiday season -- and be sure to buy yourself a little extra joy via your favorite charity."

American industrial policy

Socratic dialogue is valued because the punch-line is articulated by the one who would benefit the most. Often the student, or in a court of law, the opposing witness. This is why lawyers and teachers try to perfect this approach.

On rare occasions, writers or speakers articulate the lesson that they should grasp (or should have learned), quite spontaneously.

Robert Litan was a deputy attorney general in the Clinton administration and part of the anti-trust team that went after Microsoft. He is now with Brookings and a contributing editor at Inc., where he writes the following (Dec, 2005):

"There's More Than One Way to Bust a Trust ... The Feds failed to breach Microsoft's monopoly -- but Linux and Google just might succeed. ... Looking back today, what I find interesting is that the market may be sorting out what the legal system could not ..."

And what would the market be doing if anti-trust industrial policy had prevailed? There would surely be fewer Linux- or Google-type ascendencies.

Shopping high

It does not take great insight to note that most people love to shop. A pair of eyes will do.

And a visit to state liquor stores in those states that still have them or memories of the retail experience in eastern Europe from the bad old days highlight collectivists' cluelessness (and vulnerability) on this score.

In the U.S., terms of trade have shifted in consumers' favor to the extent that we acquire ever more but are increasingly frustrated by the ensuing space and storage problem because the price of real estate becomes the binding constraint. I recall a short story (by T.C. Boyle?) that includes a couple who drained their swimming pool to use it for storage.

As if there was ever a doubt, Tara Parker-Pope in today's WSJ reports that, "[a] growing body of brain research shows how shopping activates key areas of the brain, boosting our mood and making us feel better -- at least for a while. Peering into a decorated holiday window or finding a hard-to-find toy appears to tap into the brain's reward center, triggering the release of brain chemicals that give you a 'shopping high.'" She goes on to cite the neuroscience that is now available on the topic.

Is it any wonder that shopping centers and malls have given way to lifestyle centers? These are the places where most of our most pleasing communal and open spaces will come from. It's all quite obvious and now also rooted in neuroscience.

Smart Growth Not So Lite

The Smart Growth folks can be hard to pin down. Sometimes they plug tough top-down land use controls. Sometimes they claim that they simply want large-lot and similar requirements out of the way so that innovative designs that respond to markets can come to pass.

Paul Weyrich takes them at their word, that it's the latter, and endorses a conservative New Urbanism.

Trouble is that when one looks at the charter of the Congress of the New Urbanism, one cannot square the stated ambitions with the simple idea that government simply has to get out of the way so that developers can cater to markets.

Transportation planning

This morning's LA Times includes the following two items that caught my eye.

"MTA to Expand Rapid-Bus Service ... A mediator approves the agency's plan to more than double the number of routes to 29 by 2008 ... The number of rapid-bus lines in Los Angeles County will more than double over the next three years, making it easier for commuters to rely on public transportation and to move quickly around the region .

"On Wednesday a court-appointed mediator endorsed a MTA plan to meet demands for better bus service by expanding its rapid-bus program ..."

And, "Council OKs $40 Million for Exposition Rail Line ... The City Council has approved $40 million for the MTA to help build the Exposition rail line from downtown to Culver City. The 9.5-mile light-rail line is expected to cost about $640 million. The transit agency eventually plans to extend the line to Santa Monica."

L.A. county now has five recently-completed fixed guideway lines in operation. They include a $4.7 billion subway that carries slightly over 115,000 riders each day, three light-rail lines that cost almost $1-billion each just to build and between them serve 125,000 riders per day, and a recently opened busway that cost upwards of $350-million to build and carries approximately 10,600 riders per day.

These are all pathetically low numbers. The county's population is 10-million and the average person takes about four trips per day

My students and I recently applied a standard cost-benefit template to the five projects mentioned and found that, all things considered -- including generous assumptions about auto trips diverted and externality costs avoided, these five lines have a net cost to society of $560 million per year.

It takes a court order (and a lawsuit by the NCAAP and a group called the Bus Riders Union) to tell the MTA to add express bus service.

Tom Rubin reports that all of the MTAs routes could now be served by express buses -- had the money not been wasted on rail.

And what do local planners and politicians want to keep on doing? You guessed it.

Economists

We all want to look beyond stereotypes but, at the same time, privately (secretly) wonder about what truths they may contain. There are lawyer jokes but there are many lawyers who are among our finest spirits. The same can be said of economists and many others.

If economists tend not to be among the most popular figures on university campuses, does some of the credit go to any of their peculiarities? William B. Walstad and Sam Allgood present "Views of Teaching and Research and Other Disciplines" in the May 2005 Papers and Proceedings of the 170th meeting of the American Economics Assoc.

Based on a large survey of university faculty, the authors report:
"The survey evidence shows that many economics professors at research universities have a low regard for teaching and high regard for research ... " And, "... it is surprising that physical and biological scientists are not nearly as extreme in their views of the teaching and research trade-offs as are economics professors."

I hope that there is a study in the works somewhere that takes a crack at explaining some of the peculiarities of the economists.

Substitutes in the eye of the perceiver

A few years ago (I am not sure when) Prof. Ed Mills wrote (I am not sure where) that the internet was the way we would share unambiguous messages but that ambiguous messages (he cited a seminar as an example) would best be exchanged the old fashioned way.

This seemed reasonable. Harry Richardson and I wrote (somewhere) that the market would sort all of this out. That was also reasonable.

In the Nov 28 Forbes, David Gelernter writes "Who Needs a College Campus ... A new free market in higher education will turn the academy on its head." (Sorry, link to the article not available.) He also notes that the "world's top universities will exist forever. They sell tradition and mystique, which are always in demand. But outside the top tier, more and more students will discover that electronic courses offer education with less fun, less atmosphere, less political nonsense -- and a lot more choice and less cost."

Then there is the world depicted by Tom Wolfe in I Am Charlotte Simmons. Wolfe has taken some heat from some who think his rendering of modern undergraduate life was over the top.

Distance-learning technology will only get better and Gelernter's vision will surely offer a combination of price and quality that appeals to a growing segment. But it is all about how good or how bad the substitute is perceived to be -- and by how many.

In the interim, increasing affluence will continue to expand the demand for a lengthened adolescence. Undergrad life, as it is marketed and packaged today, is the market's finely tuned response. My guess is that the resulting mix of hedonism and credentialing and learning will continue to beguile large numbers of families -- who will continue to pick up the large tab for what they deem is the vastly preferred substitute.

Peace and prosperity

We have almost gotten used to what follows in the wake oil price spikes: silly politics, weird conspiracy theories and the mystery of what happens at the other end -- in the likes of Russia, Venezuela and the middle-Eastern states that rake in petrodollars by the billions.

For the most part, real economic progress has not been detected in these countries. The Economist of Nov. 12 examined the question again ("Recycling Petrodollars") with a moderately upbeat piece that suggests this time, with more experience, wiser investments will take place. Perhaps not, however, because it appears that most of the windfall revenues will continue to be directed by government (politicized) agencies.

This is why Charles Wolf's suggestion re Iraqi oil in today's WSJ is so refreshing. In "Shareholders Don't Shoot Each Other", the author argues that, "Privatizing Iraq's oil assets, and vesting all citizens with shares can provide incentive for every Iraqi -- including Sunnis, the insurgency's core -- to view commerce as a better path than violence. Ownership would provide 28 million citizens with a prospective increase in per-capita income of about $5,800, substantially raising their present income."

Iraqis could privatize their government oil monopoly -- and become traders and investors --and take a shot at peace and prosperity -- and leave their neighbors behind.

Wolf does not mention that the Iraqis had better do so quickly before their politics matures -- and prevents this sort of enlightened approach.

Enrichment

The smart set put down those they label "popularizers". Or mere popularizers. This is silly for several reasons. Many people can be clear and smart at the same time. Tom Sowell is a prominent example but the list is long. And in a world of comparative advantage, there are many niches to be populated. And the many popularizers laugh all the way to the bank. And many of them (almost by definition) greatly enrich our lives.

Two that I have recently encountered (whose works are known to many readers) are Bill Bryson and Nassim Nicholas Taleb.

For holiday nonfiction book givers, Bryson's A Short History of Nearly Everything and Taleb's Fooled by Randomness: The Hidden Role of Chance in Life and in the Markets are something(s) to consider.

Thinking big

On Monday, the WSJ ran the following:

"The Shame of the Cites: French Unrest Finds A Home in Projects ... France's public-housing projects, known as 'cites,' are an experiment in utopian urban planning gone badly wrong. Inspired by the famed modernist architect Le Corbusier ... a new generation of planners dreamed up communities that were supposed to be perfectly functional 'machines for living.' Hundreds of these projects sprang up across France. The structures were immense slabs of concrete up to 20 stories high and hundreds of yards long, each housing as many as 1,500 people. ..."

Today's WSJ reports on projects closer to home: "New Buildings Help People Fight Flab ... Designs Encourage Climbing Stairs and Lots of Walking; Cheeky Signs on the Elevator ... In July 2007 when students at Virginia Commonwealth University attend classes in a re-designed business-school building, they'll face a new hurdle: a staircase. Most of the 3,000 students now at the Richmond, Va., business school take elevators to reach classrooms. But in the new structure, the elevators will be especially slow-moving. They will also be tucked away at the rear, while the atrium will feature a prominent set of stairs ..."

Visit Berkeley, CA, or many other enlightened places and experience traffic-calming, a series of designs and impediments put in place to make driving onerous and, it is hoped, less frequent. Whereas transportation planning was once about improving access, this version targets the opposite.

There are, then, two problems. Not only is social engineering suspect, but it is also apparently irresistable to many designers. The challenge of building facilities that perform their intended functions is apparently not lofty enough.

Really getting people out of their cars

"Get people out of their cars" has been the rallying cry for greens, Luddites and many planners and politicians.

The WSJ's Stephen Moore summed it up in his recent "War Against the Car", some of which is repeated here.

"A few years ago, I made a presentation to my second-grader's social studies class, asking the kids what was the worst invention in history. I was shocked when a number of them answered 'the car.' When I asked why, they replied that cars destroy the environment. Distressed by the Green indoctrination already visited upon seven-year-olds, I was at least reassured in knowing that once these youngsters got their drivers' licenses, their attitudes would change.

"It's one thing for second-graders to hold such childish notions, but quite another for presumably educated adults to argue that automobiles are economically and environmentally unsustainable "axles of evil." But with higher gas prices, as well as Malthusian-sounding warnings about catastrophic global warming and the planet running out of oil, the tirade has taken on a new plausibility. Maybe Al Gore had it right all along when he warned that the car and the combustible engine are 'a mortal threat . . . more deadly than any military enemy.'"

The problem is that the critics have no clue on how to "get people out of their cars" because they cannot fathom the fact that most people prefer personal over group travel. The predictable result is that they have wasted billions of other people's money on transit systems, HOV lanes and land use schemes that have no positive effect. Bad theory leads to bad policy.

Looking forward is usually a better plan than looking backward. Reason's Ted Balaker has just published a study of telecommuting in US cities and shows that it does get people out of their cars -- at least moreso than transit.

And it does not rely on politicians, pork and transfers. And this is just the beginning.

And enlightened opinion wants the internet to be run by the United Nations.

Not bowling alone

Robert Putnam's Bowling Alone was almost a blockbuster (by academic standards) and the author made the cover of People mag and was courted by both of the Clinton's. To the left, there is something exhilarating about the pessimistic view of modern America.

But are we bowling alone? Cell phone use is everywhere; the most casual observer can see how obsessive we are about being and staying connected. The joke in California is that when one next takes the Department of Motor Vehicle's multiple choice license renewal exam, the answer to the question about who has the right of way is: The one speaking on his/her cell phone.

The 1990/2001 NPTS/NHTS trends on travel that I had mentioned earlier show that social and recreational person-trips (their category) were up 30% -- while worktrips increased 23% and population grew by 16%.

We are increasingly connected. And our interactions, physical and other, are complements.

Balanced and unbalanced

City and regional planners invoke the vague idea of "jobs-housing balance" as being a way that they can plan land uses and land use arrangements to reduce commuting.

It's a dumb idea on many levels. One being, "balance" at what scale (the zip code, the city, the region)? Another problem is that many of us are just too specialized in our occupational choices to be subject to this type of top-down planning. Also, many of us are busy weighing trade-offs against the long commute -- cheaper housing and better schools, being just two of many examples.

A recent report from Jason Bram at the NY Fed looks at New York metro area commuting patterns from 1980-2000. And guess what? Many people are now willing to travel longer distances to work.

Social engineering is, indeed, very hard work. And it appears to be getting harder all the time.

Vote early, vote often

Is it possible for an economist to be thrilled at the sight of first-time voters, whether in Iraq of Cambodia or any of the other places where people can now vote, forming long lines to vote (even braving life and limb)? Rational ignorance is a powerful argument and declining voter turnout as affluence raises opportunity costs are well known and well documented.

In "Why Vote?", Freakonomists Stephen J. Dubner and Steven D. Levitt discuss how Swiss voter turnout actually decreased when mail-in voting made the act cheaper. There is self-interest at stake, write the authors, "but not necessarily the same self-interest as indicated by our actual ballot choice. For all the talk of how people 'vote their pocketbooks,' the Swiss study suggests that we may be driven to vote less by a financial incentive than a social one. It may be that the most valuable payoff of voting is simply being seen at the polling place by your friends and co-workers."

Wal-Mart

The current issue of The Freeman includes John Semmens' "Wal-Mart is Good for the Economy". It seems that many people need reminding of the simple fact that, absent force, fraud or significant external costs, profitable enterprises are that way for good reasons -- they serve people best.

But success and progress also have powerful enemies -- even in what lazy observers still refer to the "laissez-faire" U.S.

Are there externalities? Sure. Everywhere. Are they significantly (net) positive or (net) negative? Only the conceivably negative are grist for popular discourse.

"Pecuniary externality" effects on wages or market prices are not a market failure.

Politicians may want to see every government program as a jobs program -- and they may want to see private enterprises in that light too but that is not economics.

Along these lines is the accusation that Wal-Mart's compensation packages push many employees to rely on public health programs. All things considered, employees and employers find each other and agree to terms in light of all of their available options.

Those who fret most about all of this are often the same people who routinely condemn the poorest to go to the worst (government) schools -- and thereby must bear much of the blame when poor people have few good options.

Nothing but bad news

Here is one blogger's report (Newmark's Door) of the good news on U.S. productivity growth.

The old media (today's LA Times, for example) has a very different take: "Third-quarter data beat expectations, but the fact that wages trail inflation may be making workers uneasy. ... U.S. workers in recent years have been pressed to produce more, although often for modest wage increases ... ."

In truth, these data are more impressive that the recent GDP results. Did the Bush tax cuts do more good than harm? It is beginning to look that way.

Some of the evidence is the convoluted economic reporting cited above.

Last seen violating the Law of Demand

If you use first-class U.S. mail, keep those 2-cent stamps handy because the 37-cent stamp will soon be history. The thirty-nine cent rate is coming your way.

Everyone knows that these rates go up as demand for snail-mail goes down because the Law of Demand is no match for a political jobs program (with labor unions and all).

The U.S. Statistical Abstract is all you need to compare the 23-year growth (1980-2003) record of the U.S. population (28%), U.S. per capita real GDP (58%) and and U.S. Postal Service expenses (well over 200% in nominal dollars but close to 200% in real terms). And being the USPS, they get special tax and permitting treatment, etc.

This is all regular-as-a-drumbeat news. But calling attention is all that we can do.