Agglomeration in the news

Agglomeration economies come in many flavors. In Forbes (Oct 30), columnist John W. Rogers Jr. writes about "Home Court Advantage". He cites an academic paper that confirms that investors do best if they invest in companies that are close to home (within 62 miles).

"Since my days as a hot dog vendor at Chicago's Comiskey Park through my years on Princeton's basketball team, I have always been fascinated by the theory of the home team's advantage. Many studies have found that athletic teams tend to win more home games than away games. For the Big Ten Conference in men's basketball last year, home teams won 70% of the games.

"Why? The home team has a certain confidence. It knows the feel of the court and the give of the rims. And, of course, the fans are on its side.

"Similarly, the home court can make a big difference to an investor. Living in Chicago gives me an informational advantage with businesses headquartered here because I encounter them all the time. I buy their products, cross paths with their executives and employees, and talk to their customers and competitors.

"There's academic support for my beliefs about the home advantage. Tobias J. Moskowitz, a finance professor at the University of Chicago's business school, has conducted extensive research on the geography of investing. His conclusion: One way to beat an investment benchmark over the long haul is to buy stocks close by--which he defines as businesses headquartered within 62 miles.

"Managers' home-area portfolio holdings outperform their faraway holdings by 2.7 percentage points per year. Let me explain just what is meant by that. Of course Moskowitz is not claiming that each town's corporations beat the national average. Rather, he's saying that a money manager has a superior ability to sort good companies from bad when the companies in question are nearby. Those stock pickers with strong convictions about neighboring businesses do particularly well. According to Moskowitz's research, which spanned 1975 through 1994, money managers who committed 20% or more of their assets to proximate companies' stocks did four full percentage points a year better with them than with the rest of their portfolios."

Likewise, the NY Times recently ran "It's not the people you know. It's where you are."

"If you have a brilliant idea for the New New Thing and want Sequoia to provide its funds and blessing — using the same golden touch provided not long ago to Google’s founders — you would be much better off in Beijing, where Sequoia has an office, than in Boston, where it does not.

"It’s convenient for venture capitalists to have entrepreneurs close by, but the reverse is true, too, said Allen Morgan, a managing director of the Mayfield Fund, which manages $2.3 billion in venture capital and is also on Sand Hill Road. Mr. Morgan made the case by pointing out that a prospective entrepreneur would, on average, need to have three to eight meetings with a venture fund before he or she was successful, but would have to go through a similar process with 5 to 10 firms before finding the one that approved the funding request.

"Even if the process goes smoothly and requires only 15 meetings — the fewest possible, given the lowest range of possibilities — and even if most of those meetings are set up in advance, the time consumed in getting to Sand Hill Road, even using local highways, can be significant. The problem is that much worse when, as often happens, a meeting is called with just an hour or two of notice. 'If you live in Santa Clara, it’s doable,' Mr. Morgan said. 'If you live in Dubuque, it’s not.'

"Entrepreneurs who live in Silicon Valley also find the technical talent they need faster than they can in any other place; they pay more for that talent, but speed is the sine qua non for success. Seth J. Sternberg, the chief executive of Meebo, an instant-messaging company in Palo Alto that is backed by Sequoia, described Silicon Valley with the fervent appreciation of a recent transplant from New York, where he had suffered three separate bad experiences with start-ups, none of which had attracted venture funding.

"The ecosystem in Silicon Valley, Mr. Sternberg said, includes “incredible techies, who live here because this is the epicenter, where they can find the most interesting projects to work on.” The ecosystem also includes real estate agents, accountants, head hunters and lawyers who understand an entrepreneur’s situation — that is, emptied bank accounts and maxed-out credit cards."

Fat city

Ben Dachis points us to the University of Toronto working paper (by Jean Eid, Henry G. Overman, Diego Puga and Matthew A. Turner) "Fat City: The Relationship Between Sprawl and Obesity. .. Our results indicate that current interest in changing the built envornment to counter the rise in obesity is misguided."

These results should not surprise anyone. Yet, serious people publish papers that link "urban sprawl" with obesity. Google scholar brings up almost one-thousand papers with keywords "sprawl" and "obesity." I sampled and all the ones that I found argued for a positive link.

But I did not find this stuff on the Wikipedia pseudoscience list. Well, the cited paper is a nudge in that direction.

Assimilation on steroids.

In their on-line coverage of their on-air coverage of the 300-million mark reached by the U.S. population last week, the editors of The News Hour did not highlight what may have been the most important point of all.

They did have the good sense to interview Brookings' Bill Frey and he had many interesting things to say. Among them was the thought that when we reach 400-million (in as little as 37 years), inter-ethnic marriage and coupling will likely have become so extensive as to wipe out (not his words) today's obsessions with race. How lovely.

Becker and Posner do the usual fine job of weighing the many sides of population growth. But they too miss Frey's big point. Politics alone creates many problems but it becomes poison when it mixes with race.

Most countries have their own peculiar histories of racial strife and the U.S. is no exception. But assimilation has always been the most promising antidote -- and intermarriage between the races and ethnicities on a scale where the tired old categories fade is assimilation on steroids.

Expanding universe

Brookings demographers have been mining 2000 census data re "exurbia." To paraphrase a former U.S. president, "it depends on what you mean by exurbia."

Dr. Soojung Kim and I have been looking at employment, population and income growth throughout the U.S. counties, using the 35-year REIS file from BEA. Interestingly, the outward trends are dominant but there are cycles.

The "micropolitan" areas can be categorized as adjacent to large or small metros or nonadjacent. Their performances vary from region to region. They do best in the west -- even though counties tend to be larger and this region's micropolitan counties tend to be more remote than those in other regions.

Rural counties (those that do not qualify as core-based [micropolitan or metropolitan]) can also be grouped by whether they are adjacent or nonadjacent to any of the two core-based groups. In years when there is an outward impetus, the latter also do well. The pulses push further than anyone had thought.

Today's WSJ reports this:

"Seeding Sprawl"
October 18, 2006; Page B4

"The American "exurbs" are growing twice as fast as the overall metropolitan areas from which they sprawled, according to a new report by the Brookings Institution.

"These areas, on the far fringes of cities, still house relatively few people -- an average of about 6% of the population of 88 large U.S. metropolitan areas, as of 2000. But the exurbs' rapid growth, about 31% in terms of population during the 1990s, poses a big challenge to developers, regional planners and conservationists.

"'The question for all exurbs is are you going to remain the fringe of a metro area, or in 20 years are you going to be a conventional suburb, which means you will lose more and more rural land and the congestion will be worse,' says Alan Berube, the study's head author.

"The Brookings study defines exurbs as communities with relatively low housing density where at least 20% of workers commute to jobs in urban areas. In cities such as Cleveland and Detroit, the exurbs have become havens for wealthier people escaping more impoverished cities and inner suburbs. In higher-priced Boston, New York, the San Francisco Bay area and Washington, D.C., residents are being forced farther outside cities because they can't afford housing.

"In the long run, Mr. Berube says it will be less expensive to encourage development nearer the center of a metro area because communities won't need to spend money creating infrastructure to support residents on the fringes. But residents' conflicted views complicate matters, he adds. "People want a single-family home and a bunch of bedrooms, but at the same time they want to be able to walk to things and commute less than 45 minutes each way.

Rants

Unlike conservative talk radio, left-wing Air America Radio is in financial trouble. And William Safire's "On Language" in today's NY Times writes about the etymology of rant.

It seems that right-wing rants have an audience and left-wing rants less so. Yet about as many Americans vote for Democrats as Republicans. So what gives?

I am currently enjoying Eric Beinhocker's The Origin of Wealth. Like so many other recent books that feature discussions of economics (David Warsh's Knowledge and the Wealth of Nations, for example), it reminds us that serious people now take property seriously. It was not always so and property is still thought be exotic and/or sinister in many circles (NPR, Dan Rather, Bill Maher, many precincts of U.S. universities, etc.).

Most Americans now own property -- most auspiciously, their own homes as well as 401k's and the like. To most people, the idea of property is coherent while the socialist critique is exotic and/or sinister.

Rants, seemingly, go down better when coherent. What has the left to offer? According to Brad Hill, their remaining trade is critique when the right misfires. It seems that this can win frustrated voters and even elections but it cannot sustain a regular large audience.

Glass half-full

What do we know? In less than a week, there will be 300 million of us (and ever fewer Europeans). The Dow has been hitting record highs. And the housing "bubble" is no longer expaning. In fact, it is slowly deflating.

Economists are still divided on whether the housing contraction means sharp brakes on consumer spending. The pro and con views are nicely summerized in The Economist's Economic focus: Home Truths.

Interestingly, the coverage compares two types of mortgage-equity withdrawals, active and passive. The former includes home-equity loans while the latter includes cashing in equity for retirement. The two do not move in tandem.

As usual, demographic context sheds new light. The article also mentions that home-equity cash is being used by many to pay off credit card debt.

When it comes to the U.S. economy, it is very hard work being a steady gloomster/doomster.

New blog on cities

Fred Siegel usually has interesting things to say. And he has al lot to say about cities. And two of his favorite cities are New York and Los Angeles, about which he knows quite a lot.

Now he has teamed up with his son Harry to maintain a blog, Cities on a Hill, to inform the rest of us re their views.

I learned a lot about New York City from Fred's The Prince of the City. Over the years, he has been prolific and wise. Now we have the good fortune of hearing from the Siegels on a regular basis.

The 0.63 percent solution

Sprawl is wasteful. That's the mantra that has launched a thousand papers, editorials, speeches, conferences, books, etc. Too bad that no one bothers to define sprawl or waste.

Some relief is offered by Marcy Burchfield and her co-authors in the May 2006 Quarterly Journal of Economics, where they write about the "Causes of Sprawl: A Portrait from Space."

From their abstract: "We study the extent to which U.S. urban development is sprawling and what determines the differenecs in sprawl across space. Using remote-sensing data to track the evolution of land use on a grid of 8.7 billion 30x30 meter cells, we measure sprawl as the amount of undeveloped land surrounding an average urban dwelling. The extent of sprawl remained roughly unchanged between 1976 and 1992, although it varied dramatically across metropolitan areas. Ground water availability, temperate climate, rugged terrain, decentralized employment, early public transport infrastructure, uncertainty about metropolitan growth and unincorporated land in the urban fringe all increase sprawl."

If one is going to quibble about endogeneity, then decentralized employment would come first.

That aside, their data show the state-by-state increase in nonurban land urbanized; for all of the U.S., it was 0.63 percent over the period studied.

Another lesson

High gasoline prices boost transit use -- according to transit boosters.

But the Census Bureau has just published results of its 2005 American Comunity Survey -- and transit commuting for the U.S. was 4.7% -- the same as in 2000. Yet, the inflation-adjusted price of gasoline (average U.S.) was about 20 percent higher in 2005 than in 2000. In the period, subsidies per rider had also increased.

It's been the perfect storm for public transit. There must be lesson here.

Winning coalition

Los Angeles' three light rail lines account for 55 miles of bi-directional guideway that get approximately 126,000 boardings per day. Construction has just begun on another 8.5 mile line that planners say will serve 43,000 riders per day. In other words, the new line will have double the per-mile ridership than the three existing lines.

This is an old story and I have been beating this dead horse for many years. Some proponents are liars and others are ignorant. For good measure, some also pose as high-minded environmentalists.

It adds up to a winning coalition.

The power of ideas

Hernando de Soto is quite a guy. He has a good idea, he researches and writes about it compellingly. Then he follows up with all manner of speeches and appearances.

And now he gets Bill Clinton (!) to explain it at tout le monde.

"Helping the Poor Register Land"
WSJ, By SALLY BEATTY, September 29, 2006; Page W2

"Establishing land rights for the poor in developing nations turned into the sleeper issue at the second annual Clinton Global Initiative in Manhattan last week, where celebrities, heads of state and the super-rich gathered to raise funds to help solve the world's problems.

"Former President Bill Clinton secured commitments totaling $7.3 billion at this year's conference, up from $2.5 billion last year. But the buzz in the hallways centered on a topic that until recently most philanthropists all but ignored: registering poor people's property so they could borrow against it to build businesses, pay taxes or for other purposes. Many citizens of developing countries don't formally have title to their land, and many economists -- including Peruvian economist Hernando de Soto, another conference attendee -- see this as a key source of urban poverty. According to Mr. de Soto's research, the value of unregistered land in developing countries totals over $9 trillion. Mr. Clinton told the audience that these assets 'cannot be converted into collateral for loans -- wealth locked-up and locked-down -- keeping people in grinding poverty instead of being an asset that can lift them up.' Up to 85% of urban land parcels in the developing world are unregistered, Mr. Clinton said, citing Mr. de Soto's research.

"But standing in the way of widespread land-ownership records are insufficient legal frameworks, confusing procedures and corrupt property registries. And establishing land ownership is all but impossible in communist and socialist countries, where property usually is owned by the state, said John Bryant, chief executive of Operation Hope, a nonprofit in Los Angeles that provides financial services to the poor.

"Calling land ownership 'the cornerstone of economic stability in any region,' Craig DeRoy, president of First American Corp., a seller of title-insurance and credit information, said his company would commit $1 million in cash and in-kind services to develop a 'template' to give the poor in developing countries a way to establish land titles.

"More foundations are beginning to think about land ownership. Patty Stonesifer, chief executive of the giant Bill & Melinda Gates Foundation and another conference attendee, called the discussion about land registration 'intriguing.' Though her group hasn't announced any involvement in the effort, it said earlier this year it will move into funding financial services for the poor."

Modest proposals

Elite opinion in L.A. (and many other places) cannot let go of the idea of more subways. Writing in today's LA Times, Christopher Hawthorne suggests that, "... it's time to redefine exactly what cost-efficiency means in a city of Los Angeles." Actually, local know-nothings have been doing so for many years.

This is why it is good to have Gabriel Roth's Street Smart in print. Twenty of today's smartest transportation people assemble and survey some of the best thinking around when it comes to urban transportation.

Now if we could only get elite opinion to stop talking and start reading (and thinking).

A little history

Some of us recall the Newsweek cover of the mid-1970s that showed the Earth covered with ice. Global cooling was the fad.

Randall Holcombe poses the question in the Fall 2006 Independent Review, "Should We Have Acted Thirty Years Ago to Prevent Global Climate Change?" To ask the question is to anwer it.

Likewise, Kevin Shapiro asks, in the September Commentary, "Global Warming: Apocalypse Now?"

Patrick J. Michaels in Cato Policy Analysis No. 576 wonders, Is the Sky Really Falling? A Review of Recent Global Warming Scare Stories.

Part of the current discussion is the ineluctable demand for bad-news-coupled-to-feel-good-policy-antidotes. The science is being debated on terms that are beyond many lay people. The policy stuff elicits yawns. Perhaps evoking the global cooling discussion is useful.

Nothing like a little recent history.

Fool's errand

Most people cling to the feel-good view that regulations protect consumers. A few grumpy economists (and some others) point out that most regulations also limit competition and choice -- with the effect that prices are high and quality low.

When it comes to taxicab service, many of us spend more getting to and from airports than flying between them. The airlines compete and the taxis are regulated. Oh yes, the regs are there to protect us.

Todays' LA Times includes "Taxicabs Take L.A. for a Ride ... Sting operation finds that 'scenic routes' and potentially rigged meters inflated costs half the time ..."

Deregulation and more competition, anyone? Government failure, anyone? Naw!

The basics

Supply and demand each matter. "Everybody" knows this. Well, not exactly. Many land use and housing regulators live in their own world, where their actions presumably make little difference. Then on odd days they fret over housing "affordability."

Actually, there are only trade-offs (another headline grabber). To help us make the point, Wendel Cox has just published his second annual housing affordability index. LA (my hometown) is in the worst shape of all.

And, yes, this morning's LA Times includes stories on plans to extend the County's disastrous Red Line subway. The one that costs taxpayers $8.50 for each and every boarding -- and that chalks up social losses of "only" $8.25 for each and every boarding, once we consider all those externalities.

The third shocker is that there is exit and voice. Until we leave, we only have one choice: keep on making the point, repetitious though it may be. The variation is to find new and better ways to make the point.

Hard work being concerned

"Fair" trade is a popular but useless label. So when it pops up at Stabucks, one must be wary (or put hand over wallet). Many economists have noted that it is just an application of price discrimination. The Undercover Economist refers to it as pricey "coffee for the concerned."

This morning's LA Times includes: "Fairtrade Coffee Not Living Up to Label in Peru ... 'Ethical' coffee is being produced in Peru, the world's top exporter of Fairtrade coffee, by laborers paid less than the legal minimum wage."

Win-win

Today's NY Times real estate section features "Apartment Living, Home Schooling"

"By day, Baldwin Village is a pleasant Los Angeles neighborhood of two-story apartment buildings, most of them with metal gates and lushly planted courtyards. By night, residents say, the neighborhood is anything but lovely. When George Pino and Joe Killinger, a pair of real estate investors, began buying buildings in the neighbrohood, eight miles southwest of downtown L.A., in 2003, the police asked them to trim their shribery so that drug deaklers would have fewer places to hide. ... Now, in two of their buildings, the partners operate resource centers where the children play educational games. The centers are operated by teachers who arrive at 3:30 p.m. and stay until 6 p.m. each weekday.

"In an neighborhood where vacancy rates average about 5 percent, the partners said, the vacancy rate in their five buildings, which have a total of 104 units, is about 1 percent."

I have heard of experiments like this before and they make great sense. Renters and landlords (and buyers and sellers) have a common interest. It is old hat -- if the zoners and the educators will just let it be.

"Do you want some health insurance with that hammer?"

Many people have figured out that free exchange is the source of our well being. But at least as auspicious is what markets bring forth in spite of the many roadblocks from the world of politics. (Yes, many ironies in light of the mantra by the regulators and their supporters that they are in the business of "helping people.") The story below cites new ways that people can purchase health care coverage. Yes, it's from entrepreneurs interested in profit -- the real "helping professions."

"Out Front Home Remedy"
by Suzanne Hoppough
Forbes, 09.18.06

"Can't get health insurance? Try shopping at Home Depot."

"To keep customers coming back, retailers try everything from store-issued credit cards to loyalty cards that get punched with every purchase. Now the Home Depot is going one better. It's treating its most faithful shoppers--plumbers, electricians, small-home builders and contractors--almost like employees. These customers can now have their businesses' payroll, credit-card processing and personnel paperwork done through Home Depot. They can get their mobile phones and shipping services through Home Depot. Most notably, they can sign up for health insurance through Home Depot.

"The hardware chain has been rolling out the program since January, doing little to publicize it beyond putting stacks of brochures next to cash registers. Nevertheless, 12,000 customers have signed up. Home Depot plans to announce the program in the media later this month.

"The program, dubbed Home Depot Business ToolBox, could be a boon for small-business owners who can't get health insurance at affordable rates. Members pay for the insurance and other services but take advantage of Home Depot's group rates. In return, they don't need to do anything, not even promise to shop at Home Depot instead of archrival Lowe's.

"It's a bold but risky move, so what's in it for the country's second-largest retailer? Chief Executive Robert Nardelli came up with the idea as a way to keep expanding sales to the professional market, which account for 30% of the chain's $82 billion annual total. The program is also open to other small employers: shops and restaurants, even churches, day care centers and other nonprofits. He figures that the program will instill a deep loyalty to Home Depot. It is not exactly a charitable activity on the company's part, because the company gets fees from the 13 companies--so far--that provide the services; they include Sprint, JPMorgan Chase and DHL. But evidently the bottom-line benefit, if any, is going to come through higher sales of hardware.

"Nardelli certainly needs the boost. The company's share price is down 21% since he took over in December 2000, and investors are in an uproar over everything from his fat paycheck to how he ran the annual meeting.

"So far, his plan has worked for Margaret Lade, owner of Lade Insurance Agency in Burnsville, Minn. She switched to the payroll processor offered by Business ToolBox, PrimePay, and says she's saving 40%. She also might change her credit-card processor to Chase. 'Now I definitely use Home Depot before [Midwest hardware chain] Menards,' she says. 'They're going out of their way for their customers. I do the same thing for mine, trying to get that warm-and-fuzzy feeling.'

"Some 38% of Business ToolBox members tell Home Depot that they plan to sign up for health insurance. Wendy Hendricks, who runs a 15-employee Pittsburgh firm called Warehouses by Design that outfits warehouses, already had insurance when she learned about the program from an insert in her Home Depot credit card bill. But she was paying $800 a month for her family of five, so she called the toll-free number and reached Phoenix broker BenefitProtect. She switched to Assurant Health and now pays $450 a month.

"The retailer put BenefitProtect through lots of hoops before picking it as Business ToolBox's insurance broker. 'Home Depot wanted assurances that we can grow with their plan,' says Kyle Williams, the company's chief executive. He says some applicants have serious conditions and don't qualify for major medical insurance but can get limited coverage.

"Of course, funneling thousands of customers into all sorts of services could prove a huge administrative headache for Home Depot. It has already lost one customer. Celeste Gothorp, owner of a small power-washing company in Graham, N.C., signed up for Business ToolBox online and followed up with an e-mail to no avail. 'I got a prompt e-mail back saying someone would be in touch,' she says. 'That was six months ago.'

"Home Depot brushes off such concerns. James Stoddart, the retailer's senior vice president for growth initiatives, says it's ready for the volume that's expected once the program gets more publicity. In fact, he says, Business ToolBox is adding new services, such as dumpster rentals and help for contractors in maintaining their certifications, while also expanding into Mexico and Canada. Throughout North America, cashiers may soon be saying, 'Do you want some health insurance with that hammer?'"

Keep it handy

Jonathan D. Fisher and David S. Johnson just published "Consumption Mobility in the U.S.: Evidence from Two Panel Sets" Here is their abstract:

"This paper examines inequality and mobility using measures of income and consumption. Consumption is claimed to be a better measure of permanent income and thus well-being, but most studies of inequality and mobility using U.S. data use income.

"This paper uses cohort data from the Consumer Expenditure Surveys on total consumption to impute consumption in the Panel Study of Income Dynamics. Then, we use this imputed consumption and actual income from the PSID to examine changes in inequality and mobility. Similar to earlier findings, we show that there has been a large increase in income inequality but no concurrent increase in consumption inequality in the 1990s. Conversely, income mobility and consumption mobility are similar during this time period.

"Finally, we link the concepts of inequality and mobility using a social welfare function. The results suggest that income mobility and consumption mobility more than offset the increases in inequality."

Straight intertemporal comparisons of groups that do not include the same people -- only to set up great displays of profound concern over the findings -- is one of the most bone-headed plays in our popular discourse.

So, keep Fisher and Johnson's paper nearby.

Fooled by Randomness?

We tell our students: "No theory without numbers and no numbers without theory."

But Forbes (Sep 18) includes: "Economic Dexterity ... Left-handed men with college educations earn 15% more than similarly schooled right-handed men, an academic study says. Using a detailed 1993 government survey of 5,000 persons, Lafayette College's Christopher S. Ruebeck and Johns Hopkins' Joseph E. Harrington, Jr. and Robert Moffitt found no differences for women. Over 33 pages they suggest no firm explanation for their conclusions, writing, 'We do not have a theory that reconciles all of these findings.'"

Worthy re downtowns

Much of "informed opinion" takes it for granted that (i) downtowns (and especially LA's) are "coming back"; and (ii) they ought to be further encouraged to keep it up; and (iii) this effort should be paid for by everyone else.

Randy Crane takes a sober look at all this. His blog on the topic is worth reading.

New and improved housing markets

Yesterday's NY Times included "The Pork-Bellies Approach to Housing" which described the marketing of the Case-Shiller house-price indices as housing market hedges.

The indices are metro-area specific and, therefore, limited. "When pressed on this, Shiller and Masucci observed that metro-level price changes do explain roughly half the variation in price for a typical house. Whether that's good enough for hedging purposes remains to be seen."

As with any hedge and/or insurance, it's not for everyone but the fact that is is now available (and selling) says a lot. There is lots wrong with housing markets and how they are treated by tax and zoning laws. Given all of this, the availability of these new opportunities is good news even if we stay on the sidelines.

We may get fewer interest rate jitters, less bubble talk (and possibly fewer bubbles), as well as thicker and better informed markets.

Terms of trade

Well-offness is hard to measure. Economists and many others have tried but all manageable indices are bound to fall short. Census income comparisons have well known shortcomings and the BLS has recently taken to making consumer expenditure comparisons (tanks, Ted Balaker).

Cox and Alm (1999) provided many illuminating examples of what an average worker could buy per hour of work, now vs. a hundred years ago, etc. And guess what? We are better off now!

Last week, The Economist published the UBS international index of how long an average worker has to toil to buy a Big Mac. This is an elaboration of the magazine's well known Big Mac Index (see chart), which offers a rough measure of international comparative purchasing power. This latest version divides the local price of a Big Mac by the local average hourly wage.

Tokyo workers have the most Big Mac purchasing power in the world, better than their New York counterparts. Terms of trade, indeed!

Hand-wringing

The Census issues periodic reports on income distributions and, like clockwork, stern commentators emerge to comment how much worse-off the median earner is today -- than 5, 10, 20, 30, whatever, years ago.

This is silly for two reasons. One, of course, is that very few of us spend a lifetime as median earners. The median earner today is very likely to move up as he gets older. Second, Don Boudreaux suggests a useful but simple mental experiment: think seriously about life as it was in 1986, 1976, etc., and what it is that you now take for granted that you did not have available to you: ATM's, wi-fi, broadband, Google, cell phones everywhere, almost anything you find at Best Buy, etc.

Not a gadget person? OK, how about today's medical science?

First run at the trough

Three light-rail lines have been added to L.A. county's transit system in the last 20 years. Together, these cost $2.5 billion in capital costs, they serve about 125,000 passengers per day and account for a fiscal loss of approximately $252 million per year -- if one acknowledges that capital costs are real, something that transit operators and boosters often neglect.

If one wants to believe that there are external benefits, a variety of optimistic assumptions on auto trips replaced, cuts the loss to "only" $245 million/year. These are simple spreadsheet calculations that anyone can do. Further, no one alleges that the three lines have had any impact on L.A. area traffic conditions. In fact, complaints about "gridlock" are a staple -- and the pricing cure is still deemed too esoteric and/or sinister. In fact, there are no correlations known to man or woman to show that projects like this relieve traffic.

None of these simple facts made it into today's LA Times coverage, which is reproduced below because it is all so breathtaking. Billions of dollars are at stake and a know-nothing debate is respectfully cited -- when it is simply about which part of town and which politician gets first run at the trough.

"Which Way for the Next Light-Rail Line in L.A. County?
L.A. transit agency weighs competing plans for lines to the Westside and San Gabriel Valley."

By Jean Guccione, Times Staff Writer
September 3, 2006

"As they prepare to set spending priorities for the next quarter-century, Los Angeles County transit officials are bracing for a head-on collision over where to build the next light-rail line.

"Should the Westside's proposed Expo Line be extended all the way from downtown to Santa Monica? Or should Pasadena's Gold Line grow 13 miles east to Montclair?

"Though construction is still years away, long-range planning decisions reached over the next several months will determine the pecking order for major county transit projects through 2030.

"Even if both light-rail proposals are considered worthy, some transit officials doubt that the federal government would spring for two $1-billion transportation projects in the same county at the same time, escalating the competition for federal dollars.

"'There is no question that traffic is getting worse everywhere,' said Los Angeles County Supervisor Zev Yaroslavsky, who wants the Westside's Expo Line extension built next. 'Now the question is, if you have a limited amount of money, where do you spend it?'

"Rep. David Dreier (R-San Dimas) says funds should be allocated to the San Gabriel Valley, where thousands of new, affordable homes are luring workers and increasing freeway congestion.

"Dreier envisions someday extending the line even farther east, to Ontario Airport — a move that he argues also would benefit the Westside by shifting some travelers away from Los Angeles International Airport.

"'We need to build Expo, but the Gold Line is my priority,' Dreier said in an interview Thursday. 'I think we have the potential to do both.'

"The dueling proposals are attracting more attention now as the Metropolitan Transportation Authority moves closer to deciding which of dozens of proposed transit improvements should be funded in coming years.

"Projects must be part of the agency's long-range plan to qualify for federal funds. The plan is scheduled for adoption early next year.

"This year's competition is particularly fierce as officials anticipate how they might spend up to $12 billion on one-time capital projects if voters approve the state transportation bond issue in November. Without voter approval, the agency would allocate an estimated $7 billion in existing funds to new projects.

"Even with the state bond money, transit officials said, they still would have to seek matching federal funds to begin building light-rail extensions within the next few years. The MTA's capital funds cover streets and highways, as well as buses and rail.

"'Money is going to be very tight,' said Carol Inge, chief planning officer. 'We have a longer list of projects than we have money overall.'

"Officials have yet to decide which projects they will request funding for in the long-range plan, Inge said.

"Construction priorities are based on ridership projections and cost effectiveness, measured in costs per mile and costs per passenger, according to MTA board policy.

"In 2001, the last time projects were ranked, the MTA board of directors gave the Expo Line a high priority.

"Construction is scheduled to begin soon on the first part of the line — from downtown Los Angeles to Culver City.

"The next proposed segment, from Culver City to Santa Monica, is in the long-range plan but has not yet been funded. It is expected to cost $750 million to build.

"The Gold Line extension did not make it into the MTA's 2001 long-range plan. A preliminary draft of the agency's 2006 priorities shows other, more costly, projects — such as Los Angeles Mayor Antonio Villaraigosa's proposed subway to the sea — ranking higher.

"Because ridership on the Gold Line's 14-mile route between Union Station near downtown Los Angeles and Pasadena turned out to be lower than expected, a further extension of the line was placed somewhere in the middle of this year's preliminary long-range plan.

"Ridership on the Pasadena line hit a high of 20,000 weekday boardings in July, according to the MTA. Weekend ridership, however, has dropped significantly over the last year.

"Duarte City Councilman John Fasana, who sits on the MTA board, said ridership would increase if the Pasadena-based line were extended farther into the fast-growing San Gabriel Valley.

"The region's three east-west freeways are packed with big trucks serving the ports of Los Angeles and Long Beach, as well as thousands of commuters, many traveling from their homes in the Inland Empire.

"Last year, the counties of Riverside and San Bernardino issued 51,000 residential building permits, and their region ranked seventh in the nation for new-home growth, according to California Department of Transportation statistics. More than 153,000 permits were issued in those two counties in the four previous years.

"Still, Yaroslavsky said the Gold Line ridership numbers, estimated at 6.3 million boardings a year, do not support the proposed extension at this time. Statistics, he said, favor additional mass transit on the burgeoning Westside as a top countywide priority.

"'If you look at this objectively and leave the politics out, it bears no comparison to anything else,' he said of the Westside's need.The Westside has no commuter rail line. Its two freeways, the Santa Monica and San Diego, are "parking lots," he said. And the area's major hubs — Santa Monica, Century City, Westwood and Culver City — are experiencing major residential and commercial growth.

"Duarte's Fasana said he expects that the Gold Line extension would be included in the upcoming long-range plan — and that, if the state bond measure passes, 'I think there is an ability to build both projects.'

"Gold Line proponents aren't taking any chances. They are trying to leap-frog ahead of the proposed Westside line by appealing directly to Congress for funds.

"Habib Balian, chief executive officer of the Gold Line Foothill Extension Construction Authority, is leading the charge. He acknowledges that the strategy is 'totally unconventional.'

"The construction authority was created by the Legislature to oversee construction but not operation of the Gold Line to Pasadena. The MTA runs the line.

"Balian doesn't view his renegade tactics as distracting support for the Expo Line in any way."I believe all meritorious projects will be funded," he said.Balian pointed out that he is not asking the MTA to pay for construction of the extension. The agency simply would have to commit to run the extended Gold Line — at a cost of about $10 million a year — after it is built.

"The MTA needs to promise to pay for operation of the rail line for federal construction funds to be secured, he said.

"While waiting for decisions, both sides are proceeding as if their projects have made the cut.

"Even before ground has been broken on the Expo Line to Culver City, its construction authority is seeking proposals for an environmental study of construction from Culver City to Santa Monica.

"The Gold Line construction authority, meanwhile, is studying the effect of its proposed two-phase extension: 10.5 miles from Pasadena to Azusa, followed by 13.1 miles to Montclair.

"People on both sides acknowledge that the county's need for public transportation is great everywhere.

"Despite his support for the Gold Line project, Dreier said freeway congestion on the Westside and elsewhere affects all Los Angeles County residents, no matter where they live.

"'My constituents want to have the ability to go to the beach, the mountains, the desert or wherever,' he said."

"Imbalances"

A staple of 1980s hand-wringing was "manpower planning". That seems to have waned even though there are still occasional stories from the genre that make the news. This morning's WSJ includes: "Oil-Rich Calgary Finds Boomtimes have a Downside ... A Hot Real Estate Market Suffers Big Labor Shortage; Office Vacancies Near Zero." It makes good copy but most people understand that labor markets, if left alone, funnel labor to its highest and best uses.

Seeming "imbalances" in land use and transportation also get top billing. Yesterday's L.A. Times included: "L.A., O.C. Traffic Patterns to Switch ... Orange County has long had more outgoing commuters. Within 20 years, that's expected to reverse as jobs multiply ..."

The second article cites the concerns of local planners and politicians who have been chasing the "job-housing balance" chimera for years.

No human has an idea of what the proper "balance" would be (at what level of geography, at what skill level, how to balance against non-job draws, etc.); if they somehow did, what would they/could they do with the knowledge?

Our planners and politicians refuse to price road access. As a result there is road traffic ("gridlock") that they want to "solve" by somehow manipulating land and housing markets. It is pure nonsense but, again, no joke because their interventions stymie land and housing markets -- creating another "crisis" to "solve", the "housing affordability" problem.

PBS discovers Roger Rabbit

TV is a wasteland and the sanctimonious pledge breaks that PBS-affiliated stations like to run repeat the point endlessly to push the idea that their product is much better and worthy of support -- with donations as well as tax dollars. Compelling the unwashed to support "good causes" is, of course, the hat trick of the elites.

Tonight, on PBS' "History Detectives," the high-minded reached for Roger Rabbit to evoke the idea the we no longer use streetcars because of corporate conspiracies.

This is dumb (and weird) and has been shot down many times, first by economic historian George Hilton, (in 1976!) and many times since then.

It seems that the high-minded can be astonishingly closed-minded when venting their hatred for the automobile and its many fans. But cars are not just the staple of NASCAR-nation; BMWs and Volvos (and SUVs) and other fine cars can be found in the parking lots of better wine stores and organic food stores everywhere.

Policy trades

Today's WSJ includes, "In Tony Monterey County, Slums and a Land War ... Environmentalists fight to preserve scenic beauty while immigrants cram into housing and garages ... Who will pick the vegetables? ... Monterey County is torn by competing priorities. On one side are farmers, developers and immigrant advocates who want to see more housing built. On the other are environmentalists and residents, including those in the upscale coastal towns who want to preserve open space and their quality of life. As the two camps fail to reach a middle gound, low-income immigrants have borne most of the fallout: limited housing with sky-high prices."

It is the old story. The high-minded hector Wal-Mart and others about low wages but, at the same time, work hard to block development if it threatens to infringe on their own life styles. In the bargain, they also get to feel good about themselves as the protectors of the environment.

At the time of the NAFTA debate, many Americans pressed for assurances that our labor and environmental standards would be extended south of the border. A quid pro quo might have been Mexican insistence that Americans do something about their land use practices.

Gloom fetish

Virginia Postrel writes about "The American Standard of Whining ... Supposedly only the rich are living better, while everybody else stagnates or falls behind. But if so, who is buying all those flat screens at Best Buy?"

She even quotes Adam Smith, who noted back in 1776, "A continued Series of Prosperity would not give us near so much pleasure in the recital as an epic poem or a tragedy which make but one continued Series of Unhappy Events."

At a time when the great middle class encompasses a larger proportion of the population than ever, we still hear all the talk about "the rich" and "the poor". Most of us are neither, but the romance of class struggle is just too good to put aside. Perhaps so many have most of their intellectual capital tied up in such thinking that they would they be muted without it.

Unheard of material wealth and longevity just don't cut it. They do not, after all, contribute to greater happiness.

Small wonder. We cherish our gloom.

Managed business cycles

The Economist of Aug. 19 includes "The uses of adversity: Why some people think that a recession is good for America."

It is the old story. There will be business cycles because investors and others are just human and will, on occasion, plan imperfectly. The good news is that markets correct and life goes on -- mostly to the good. If left alone.

But most economists and many others are so sure that they so thoroughly understand all of the forces involved that they seriously embrace the idea of managing the cycle. But is the cure worse than the disease? When has there ever been an engineered "soft landing?" Or how many have there been? The answers range from very few to none. Yes, Great Depression-type policy debacles have been avoided of late. But why are we so sure that the policy-facilitated business cycles that we now have are better than what we would have without the help?

Perhaps the only answer is that Congress is inevitable and the consequences of its actions can be costly. With luck, central bankers can lean the other way so that policy-induced cycles are not as disastrous as they otherwise might be.

With friends like these ...

Big-city leaders believe in industrial policies and have economic development departments and staff and budgets and policies to implement them. Sometimes they even have enough money (as in Chicago) to fund studies by academics wedded to the idea that new businesses must somehow be screened in terms of how much they might undermine existing sellers. (Others of us think that competition is a good thing.)

It gets even crazier when job-destruction policies are sponsored by the same well-meaning politicos. Today's WSJ includes a Chicago update.

"Big Box Rebellion," August 16, 2006; Page A10

"Well, that didn't take long. Just as Mayor Richard Daley and these columns predicted, the law recently passed by Chicago's City Council requiring a super-minimum wage is driving big retailers out of the city.

"Target was the first big chain to react, recently cancelling plans to open a new superstore in a run-down area on the city's North side. Only a few months ago the project was hailed by city leaders as an anchor for redeveloping that depressed neighborhood. Now it gets to stay depressed. Wal-Mart has also announced that its plans to build 20 new stores in the city over the next five years are "on hold" until the wage issue is resolved.

"This isn't what the politicians said would happen when they mandated that certain mostly non-union 'big-box' retailers pay a minimum of $13 in wage and health benefits by 2010, or more than two-and-a-half times the national minimum wage. 'This is a great day for working men and women of Chicago,' said Alderman Joseph Moore, who sponsored the ordinance but clearly doesn't think very far ahead, if he thinks at all. The Council was warned that stores would flee to the suburbs or not be built. But instead it heeded such activists as Annette Bernhardt, chief economist at New York University Law School, who claimed that 'We're very confident that retailers want and need to be in Chicago.' Whoops.

"This liberal red-lining may yet be overcome by common sense. Mayor Daley seems intent on vetoing the bill, which he says would result in higher property taxes to compensate for lost sales-tax revenue once stores leave. Alderman Shirley Coleman voted for the law but has since changed her mind now that a Wal-Mart in her district may never be built. At least three other aldermen who voted for the measure are also reportedly now open to giving Mr. Daley the votes he needs to sustain his veto.

"The entire 'living-wage' movement is the latest product of upper-income politicians who want to stick it to non-union companies in the name of helping the poor. But the working poor lose twice in Chicago: first, in lost retail jobs and then in less access to low-cost goods. Alderman Carrie Austin, who represents the area where the Target store was supposed to locate, puts it this way: 'My colleagues are saying, 'Don't worry they [the big box retailers] will come.' Well, mine just left.'"

Wine, status and babies

Most of us work hard for extra material gain but social scientists have now joined forces with those philosophers who have long been warning us that "money cannot buy happiness." Those of the male perusasion can argue (in their own defense) that females are attracted to the things that money can buy and, therefore, acquisition by males is simply part of the evolution-bred procreation dance. What, then, explains acquisition by hard-working females? I have no clue but and R-squared near 0.5 is not so bad (in some precincts).

Replace the idea of money (and baubles) with the idea of status (and baubles) and things get much more interesting. Consumption-based analysis is usually safer than income-based analysis because of all of the obvious measurement problems eased.

Last Sunday's NY Times included "In Vino Veritas? Wine Ratings Might Not Pass the Sobriety Test ... " It turns out that an 89 vs. a 90 (on a 50-100 rating by the Wine Spectator) works out to a huge difference in terms of sales. But, how many of us can tell an 89 from a 90?

Were there a five-point scale, many of us could tell the As from the Ds and Fs, and occasionally from the Bs and Cs. But why are we going nusto over a 90 over an 89?

It must be the status-thing. And procreation and all that.

Costs of pieties

Political correctness rules and any hint of "profiling" is out of the question. But all choices (including liberal pieties) have costs. In this case, the screening all airline passengers for all personal belongings all the time will be very messy, to say the least. Bob Poole has been arguing this for some year.

But this time, the costs will not be hidden costs. We know that.

An idea whose time has come

Robert Nelson has documented the current migration into private communities which now house 55-million Americans. Governance is by homeowners associations (HOAs) and markets are vetting the trade-offs of property rights protections vs rights losses that most property owners look for. The fly-in-the-ointment is an oldie: the problems of democracy are well documented and are real at all levels of government, whether it be federal, state, local or private.

This is why Spencer MacCallum has predicted that HOAs are just a waystation and better forms of governance will replace them. He suggests the hotel as his model, where governance is by contract rather than by democracy.

This is now unfolding. The NYTimes.com reports, "A High-Priced Sliver of Hotel Luxury ... NOT everyone can afford a posh second home in NY city, but an increasing number of people may soon be able to own at least part of one, thanks to the emergence of time-share properties in urban areas. Once found exclsively in resort areas, time shares are now steadily expanding into big cities. ..."

Thanks to Hardy Wronske for the pointer.

Vertical sprawl

"Urban sprawl" is vague and used to score rhetorical points. Auto-oriented development is much clearer. So now the NY Times introduces "vertical sprawl" in "Cities Grow Up, And Some See Sprawl."

The trouble with the new discussion is that no one has a clue as to which settlement densities are either "too high" or "too low" at a multitude of sites -- for a multitude of time periods. There is no science here. This is why we have land markets.

Strangely, however, the idea of land markets is never acknowledged and industrial policy is presumed. This introduces politics and conflict and rhetoric. It provides fodder for oceans of (seemingly) learned discussion.
Progress would involve moving away from conflict and politics by expanding the opportunities for exchange. Even externalities management is now widely done via tradeable and marketable rights.

Markets are exotic (and vaguely sinister) in the mindset of the best and brightest. And it is much worse when it comes to land markets.

But are we happy?

My favorite New Yorker cartoon is the one with two cave dwellers chatting over their campfire. One says to the other: "Something's just not right -- our air is clean, our water is pure, we all get plenty of exercise, everything we eat is organic and free-range and yet nobody lives past thirty."

That's why it's so good to see this Sunday's N.Y Times ("So Big and Healthy Nowadays, Grandpa Wouldn't Know You") feature Robert W. Fogel's important work on longevity, stature, nutrition, etc.

The article mentions fndings that point to, "what may prove to be one of the most striking shifts in human existence -- a change from small relatively weak and sickly people to humans who are so big and robust that their ancestors seem almost unrecognizable ... The difference does not involve changes in genes, as far as is known, but changes in human form."

Fogel himself is quoted as citing, "'a form of evolution that is unique not only to humankind, but unique amolng the 7,000 or so generations of humans who have inhabited the earth.'"

The Times piece does not go so far as to say that it is all about prosperity, economic growth, markets and economic freedom. But then many of its readers might faint.

All of this reminds me of a Times piece at the time of the millenium. One of their features asked many worthies what century they would have preferred to live in. Many opted for the years of the Renaissance. Others chose various other interesting historical periods

Intellectuals say the darndest things.

Context matters

The New Yorker's James Surowiecki is usually smart and provocative. In the July 31 magazine, he writes about "The Fatal-Flaw Myth" and elaborates Airbus' current woes and the temptation by many to conclude that industrial policy is a loser. Surowiecki suggests that in the not too distant past Boeing also had its problems. We should look at context in addition to innate characteristics.

Of course. It is easy to be fooled; cause and effect are elusive; we are easily fooled by randomness (as in the book).

Fair enough. But industrial policy is a big chunk of context. Spend enough money and government agencies can put men on the Moon. Given them enough money and enough time and they come up with space stations and space shuttles.

Who killed the EV?

I have no plans to see Who Killed The Electric Car? but the reviews are not promising. Even worse is the praise from those who liked it which reveals a bottomless ignorance, not just about markets but also about what sort of evidence is required to make which sort of claim.

But, I have just read about the introduction of the Telsa, the Zenn, the Dynasty and the Xebra. "The Electric Car Gets Some Muscle ... Latest Models Go Faster, Further on a Single Charge, Sticker Price Up to $110,000 ... The elctric car is trying to shake its puttering image and be reborn as a futuristic high-speed sports vehicle ... " (WSJ, July 27, reg. req.).

This suggests an alternate theory (and movie). It was not big-auto-big-oil-big-pharma that killed the EV. Rather it was the likes of Tesla Motors Inc, Wrightspeep Inc., Phoenix Motorcars Inc. , etc.

Sequel to the current movie?

Don't worry, be happy

Material wealth and welfare are greater than ever. The census bureau reports that the median size of new single-family homes in 2004 was over 2,000 square feet, up from just over 1,500 square feet in 1975. Longevity keeps lengthening and new medicines, including a cervical cancer vaccine made available last month, keep arriving.

And the happiness researchers (and pollsters) show that it means almost nothing to most of us. Is the research nuts or are survey respondents nuts?

Listen to someone who is surely not nuts. Alain de Botton notes (IHT, Sep 7, 2004; link gone missing):

"The most remarkable feature of the modern workplace has nothing to do with computers, automation or globalization. Rather, it lies in the Western world's widely held belief that our work should make us happy.

"All societies throughout history have had work right at their center; but ours -- particularly America's -- is the first to suggest that it could be something other than a punishment or penance. Our is the first to imply that a sane human being would want to work even if he wasn't under financial pressure to do so. We are unique, too, in allowing our choice of work to define who we are so that the central question we ask of new acquaintances is not no where they come from or who their parents are, but rather what it is they do -- as though only this could effectively reveal what gives a human life its distinctive timbre."

It's hard and thankless work being the artistic and intellectual elite

"'Cookie-Cutter' Homes Suit Some Critics' Taste After All ... Yes, it's suburbia. But at 25, a Denver-area master-planned community is finally getting some respect -- if grudging ... HIGHLANDS RANCH, Colo. -- This is the biggest fastest-growing master-planned community in the nation. And quite possibly the most insulted ..." From this morning's LA Times.

I am trying to fight the impulse to poke fun, but failing. The story is just too good. The experts and the non-profit-advocacy types have finally caught up with the people who have made this the most successful community of its type.

Bob Bruegmann's work is cited. "Through the ages ... sprawl has drawn the derision of the urban elite. As row houses sprouted on the outskirts of Victorian London, for instance, 'the artistic and intellectual elite called them ugly little boxes, destroying the countryside, put up by greedy developers, ' Bruegmann said. Today those row houses are hailed as smart, even graceful urban design."

More Bad News Bearers

In some areas of social science, static analysis can be poison. Perhaps none moreso than the study of income distributions. Today's NY Times includes the latest update of a favored theme: "Cities Shed Middle Class, And Are Richer and Poorer For It."

The article lists the five metro areas with the smallest percentage of middle class families: New York, Los Angeles, McAllen, Baksersfield, Miami. Might these also be the ones with the largest immigrant populations? Is it safe to say that almost all of the immigrants (by definition) have moved up in the world? Especially in terms of their prospects?

Growing numbers (and proportions) of "high income" families mean that middle-income people are moving up. Growing numbers of "low income" families are largely explained by immigration.

Even the static analysis data shown can be seen in a positive light.

Labels and puzzles

Best quote from today's WSJ interview with Milton Friedman (reg. req.): "I have found over a long time, that some people are natural economists. They don't take a course, but they understand -- the principles seem obvious to them. Other people may have Ph.D.'s in economics, but they're not economists. They don't think like an economist. Strange, but true."

Everyone who teaches principles sees some students who quickly get it and many others (some quite smart) who have a much tougher time. Some people are not comfortable with a non-zero sum world. Others can never get over the fact that self-serving behavior is OK -- let alone that it can serve a greater good. Still others think in terms of "ecological footprints" and do not fathom substitutions and technological progress.

Who are the real utopians? Those who are romantics about changing human nature accept inhumane ways to get there. But many who accept the limits of human nature celebrate what real people can (have) accomplish(ed) when left free to do so. At a recent conference, my discussant referred to me as a utopian. I reject the label and it took me some time to figure out how my thinking so puzzled my critic.

Question never asked

Marginal Revolution points us to various blogs on both sides of the current Israel-Islamist war in the mid-east. The blogs are interesting -- and more proof that reading blogs can be a much better use of time than reading conventional media reports.

I read those as the Syrian ambassador was interviewed on PBS. His position (and that of many others) is that Israel has been an occupier of Arab lands since 1967 and he and his allies simply want them to return to the pre-1967 borders.

But before the 1967 war, which Arab leader accepted those borders? None, I think. But it's a question that is never asked.

Economic models and economic bottom lines

The Economist of July 15 includes "Big questions and big numbers ... We cannot live without big and ambitious economic models. But neither can we entirely trust them. ... But all models should ultimately be seen as pedagogical devices, their calculations a means to the end of helping policymakers think through their decisions. ..."

In a better world, the produces and the consumers of the models would heed this advice. In this world, modelers can and often do oversell while policy makers have been known to use models as window dressing to misrepresent and further their real agenda. Bent Flyvbjerg's work exposes the dark side.

Post-WW II U.S. economic growth has been impressive and without a major recession but it has piled up crushing unfunded liabilities in Social Security, Medicare and its recent expansions. Have good and/or bad models had a hand in the successes and the failures?

"Smart" growth

Not to beat a dead horse, but today's LA Times includes a front-page feature, "Roads at Breaking Point" which begins this way: "California's highways, once the gold standard of the interstate system, are today some of the busiest, most dilapidated and under-financed roads in the country ..."

Nowhere does the article mention that the 30-year old crackpot idea (cheered by the Times at every turn) of diverting funds from roads to transit explains the mess.

Lapdogs, not watchdogs

As per yesterday's theme, there are several people who combine journalistic flair with good ideas (and persistence). Today's LA Times even includes a section on "urban myths". And the two articles featured debunk some myths that the Times has been forever fond of.

Robert Bruegmann writes "What gridlock? L.A. traffic isn't as bad as you think. Try speeding through the center of Paris." He reminds us that L.A.s multi-billion dollar rail transit investments have been hugely expensive but otherwise mostly irrelevant as a commuting option for most Angelenos.

Joel Kotkin writes "Don't feed the white elephant ... Aided by Mayor Antonio Villaraigosa, downtown Los Angeles' boosters are poised to dip again into the pockets of taxpayers to help a splashy new project. The cost this time is up to $300 million in loans, tax breaks and fee waivers for a $750-million 54-story complex -- including a 876 room Marriott Marquis, a posh 124-room Ritz-Carlton and 216 luxury condos -- across from the Convention Center." Kotkin goes on to explain that the center has been a sink for other people's money for many years.

Both writers are too polite to mention that the dumb ideas that were used to justify all of these catastrophic projects had been championed by the Times for many years. In a better world, journalists and editors would have been watchdogs instead of lapdogs.

Work to be done

Kimberly Strassel interviews Bjorn Lomborg ("Get Your Priorities Right") in today's WSJ. Lomborg is impressive, not just because of his research and his writing but also for his follow-up efforts to get the message delivered.

I recently blogged about David Warsh's Knowledge and the Wealth of Nations and reported my appreciation of a readable inside-baseball rendering of progress in modern economic science.

Yet, Lomborg's efforts to get grown ups to think about the simple stuff (trade-offs and scarcity, decisions at the margin, costs and benefits, etc.) is where the real action is.

One only has to look at today's NY Times ("How to Be a Good Neighbor")which includes an op-ed by NYU's Greg Grandin who wants the U.S. to urge a recount of Mexican votes because Lopez Obrador would renegotiate NAFTA so that Mexico could return to self-suffiency in beans and corn (!!!)

Messy politics

A bad old political joke (mainly told by Jews) is that American Jews live like Episcopalians but vote like Puerto Ricans.

The update is by Stephen Ansolabehere, Jonathan Rodden and James M. Snyder, Jr., who's "Purple America" appears in the latest Journal of Economic Perspective (reg. req. Spring, 2006).

They conclude: "Ultimately, individuals' beliefs about what is right or fair economic policy for the nation are difficult to explain. They are only related weakly to one common indicator of self-interest -- income -- and they are nearly uncorrelated with cultural issues. Since these policy preferences appear to be one of the main forces driving voting behavior, however, explaining them is clearly a key question in American political economy."

"Car culture"

" ... car culture is taking root in China, and in many ways it looks like ours." That's the view taken in a very interesting piece in today's NY Times Magazine ("Capitalist Roaders").

But rather than the mysterious "car culture" virus, it is simply that as people become moderately affluent, they choose the personal freedom offered them by personal transportation.

But the simple explanation is not ominous enough.

"On a snail-paced drive back into Beijing, Zhu had passed through a zone on the edge of town that had been bulldozed and was being rebuilt as upper-income, car-friendly suburbs. In fact, this was happening around cities all over China: new gated communities, new themed enclaves, all for the car-owning class. What was conspicuously missing was a corresponding investment in mass transit, in public spaces and public access. And, in heavy traffic at the end of a tiring trip, it was easy to worry that the Chinese, rather than charting an innovative, alternate route into the automotive era, were on their way down a road that looks a little too familiar."

And what would that "innovative, alternate route" be? This is where the piece ends so we can only speculate what the author had in mind.

July 4 story

There are many stories of what people will do to come to these shores. Here is one that involves Cubans. This remarkable episode is must reading for walled-border enthusiasts as well as for the Noam Chomsky left.

Voices lost

From the dust jacket of Irene Nemirovsky's Suite Francaise:

"In the early 1940s, when Ukrainian-born Irene Nemirovsky began working on what would become Suite Francaise -- the first two parts of a planned five-part novel -- she was already a highly successful writer living in Paris. But she was also a Jew, and in 1942, she was arrested and deported to Auschwitz: a month later she was dead at the age of thirty-nine. Two years earlier, living in a small village in central France -- where she and her husband, and their two small daughters had fled in a vain attempt to elude the Nazis -- she'd begun her novel, a luminous portrayal of human drama in which she herself would become a victim. When she was arrested, she had completed two parts of the epic; her daughters took the manuscript with them into hiding. Sixty-four years later, at long last, we can read Nemirovsky's literary masterpiece."

I am reading the novel and am dazzled by it -- even via the translation by Sandra Smith. There is, in addition, the awful feeling of knowing that the author would soon be murdered. A little like reading Anne Frank but Nemirovsky's work is not a memoir.

The murder of innocents is tragic. The tragedy is brought home to us all the more when the innocents have the skills and the means to report from their perilous vantage.

Urban fantasies -- and facts

It is almost conventional wisdom these days that "people are moving back to the cities." Well, not exactly. Wendell Cox has assembled the 2000-2005 population growth data for the largest U.S. metros and most growth is overwhelmingly in the suburbs. And why not?

Garlic may do more to stop vampires in their tracks than the demographic facts do to stop the many commentators and journalists who are so easily confused by their own urban fantasies.

Thinking globally and acting locally

In today's WSJ, MIT's Richard S. Lindzen writes that "There is No 'Consensus' on Global Warming ... So what, then, is one to make of this alleged debate? I would suggest at least three points.

"First, nonscientists generally do not want to bother with understanding the science. Claims of consensus relieve policy types, environmental advocates and politicians of any need to do so. Such claims also serve to intimidate the public and even scientists - especially those outside the area of climate dynamics. Secondly, given that the question of human attribution largely cannot be resolved, its use in promoting visions of disaster constitutes nothing so much as a bait-and-switch scam. That is an inauspicious beginning to what Mr. Gore claims is not a political but a 'moral' crusade.

"Lastly, there is a clear attempt to establish truth not by scientific methods but by perpetual repetition. An earlier attempt at this was accompanied by tragedy. Perhaps Marx was right. This time around we have farce -- if we are lucky."

But we may not be so lucky. Today's LA Times reports that, "State lawmakers will consider a bill to address global warming with indstry mandates."

State mandates would have serious costs but no benefits. This is a classic Prisoner's Dilemma -- completely irrelevant in the world of posturing.

Best DVDs

In no particular order, here is my updated list of favorites from Netflix.
There is no accounting for taste and when I see my friends' list of favorites, I usually cannot believe my eyes.

De Tweeling (Holland)
Open Hearts (Denmark)
Cenizas del Paraiso (Spain)
Love Serenade (Australia)
Beg to Inform (U.S.)
To Live (China)
Walk on Water (Israel)
You can Count on Me (U.S.)
Divided We Fall (Czech Republic)
Under the Sun (Sweden)
Cinema Paradiso (Italy)
Il Postino (Italy)
Solas (Spain)
L'Auberge Espagnole (France)
Chaos (France)
Burnt by the Sun (Russia)
Lawless Heart (U.K.)
Mostly Martha (Germany)
In the Bedroom (U.S.)
Spellbound (U.S.)
Nowhere in Africa (Germany)
The Crime of Padre Amaro (Mexico)
The Housekeeper (France)
The Big Night (U.S.)
Shall We Dance? (Japan)
Jew-Boy Levi (Germany)
The Mystery of Rampo (Japan)
Together (China)
Dirty Pretty Things (U.K.)
East-West (France)
Russian Ark (Russia)
Man on the Train (France)
The Thief (Russia)
Swimming Pool (France)
Indochine (France)
Sex and Lucia (Spain)
The Barbarian Invasions (French Canada)
My Wife is an Actress (French)
Wannsee Konferenz (German)

Sunday mystery

Today's NY Times Magazine includes "If It's Good For Philip Morris, Can It Be Good For Public Health?" It appears that big-tobacco execs want FDA regulation and the FDA's David Kessler, who badly wants to regulate, is suspicious.

The story notes, in passing, the recent rise "of about 100 small cigarette companies --with names like Liberty Brands and Virginia Brands -- that now undercut the big boys on price."

Could it be that writer Joe Nocera has missed the big story all through his very long cover story? No need to be suspicious; the big boys know a cartelization opportunity when they see one.

Heat islands

There was a global cooling consensus in the 1970s and there is now a global warming consensus. Available data for the last 12,000 years show that the Earth has gone through many of both as parts of continuous cycling.

The current controversy involves charges that the latest warming trend can be traced to our sins -- and that we had better reform. But most of the measurements are taken near cities. These are misleading beacuse cities are "heat islands".

And the heat islands are hottest in their centers and less so in their suburbs. One more reason to be wary of industrial policies that seek to reverse suburbanization and create strong city centers.

"Confessions of an 'Exx-Con'"
By ROBERT L. POLLOCK WSJ, June 17, 2006; Page A10

"Global-warming alarmists take it for granted that they have the 'scientific consensus' on their side. The truth is that their views can be as much an article of faith that avoids or elides basic facts.

"I was reminded of this recently after suggesting on our weekly television show -- The Journal Editorial Report on Fox News Channel -- that 'everyone agrees there has been some warming over the past century, but most of it happened before 1940.'

"'Not true,' declared a subsequent editorial in the New Republic magazine. 'The last three decades have seen the sharpest rise.' TNR suggested I was what they've dubbed an 'Exx-Con' -- that is, a conservative whose views on climate change are so unmoored from reality that they can only be explained by a slavish devotion to Exxon and other big oil firms.

"But it is TNR that's having trouble with the facts here. I'll grant that my off-the-cuff remarks could have been worded a bit more precisely. I probably should have said 'more than half' instead of 'most.' But that doesn't change the fact -- as the NASA charts nearby illustrate -- that the early 20th century saw a rise in global and U.S. temperature, followed by about three decades of declining or stable temperatures that global-warming alarmists have a hard time trying to explain. (Don't let the slope of the chart scare you either; we're looking at small variations here.)

"The relevant part of TNR's May 25 piece seems to be based on an innumerate May 16 attack on me at the far-left Web site Mediamatters.org. Mediamatters said almost identically that 'the last three decades (1976-2005) have seen a sharper rise in global air temperature.' But rather than fess up to its source, TNR responded to my complaint with the pretense of assigning a fact-checker to the case before deciding there would be no correction.

"The Mediamatters attack suggests I'm wrong because the difference between the coldest early-20th-century year and the warmest mid-century year is very slightly smaller that the difference between 1976 and 2005. But if the issue is by what date 'most' of the warming occurred, there are three relevant data points, not four -- the 1970s trough doesn't matter. And the difference between 1907 (the coldest year) and 1944 (the warmest mid-century) is .59 degrees Celsius, while the difference between 1944 and 2005 is .42 degrees. "Most" of the warming that has taken place over the last century had indeed occurred by about 1940.

"One could leave it at that. But I want to avoid the other mistake my critics make, which is thinking that long-term temperature trends should be measured by the difference between single, and possibly anomalous, years. That's why the NASA graphs contain a line representing the five-year rolling average. Looking at things this way still supports my point, admittedly a bit less so.

"In any case, the graph at issue presents a challenge to those who claim that the recent warming trend is primarily caused by carbon dioxide and is not part of a natural rebound from a cool 19th century. The early 20th century saw a rise in temperature rise at least as great. And far, far more CO2 has been pumped into the atmosphere in the years following 1940 than the years before.

"What's more, there's a debate over whether recent global data is biased upward by the fact that many measuring stations are located in or near cities around the world that have grown rapidly over the past half-century. Anyone who's ever crossed the George Washington Bridge can understand the concept of the urban 'heat island' effect.

"In that regard, a recent study of Greenland -- where allegedly melting glaciers are allegedly threatening a catastrophic sea-level rise -- published in Geophysical Research Letters is fascinating. It finds that Greenland is no warmer today than it was in the 1920s, and that 'although there has been a considerable temperature increase during the last decade (1995-2005) a similar increase occurred during the early part of the 20th century (1920-1930) when carbon dioxide or other greenhouse gases could not be a cause.' The U.S. temperature graph shows much the same. The U.S. inarguably produces more reliable data than most other countries, or the sparsely sampled oceans that cover most of the globe, and we've seen very little warming since the 1930s.

"Finally, a word about motive. Why wouldn't I want to be on the safe side and embrace the Kyoto Protocol? Not because of an attachment to oil companies, but because meaningful CO2 cutbacks would entail drastic reductions in energy use by billions of people in places like China and India who are finally getting a chance at a better life. The New Republic doesn't seem to have addressed such consequences in any serious way. Attempting to wave someone out of the argument by calling them an Exx-con is much easier than confronting the difficult facts beneath the global warming debate."

No learning curve in sight

Americans like to hopscotch around European capitals to sample cozy city centers. That part of the continent is now our Disneyland-for-adults.

Some tourists return with the idea that we can reproduce such places here. And a few sign on to the idea that U.S. cities' traditional downtowns can and should be "revitalized."

The 800-lb. gorrilla in the story is the city-backed industrial policy that feeds on jobs programs and other hand-outs to favored groups.

The front page of today's LA Times includes "L.A. Convention Center to Get Major Hotel Tower ... The complex would give dowtown the magnet for business conferences it has lacked for year ..."

One has to get 90% of the way through about forty inches of breathless prose to find that, "[t]he project has attracted controversy because nearly half the cost will be financed by city subsidies and loans."

This is all standard. L.A.'s downtown has been trembling on the brink of revitalization for half a century and taxpayers have regularly been asked to shell out mega-bucks to redeem the long list of previous mega-project fiascos.

Even when we visit the new downtown Disney Concert Hall, most of us scurry home at the end of the performance rather than stick around to sample the charms of downtown L.A.

Among offialdom and its booster club, there is no learning curve to speak of.

How bad things are

I thought that I had reason to worry when the NY Times Magazine's "Money Issue" arrived this morning, including Niall Ferguson's "Reasons to Worry ... Why You Could Be Excused for Feeling a Little Uneasy About the Collapse of Household Savings, the Rise in Home-Mortgage Debt, a Large and Growing Trade Deficit and the Fact that Asian Countries Hold So Many Treasuries"

The popular discourse thrives on unnormalized comparisons. that sensationalize -- and in the process obscure. Ferguson tries to have it both ways in his piece.

This is why The Skeptical Economist runs, as a regular feature, its debt-to-GDP ratio -- which has been trending down of late.

And, yes, it moves much too slowly to be on any electronic billboard's "debt clock."

Timely op-ed

In the June 19 Forbes, Frederic Sautet of GMU's Mercatus Center writes "Don't Tempt Me ... States and cities lure businesses with promises of tax abatements and other goodies. They'd do better with broad-based tax cuts." This is common sense. Yet, it is like being serious about a simplified tax code: in the event, what would politicians do all day?

Mine is a serious comment. The Genie is out of the bottle. They have tasted the heroin.
Bad policy choices bite but in the long run which few politicians care about. In the short term, they spread the goodies and reap the personal rewards. In that context, essays like Sautet's are a step forward.

Teach economics to journalists and teach op-ed writing to economists.

Holy grail postponed

As I write this, financial markets are in a deep funck because "stagflationary" (the worst kind) of expectations are in the air.

How convenient, then that The Economist writes about James Tetlock's upcoming "Giving Content to Investor Sentment", forthcoming in the Journal of Finance. See Economic Focus: In a sentimental mood ... What bulls and bears can learn from the hacks. (Link includes link to PDF version of the paper.)

Will this cause us to re-think random walks? Tetlock reports the extent to which we measure market sentiment by word-counts (and the use of taxonomies) with columns like the daily "Abreast of the Market" in the WSJ.

But "[t]he power of the financial press, whatever, its source is fleeting. The pall that a column can cast over the stockmarket soon lifts ... the damage is reversed within five days. Prices rebound, and cool-headed arbitrageurs earn their just reward for taking shares off skittish investors' hands."

Getting ahead of the random walk is investors' holy grail. My reading of Tetlock's paper is that he has not actually found the holy grail. Stay tuned. Buy and hold.

"Bigger social concerns"

What causes countries to prosper and grow? What causes cities to prosper and grow?

With respect to nations, we know that better institutions poise human capital to be productive. With respect to cities, we know that institutions as well as the spatial arrangement of human capital matter most.

The latter prompts agglomeration economies but their best spatial expression is not simple and depends on history. There are agglomeration economies in Manhattan as well as in Silicon Valley -- although no one would seriously advocate building the former from scratch today.

Today's NY Times includes Nicolai Ourousoff's "Skyline For Sale ... Frank Gehry and Bruce Ratner are proving how much influence architects have with developers and how troublingly little."

The piece concerns the proposed Atlantic Yards project for Brooklyn and allows Ourousoff to indulge in stale ruminations about art vs. Mammon. The author worries about the architect making a "pact with the Devil" by helping the developer to maximize profits(!). Ourousoff also worries that the powers that be in NYC are seemingly marginalized -- or their high-minded "bigger social concerns" have been marginalized.

This is silly. NYC government is nothing but a collection of interest groups who are very much involved in the process -- for better or worse.

The question unasked remains how the project impacts what matters, local institutions and the spatial arrangements of human capital. Nothing that we know compels optimism. Politicized mega-projects usually pull us in the wrong directions.

Unintended self-parody, NYC chapter

It's easy to be a lazy blogger when stuff like this comes along.

From today's NYT:

"Delusions of the Rich and Rent-Controlled"

By JOHN TIERNEY,

"Who knows what evil lurks in the soul of a New York tenant? Nora Ephron knows — sort of."

"She has broken the code of silence of Manhattan's most exclusive aristocracy. She became the crème de la crème of the city's rent-regulated tenants by bribing her way into an eight-room apartment for $1,500 a month at the Apthorp, the palatial building at Broadway and West 79th Street.

"Her expulsion from rent-control paradise, told in the current New Yorker, isn't exactly a heartbreaking story. But it gives a rare inside look at the rentocracy, the system allowing affluent New Yorkers to pay below-market rents and pass along the apartments to their children.

"Ephron is a smart, funny writer who now acknowledges the injustice of the system. But during her days in the Apthorp she was indignant when a new law stripped away her rent protection because her household income was more than $250,000 per year. She couldn't imagine anyone would dare charge her what the apartment became worth: $10,000 per month.

"'I was a character in a story about mass delusion and the madness of crowds,' she writes. 'I was, in short, completely nuts.'

"She was also, in short, utterly typical of her class. I can't claim to have reached her social heights, but I did live in regulated apartments for 17 years, and I'm still amazed at the self-delusion that prevailed.

"I spent long dinners hearing rentocrats earnestly explain that while the free market may work for the rest of apartments in America, rents must be regulated in Manhattan because it is an island with a limited supply of housing. (If an out-of-towner suggested to these Manhattan theorists that the rent they charged for their vacation homes in Nantucket should also be regulated, they would explain that Nantucket is a different kind of island.)

"In her article, Ephron complains that the law deregulating her apartment allowed landlords to be 'utterly capricious' in charging her 'fair-market value' for her eight rooms.

"This sounds odd coming from a Hollywood director — was Ephron any less capricious in charging whatever she could get for 'Sleepless in Seattle'? — but it's the rentocrat, not the director, talking here.

"Like European nobles in crumbling castles, rentocrats are above money grubbing. They deserve their homes because of their longevity and their virtues. They compare rent control to Fulbright scholarships — a stipend wisely provided to worthy intellectuals and artists. They will announce, with a straight face, that they're entitled to keep their apartments because of the extensive "emotional investment" they have made in the buildings.

"They scorn tacky landlords obsessed with getting higher rents so they can pay for nonemotional investments like furnaces. Ephron writes witheringly about the beehive hairdo and pink silk suits of the building manager, a "frightening" woman — and a resident of New Jersey. The Apthorp tenants were appalled at the landlords' efforts to renovate the property — how bourgeois! — so they could get permission to charge higher rents.

"The Apthorp tenants did consent to some profiteering of their own by charging illicit "key money," like the $24,000 that Ephron paid to the previous tenant in order to get her apartment. But what was acceptable for tenants became a "crime," as Ephron tells it, when one of the landlords started taking a cut of the action. Why should he get anything? It's only his building.

"Now that she's left the Apthorp and become the happy owner of her own apartment, Ephron ascribes her former madness to being so deliriously in love with her old home that she couldn't imagine leaving it. But I can't buy the love diagnosis. As a recovering rentocrat, I think our madness has more to do with guilt.

"No matter how much you love your rent-stabilized apartment, no matter how smug you feel bragging to your friends about your deal, in your heart you know it's not fair you're paying so little. It's like buying stolen goods: you can revel in the low price, but you know it comes at someone else's expense.

"And you know exactly who that someone is. You're living on his property. You're a squatter, but you don't want to admit it. So you tell yourself it's not really his property anyway, and you're more worthy of it than he is, and you couldn't survive anywhere else, and anyway this is all about something far more profound than money. But it's not."