More good news

The old idea of what is tradable and what is not had to change as transactions costs plunged. Today's NY Times includes "AI, With Help From the Humans."

There are many tasks that the best deduction machines (computers) cannot do. And there are many induction machines (people) willing and able to do them. And software and the internet can now link buyers and sellers around the world. In a world market, such as this, prices will be low.

Interestingly, too low for the tastes of writer Jason Pontin. (He does not divulge what a "fair" wage would of should be.) More interestingly, business models can now evolve that fully exploit the possibilities.

COMPUTERS still do some things very poorly. Even when they
pool their memory and processors in powerful networks, they remain unevenly
intelligent. Things that humans do with little conscious thought, such as
recognizing patterns or meanings in images, language or concepts, only
baffle the machines.

These lacunae in computers’ abilities would be of interest
only to computer scientists, except that many
individuals and companies are finding it harder to locate and organize the
swelling mass of information that our digital civilization creates.

The problem has prompted a spooky, but elegant,
business idea: why not use the Web to create marketplaces of willing human
beings who will perform the tasks that computers cannot? Jeff Bezos, the chief executive of Amazon.com, has created Amazon Mechanical Turk, an online service involving human workers, and he has also personally invested
in a human-assisted search company called ChaCha. Mr. Bezos
describes the phenomenon very prettily, calling it “artificial artificial
intelligence.”

“Normally, a human makes a request of
a computer, and the computer does the computation of the task,” he said.
“But artificial artificial intelligences like Mechanical Turk invert all
that. The computer has a task that is easy for a human but extraordinarily
hard for the computer. So instead of calling a computer service to perform
the function, it calls a human.”

Mechanical Turk began life as a service that Amazon itself
needed. (The name recalls a famous 18th-century hoax, where what seemed to be a
chess-playing automaton really concealed a human chess master.) Amazon had
millions of Web pages that described individual products, but it wanted to weed
out the duplicate pages. Software could help, but algorithmically eliminating
all the duplicates was impossible, according to Mr. Bezos. So the company began
to develop a Web site where people would look at product pages and be paid a few
cents for every duplicate page they correctly identified.

Mr. Bezos figured that what had been useful to Amazon would be valuable to other businesses, too. The company opened Mechanical Turk as a public site in November 2005. Today, there
are more than 100,000 “Turk Workers” in more than 100 countries who earn
micropayments in exchange for completing a wide range of quick tasks called
HITs, for human intelligence tasks, for various companies.

PriceGrabber.com, a comparison shopping site, uses Mechanical Turk to match images to the product pages. “Harnessing the power of this enormous, decentralized work force allows us to obtain images for a wide variety of items in a fraction of the time it would have taken to
do it ourselves,” said Sagar M. Jethani, PriceGrabber’s director of content development and community.

Mechanical Turk’s customers are corporations. By contrast, ChaCha.com, a start-up in
Carmel, Ind., uses artificial artificial intelligence — sometimes also called
crowdsourcing — to help individual computer users find better results when
they search the Web. ChaCha, which began last year, pays 30,000
flesh-and-blood “guides” working from home or the local coffee shop as much
as $10 an hour to direct Web surfers to the most relevant resources.

Amazon makes money from Mechanical Turk by charging companies
10 percent of the price of a successfully completed HIT. For simple HITs that
cost less than 1 cent, Amazon charges half a cent. ChaCha intends to make money
the way most other search companies do: by charging advertisers for contextually
relevant links and advertisements. ....

New Orleans

Sandy Ikeda and I have been writing about New Orleans. Some of our thoughts are included in his piece in the current Forbes ("Break It Up").

The old politics were not good for N.O. before the storms of 2005 and they have also failed ever since. No surprise there. But how can the area catapult its way out of years of pre-Katrina failure and many months of post-Katrina foul-ups? Racial politics is a staple and is only made worse by the federal involvement and the federal money. One of our suggestions is to allow N.O. neighborhoods to secede and to privatize.

We know that most people prefer competition over monopoly. They grasp all of the benefits that come from openness and choice. But when it comes to their choice of local governments (including school districts), most settle for limited choice – only insofar as they are willing and able to pull up stakes and move to another jurisdiction. Much more choice (and competition) would be available to them if local governments were subject to the threat of neighborhood secession.

There is no good reason for this not to be. There are few if any economies of scale in the provision of government services. Consider public schools. There were 67,355 school districts in the U.S. in 1952 but there were 13,506 districts serving many more students in 2002. Does anyone argue that any scale economies were achieved? By most measures school quality is down and the diseconomies of greater bureaucratization must get some of the blame. The charter school movement represents a belated response to the problem along with more home-schooling and growing support for school vouchers.

Most city officials embrace the idea of grass-roots citizen participation, citizen groups, community involvement, neighborhood activism, etc. Yet, many of these same people oppose the right to secession. In Los Angeles in 2002, after much wrangling in Sacramento, San Fernando Valley (SFV) voters were finally allowed to vote on whether they wanted to secede from the City of Los Angeles. A slight majority of them did vote to secede but they were overruled by the anti-secession vote in the rest of the city. Opponents argued that SFV residents should stay and support their fellow LA citizens via their taxes sent to City Hall. But this sort of redistribution has little to show except an ever more corpulent LA bureaucracy.

No one knows how the new New Orleans will or should look and it is essential for planners and officials to recognize the unknown as a future of opportunities. Open-endedness and competition are the most promising seeds from which recovery from months of post-hurricane trauma and confusion -- and years of pre-hurricane dysfunction -- can be overcome.

The good, the bad and the ugly

Following the path blazed by Julian Simon, Indur M. Goklany has just published The Improving State of the World: Why We're Living Longer, Healthier, More Comfortable Lives on a Cleaner Planet. The subtitle is important.

In a better world, the doomsday people would read this stuff. In the interim, it's great fun for the rest of us.

The book is full of data, wonderfully presented and explained. The "theory" to explain all of the good fortune is Goklany's "Cycle of Progress" (shown as a schematic on page 91). The box between "Economic Growth and Wealth" and "Technology" is labeled "Human Capital: Education, Research and Development." Although Goklany mentions it often, he has nothing in this cycle about institutions -- which coevolve with all of these.

But institutions must also include cities, the engines of growth that are such because they (can) facilitate successful entrepreneurial activity. The qualifier is there because cities can also decline and stagnate.

Big city politics and politicians are usually the problem. Unfortunately, we have many examples of this. Today's saddest U.S. example must be New Orleans.

The start of something bad

What is the thread that connects these two recent LA Times articles (excerpted below)?

The first discusses how planners are weighing wich way to zone large parts of downtown LA, industrial or residential? The second describes a three-dimensional model of a nearby area, on public display, that let's children move the pieces around to evoke various possbile plans or "solutions".

The first discusses consultants' studies and cites numbers of acres, jobs, rents and wages in the area. It says nothing about how these strands can be used by planners and politicians to decide anything. It sidesteps the point that central planning on this scale is impossible and simply politicized.

What ends up on the ground will be underutlized and a waste if there is no demand (we have many examples of this; I just spent some time walking around the underground plaza at L'Enfant Plaza in DC but many big cities now have one of these) or builders will push successfully for something that might work but at great expense in terms of lawyers, consultants and hearings (more waste).

The three-dimensional models plant a bad idea and are the start of something bad.


Developers, industry battle for L.A.'s heart

By Cara Mia DiMasa, March 19, 2007

The old warehouse at the corner of Industrial and Mateo streets in downtown Los Angeles had seen better days when Yuval Bar-Zemer and his partners at the Linear City development firm bought it in 2002. The 1924 structure, in a rundown section of downtown, was a World War II-era bomb shelter and later a toy factory. It was being used to store the plush shells of stuffed animals.

The developers transformed it into 119 live-work units, with a rooftop pool and other communal amenities. They dubbed the new space Toy Factory Lofts. On the building's ground floor are a pub-style restaurant, a high-end grocery store and a health club.And this weekend, the developers finished work across the street converting the former West Coast headquarters of the Nabisco company into 104 live-work condo units.

But what might seem like a tale of urban renaissance is actually at the center of a fierce battle brewing in downtown L.A. that pits the shiny new downtown against the gritty version that has long existed in the heart of the city. Developers like Bar-Zemer are pushing Los Angeles to radically rezone the city's industrial core to allow residential development. They argue that the change would create a new type of neighborhood, one that would mix light industry with condo living and live-work lofts — spaces where artists, architects and others can operate businesses and sleep at night — and would ultimately create more jobs and tax revenue for the city. The city Planning Department and some community activists, however, are resisting the heavy lobbying. They say the industrial zones provide solid jobs for the working class and boost L.A.'s economy."In the rush to build some downtown fantasy, we should be careful not to destroy the things about downtown that actually work," said Joel Kotkin, an urban planner who has written extensively about L.A.'s economy. "The industrial stuff actually works: It employs a lot of people, there's a low vacancy rate, and being at the center of a transportation hub really matters."At stake is the future of the city's industrial land — and not just in downtown. About 8% of the city — or 19,000 acres — is zoned for industrial use, mostly properties used for manufacturing, storage, distribution and other commercial operations.

Although the debate now centers on the vast tracts around downtown, where the largest concentration of the industrial land is located, the proposed changes could have a ripple effect elsewhere, including Hollywood, the Westside and the San Fernando Valley.

The debate goes beyond issues of planning, zoning or architecture, say most people familiar with the discussions, and centers on the very nature of what a city is supposed to be, and who it should be for. "We need as a city to move away from our 1950s-era suburban-model approach to zoning and instead devise land-use regulations that combine uses, to create jobs and housing on one site at one time," said Kate Bartolo, senior vice president of development for the Kor Group, which is developing a number of projects downtown, including the conversion of the former Barker Bros. furniture warehouses in the industrial district into condos and retail space. The debate exemplifies how the economics of revitalization are rapidly changing Los Angeles.As the boom in downtown residential real estate moves into the industrial district, aging factory spaces are suddenly worth more if converted into lofts. That's because large industrial living spaces are selling for a premium, costing $500,000 or more for each unit.Because of this, many owners of industrial businesses are conflicted, because they see the economic benefits of residential conversion.A city report placed the price of land for residential uses downtown at roughly five times that of industrial land. If the industrial land downtown is rezoned, city officials say, that value could rise even more sharply. At the same time, however, the city found that the industrial district around downtown supports 64,000 jobs, most of which pay around $19 to $24 an hour (though some developers say those numbers are somewhat inflated).For more than 100 years, downtown has been the heart of industrial L.A. — ever since the Southern Pacific Railroad opened L.A.'s first rail depot there in the late 1800s.As the city grew, so did the district, and brick buildings began to dot the nearby landscape, built to handle the vast number of goods coming into the region. By the 1920s, national firms began locating their West Coast branches in the city center, said Greg Hise, an associate professor of urban history at USC's School of Policy, Planning and Development. Today, though, the downtown warehouse district is a tangled mix of industry and neglect. The district's streets are, quite literally, crumbling, riddled with cracks, the skeletons of old rail lines and wheel-size potholes. Few of the area's loading docks, built decades ago, can accommodate modern semi trucks. Still, with their fences lined with barbed wire and graffiti, most of the district's low-slung buildings are occupied, home to cold storage facilities, produce companies, toy storage and more. City officials say that the vacancy rate for downtown's industrial land hovers around 1%, and that demand for certain-sized parcels can't be met by the current supply.


River project is child's play -- and more

A gallery invites visitors of all ages to tinker with models of L.A.'s much-maligned waterway to illustrate their visions.

By Bob Pool, March 18, 2007

Inspiration was flowing like the Verdugo Wash after a five-day rainstorm for Alex Dann.

"Where's the zoo?" he asked, sizing up the table-size tableau in front of him. "Over there? Cool."

The 7-year-old Tarzana boy was at a downtown Los Angeles art gallery Saturday, poring over an exhibit called "Five Models Afloat." A moment later, he was participating in it.

He carefully studied the 4-foot foam-board square, which was divided into thirds by a bright blue plastic slash that depicted the Los Angeles River where it is joined by the Verdugo Wash at the Glendale-Los Angeles border.

One part of the square was covered by a miniature "mountain" molded out of window screen material to represent the Hollywood Hills. The other two, depicting flatland areas, were grids marked with a series of green swatches.

Dotting the areas around the swatches were tiny movable structures formed from small blocks of wood, Lego pieces, parts of toys and objects such as toothpaste caps.

Alex moved a wood-block figurine resembling a high-rise apartment house away from the edge of the river. He was asked if he had ever seen the real Los Angeles River and what it was like."Yeah, I've seen it. It's a sewer," he replied as his mother, Holly Dann, blanched."Well, it is," Alex said, standing his ground.The pair, along with father David Dann and 11-year-old sister Abby, had stopped at the gallery while shopping downtown.

The three-dimensional scene Alex was working on is a representation of one of five points along a 32-mile stretch of river for which officials have launched long-range plans to beautify the waterway and make it appear more natural.

Los Angeles officials, consultants and the Army Corps of Engineers spent two years conducting formal public workshops seeking ideas for the rehabilitation of what is now a mostly concrete-lined flood channel. Last month, they issued a draft report suggesting that a $2-billion makeover over the next 50 years could replace industrial land along the banks with park space. The steep concrete walls could be landscaped and rebuilt with step-like channelization.

Must-reads

I have enjoyed almost everything by T.C. Boyle that I could get my hands on. His latest novel, Talk, Talk is wonderful. Boyle lives in the Santa Barbara area and many of his recent stories are placed in parts nearby. Characteristically, he makes the best use of the material that the region provides.

Almost. Today's NY Times real estate suppement (Key) includes: "Subsidized Houses for Rich People ... In Santa Barbara, life is so expensive that a six-figure salary qualifies you for affordable housing."

The article is also a must-read, with plenty of seemingly unintended self-parody. A local reporter notes, "This is good for Santa Barbara. Rich people are great, and it's interesting to live with CEO's. But there are middle-class people who are great, too."

Man bites dog

USA Today dutifully reports an American Public Transit Association press release (reprinted below). But Wendell Cox provides the context. He says it's all hype. And Im shocked.

Here's Wendell:

More Mass Hype

The US transit public relations machine is at it again, this time claiming significant ridership increases from 2005 to 2006. Finally, they have restored the 1957 level of ridership. By comparison, in 2006, car use was more than any year in history. In fact, since 1957, commuting by car has doubled. Transit says that ridership increased nearly three percent. In fact, annual increases have averaged nearly as much for 10 years, yet transit's share of urban travel has fallen nearly 20 percent during the period. Why? Because, even in an era of unprecedented gasoline prices, urban car use has grown more rapidly. People leaving their cars for transit makes good press. It just isn't true.

Here's the press coverage:

Riders crowd public transit systems
By Barbara Hagenbaugh, USA TODAY

WASHINGTON — Ridership on public transportation jumped to the highest level in nearly five decades in 2006 as high gas prices and expanded bus and train service enticed people to park their cars.

More than 10 billion trips were taken on buses and rail lines last year, the American Public Transportation Association says in a report to be released Monday.

That's up 2.9% from 2005 and the highest level since 1957. Ridership rose three consecutive years through 2006 and increased 28% in the 10 years since 1996.

The rise in 2006 came as gasoline prices increased, coming within pennies of the all-time record, not adjusted for inflation, reached following Hurricane Katrina in 2005. "Certainly, a lot of the growth last year was with the high gas prices," APTA President William Millar says.
But Millar says a number of other factors, such as increased road congestion and improved transit service, were also likely in play. Ridership was up 4% in the fourth quarter from the same period a year earlier, even though gas prices had fallen from their earlier peaks, APTA says.

Kim Little, 51, of Tulsa started taking the bus to work in May. While she expected it to be a temporary solution to higher gas prices, she has stuck with the bus.
"I just love it, I absolutely love it," says Little, who works in human resources for the city of Tulsa.

Not only is she saving gas money, but taking the bus for her 13-mile trip to work has cut commuting stress. Plus, she's made some new friends: "I've met some great people on the bus. That's been a fun, unexpected benefit."

The increase in ridership has put some strains on local transit systems. Around the USA, systems say they are trying to find ways to reduce crowding:
•Salt Lake City. The number of trips taken on Salt Lake City's light rail rose 14% in 2006 to a record. The rising demand led the Utah Transit Authority to buy 29 used rail cars from San Jose, Calif. Officials haven't had time even to paint the new cars that have gone into service. Instead, they plastered stickers over the old labeling to get the cars on the rails as soon as possible.
"They're not pretty," spokesman Justin Jones says. But "it's a ride and people don't mind."
•Washington. Ridership on Metrorail in the nation's capital rose 5.3% to a record in the 2006 fiscal year, which ended June 30. The transit system is buying new cars to meet passenger demand.
•San Francisco. The number of trips on the Bay Area Rapid Transit train system also rose to a record last year. BART also has been increasing the number of cars, lengthening trains in the system.
•Tulsa. Ridership rose 17% on local buses and 43% on park-and-ride bus service last year. Tulsa Transit has added a bus on one route and is considering adding a commuter rail line, spokeswoman Cynthia Staab says.

Consumer-oriented higher education

Is it possible to enjoy March Madness and despise the NCAA cartel? Is there a paradox? What's the big deal about consistency, anyway?

Lawrence M. Kahn writes about "Cartel Behavior and Amateurism in College Sports" in the Winter 2007 Journal of Economic Perspectives (gated).

He finds:

"Big-time college sports programs appear to extract rents from revenue-producing athletes by limiting their pay and requiring them to remain amateurs. These rents are spent on facilities, nonrevenues sports, and possibly head coaches' salaries. On average, the two big revenue sports of men's basketball and football run a surplus; however, college sports as a whole -- including the nonrevenue sports -- report operating losses. Some evidence suggests, although not unambiguously, that college sports have positive indirect effects on public anf private contributions. Moreover, sports success appears to generate interest by students that may lead to a modestly stronger student body. In this consumer-oriented era for higher education, universities need to maintain their appeal to future applicants, many of whom are future alumni or future voters for state legislatures, and having successful sports programs may be one way to do this. The popularity of college sports events and of schools with big-time athletic programs suggests that the idea of amateurism may have some market value. Arms race considerations suggest that society may gain from some spending limits on college athletics. From an efficiency point of view, these societal gains would have to be weighed against the losses caused by movement down the supply curve of star atheletes."

Paradox resolved. Exploitation, inefficiency, politicized anti-trust status and "consumer-oriented ... higher education"

No brainer

The well known limitations of public transit apply mainly to conventional public transit. That's all we get because of monopoly provisions of local law or because of the unimaginativeness of employers -- who, as Don Shoup, has taught us would save bundles providing less employee parking.

Neither seems to have stopped (who else?) Google, Intel and Oracle from providing shuttles by which employees can get to and from work. A recent NY Times piece tells the story.

Give these employees internet access on the bus and two wonderful things happen: they like the ride and they get to work working.

Just imagine, transit that's attractive and without huge public subsidies. (Hat tip to David Yarden.)

Good news and bad news

"City economies" are ranked in a graphic in this week's Economist. "Big cities pack a punch equal to some national economies. The GDP of Tokyo or New York, for example, is broadly similar to that of Canada ..."

GDP and (all other accounting conventions) invite controversies. Some of them pop out when applied to cities. In "Superstar Cities" (NBER WP 12355), Gyourko, Mayer and Sinai cite these places' explosive house price growth and report that it is due to the scarcity of housing, the growing number of high-income households and the fact that they (naturally) outbid the less affluent in preferred neighborhoods. But some fast-growing cities (notably Phoenix and Las Vegas) remain outside the "superstar" class because they have been able to add enough housing to dampen house price increases. Living in the "superstar" places has become a luxury good. The less affluent put up with long commutes or try their luck elsewhere.

Regulation creates artificial scarcities that push up prices that help the "superstars" to shine when ranked in terms of GDP or by economic researchers.

GDP accounting practices have long incited discussions of "goods" and "bads" and how they are handled. Here is another. Cities are essential "engines of growth" because they are congenial to entrepreneurial activities. Bottlenecks that originate in politics (notably land market regulations) inevitably detract from this. High land rents are evidence of good news (on the demand side) as well as bad news (on the supply side).

Market signals for planners

The Economist explains why downtown renewal is a fool's errand. Governments can, of course, spend enough and put a man on the moon. But there are many more downtown boosters than there are space travel supporters.

Left alone, private developers create "lifestyle centers" by the thousands that fulfill the functions of centers -- and have eclipsed the downtown. If there is going to be a main urban center, it will not be as dominant as downtown interests dream about. Markets are signalling the nature of the best forms of development for the auto-oriented world.

The examples cited in the article show that market signals in this realm cannot be ignored.

"Fever pitch of apathy"

Here is the LA Daily News cute headline and coverage of yesterday's forgettable local primary election. The story, however, misses the main point -- that most of the races had been sewn up well in advance. Districts are, of course, gerrymandered. And many candidates ran unopposed, having accumulated huge and daunting war chests early. Special interests have a way of gaming these things.

The "governance" that follows is not a pretty thing to watch.


Voters reach fever pitch of apathy
Yes, there was an election; however, nobody really cared

BY BRENT HOPKINS, Staff WriterLA Daily News

The cabbie's cigarette concerned him more than the future of his city.
On Tuesday, when Angelenos had a chance to vote for city and school board leaders, the most local of politics, the man in the yellow taxi - and just about everyone else - didn't bother to show up.

Only 7 percent of the more than 1.7 million eligible voters took the time to vote.
"Voting? Huh?" the cabbie said, mesmerized by the smoldering butt between his fingers. "Look, I'm very busy right now. I don't have time to talk about that."

Los Angeles voters, some red-faced, said they were too busy, too tired, too unaware or too uninterested to go to the polls. They had the chance to influence local politicians who theoretically have the most influence over their lives, and they did ... other stuff.

Maybe it was the negative campaigning. Or the fact that the previous election came only in November and there's another in May. Or the lack of much competition. Or the fact that the most hot-button citywide issue was whether to amend the City Charter over school board elections. ...

Important distinctions

Over at The Austrian Economists, Frederic Sautet reports on the arrival of the Paris School of Economics. There is some good news here. The embrace of the French authorities suggests that the sort of neo-classical-engineering economics that the Paris School is likely to feature is on its way becoming a relic.

Dan Klein takes up the discussion of distinctions in his new post. The label "Economist" can mean many things to many people. But it is more than odd when there is lopsided attention to market failure as opposed to government failure. Both can, of course, occur but the former is more often facilitated than ameliorated by the latter. Something is amiss when some very smart people miss this simple fact.

Flexible labor markets are best

On Feb 25, Louis Uchitelle's NY Times column ("Job Security, Too May Have a Happy Medium"; gated) compared U.S., Euro Zone and Japan GDP growth rates for the last decade, last 5 years, last 3 years and last year. The text of the column (recent growth rate differences are "minor" so why not go for European labor policies?) had little to do with the data shown. Annual U.S. GDP growth for the last decade was 3.2%, for the last 5 years 3.0%, for the last 3 years 3.2% and for last year 3.0%.

Byond outperforming the Japanese and Europeans, the U.S. economy endured a recession, a terrorist attack, a tech bust, a housing almost-bust, an oil shock and a war. Where are these in the numbers cited? There is amazing resilience in the U.S. economy.

A related point is made by Clair Brown, John Haltiwanger and Julia Lane in Economic Turbulence: Is a Volatile Economy Good for America? In short, Joseph Schumpeter had a better handle on modern capitalism than Lou Dobbs, Pat Buchanan, Ross Perot -- and many others.

The book is data-rich and makes its points the old fashioned way, by carefully processing large data files and laying out quite a few measured conclusions.

Pigou Club (more)

More on road congestion pricing can be found at urban planning research, this post by UCLA's Michael Manville.

I have two problems with the standard analysis. First, the "equity" argument is much more complex than many writers suggest. If road pricing gets us away from the status quo (jobs programs that leave HOV lanes and rail transit in their wake), then I am not at all sure that the change to pricing is "inequitable".

Or pricing means that the new revenue stream finances even more pork -- in which case, no one can tell the result.

So, how will they handle the equity argument in Monaco?

Today's WSJ lead editorial (parts below) recounts how cap-and-trade involves politics. And how that's a big problem.

Cap and Charade

(WSJ March 3, 2007; Page A8)

The idea of a cap-and-trade system for limiting carbon-dioxide emissions in the U.S. has become all the rage. Earlier this year, 10 big American companies formed the Climate Action Partnership to lobby for government action on climate change. And this week the private-equity consortium that is bidding to take over Texas utility TXU announced that, as part of the buyout, it would join the forces lobbying for a cap on carbon emissions.

But this is not, as Lenin once said, a case of capitalists selling the rope to hang themselves with. In most cases, it is good old-fashioned rent-seeking with a climate-change patina.

Start with the name. Most of those pushing this idea want you to think about it as cap-and-trade, with emphasis on the trading part. Senator Barbara Boxer touts all the jobs that would be created for people trying to game the system -- er, save the planet. And her colleague Jeff Bingaman calls cap-and-trade "market based," because, you know, people would trade stuff.

But for that to happen, the government would first have to put a cap on CO2 emissions, either for certain industries or even the economy as a whole. At the same time, it would allocate quotas for CO2 emissions, either based on current emissions, or on energy output, or some other standard. If a company then "over-complied," which means it produced less carbon dioxide than it was allowed to under the rules, it could sell the excess allowance to someone else. That someone else would buy the right to produce CO2 if doing so cost less than actually reducing emissions.

Bad news bears get their inning

From this morning's FT by Abby Cohen (www.ft.com/cohen):

"A well-anticipated correction to a bull run usually doesn't last long as many portfolio managers use it as an entry point into the market. We believe that US shares are currently undervalued and that this will also offer some buffer against disappointing news. Of course, the catalyst of the correction is critical in the analysis."

This caught my eye but too late. Of course I wouldn't know a pesky catalyst if I fell over one. Mostly, I hate it when the bad news bears have their inning.

Al Gore's Oscar

I thought I knew what charisma was -- although I could never define it. It describes a quality that people have who we want to be around. And it probably has media-specific realizations. One might be attracted to someone via one particular medium (print, sound, video-film, stage, stadium, even internet) but think otherwise on meeting them in person -- or via some other medium.

Then there is politics which is all about maintaining coalitions. There are some characters who can tell one group one thing and another group something very different -- using crafted ambiguous language -- and get away with it. They maintain coalitions; they get re-elected. Many of the rest of us fail badly when resorting to rhetoric, pieties, ambiguous messages, etc. But some do get away with it. I have always concluded that they possessed the charismatic qualities to do so.

Now comes Philip Rieffs' Charisma: The Gift of Grace, and How It Has Been Taken Away from Us. It begins with some promise (the New Yorker cartoon that shows a hopeless fellow attempting to use spray-on charisma) but quickly becomes an idiosynchratic-psychonalatic argument with Max Weber. The ground covered includes Old and New Testaments, both of which rely on presentations of various charismatic characters.

And why scorn Weber? "Weber did not invent charisma, and I doubt that he has the soul-raking power that would accompany its destruction. I cite Weber ... for his detructive neutral uses of the concept ... His formulae of ligitimation translate too easily into professional sales techniques, with leadership as the product." (p. 244) The great man apparently defined things in a way that suggested publicity and celebrity.

Now I was ready for the Oscars. Watch reruns of your TIVO-ed Academy Awards, see Melissa Etheridge sing then-nominated (and eventually winning) "I've need to wake up" and catch the the messages flashed in the background, including "light-rail". How many of the guests in the Kodak Theatre have ever used light rail? (I could not resist.)

In fact, watch the works and tell me that Al Gore is charismatic in any medium. In fact, Dr. Henry Miller diagnoses narcissistic personality disorder. Turn-off, rather than turn-on and not charisma.

Imagine

Our first MBA president is also the first to take congestion pricing seriously (see WSJ report, excerpted below). I guess that it's safe to say that this stuff is not taught in most of our law schools. In polite company, any talk of trade-offs and pricing is still deemed to be exotic and sinister. But of all the tough problems that confront any president, this one is the true no-brainer.

Imagine if all the candidates for high office ...
.... internalized economic thinking and could, thereby, devote more time and effort to all the other really difficult stuff (war, peace, clash of civilizations, etc.).

John Lennon might even set it to song if he were still around.


Bush Plays Traffic Cop in Budget Request
President Suggests 'Congestion' Tolls To Ease Rush Hour

WSJ, By JOHN D. MCKINNON
Feb. 5, 2007

WASHINGTON -- With much of his domestic agenda stalled by Congress, President Bush is embracing a new cause he is hoping will cross party lines and leave him with an end-of-term accomplishment: easing rush-hour traffic.

In his annual budget blueprint to be unveiled today, Mr. Bush intends to showcase a highway "congestion initiative," according to White House documents, with grants for state and local governments to experiment with anti-jam strategies.

In a surprise that could foreshadow how Mr. Bush might reach out to Democrats -- and disappoint conservatives -- for the rest of his term, the centerpiece of the traffic plan involves an initiative that some critics say amounts to a tax, a plan depicted by administration officials as "congestion pricing." The administration will award $130 million in grants starting this spring to help cities and states build electronic toll systems that would charge drivers fees for traveling in and out of big cities during peak traffic times. The money also could go to other congestion strategies such as expanded telecommuting, but administration officials make it clear they think congestion pricing is the most powerful tool they have. The White House will seek an additional $175 million for congestion initiatives in next year's budget.

Beyond automobile traffic, the administration will also introduce legislation soon that could seek to impose a form of "congestion pricing" on airline travel, likely through user fees on airlines. The idea is to spread flights more evenly.

A whimper, not a bang

The paperless world never arrived in spite of modern electronics. But The Economist ("A cash call" Feb 17) speculates that "Smart cards and mobile phones are quickly emerging as ways to pay with electronic cash."

Email did not end the postal service; it simply made it obsolete. (FedEx and UPS and many others helped, of course.) Might smart cards and mobile phones do the same for central banks? Define M1.

What makes it all so tantalizing is that the email revolution did not require an act of Congress to shut down the USPS. Likewise no act of Congress will shut down the federal banking system. But that is entirely unnecessary. All of my monthly credits and debits could easily be handled by PayPal (and their like) and the various credit card companies. We simply require enough of these so that competition is maintained.

No one knows quite how it will all come to pass but I suspect that it will be with a whimper and not a bang. Just like USPS and email.

Game theory for primitives

Tom Schelling has more than once (see interview on page A9 of today's WSJ) written that nuclear proliferation is inevitable so we must somehow press for increased sophistication by those who obtain them. Of course. The fear has always been that nutcases get their hands on them and there is an abundance of these. I am not sure that epiphanies automatically accompany gaining the weapons.

Jeffrey Sachs suggests game theory teaches us to practice "generous tit-for-tat".

"Today’s game theorists would describe [Pres. John F.] Kennedy’s strategy as “generous tit-for-tat” (GTFT). A player adopts a position of cooperation as long as the other side does, too. If the second player begins to cheat, the first player stops cooperating as well, to show the cheater that there are adverse consequences... The door remains forgivingly open to future cooperation, however, if the cheater reverts... And generously, the first player might initiate renewed cooperation, with a view to enticing the former cheater to reciprocate. GTFT is so successful and robust that many evolutionary biologists suppose that the basic strategy is somewhat hardwired in human attitudes...."

I have no idea how relevant any of this is for the primitives who I see spreading mayhem on the nightly news.

Giveaway in LA

This is not a bad movie but business as usual in the big city -- where left-wing politicos collect money from taxpayers so that they can give it to wealthy developers who then support their political campaigns.

And its all wrapped in the worst silliness about how this is a beneficial project for everyone and anyone. And we've heard it all many times before, and that does not matter.

Here are excerpts from the headline story from today's LA Times:

"Grand Avenue project passes go ...
City and county OK the $2.05-billion plan to reshape downtown L.A. ...

Despite criticism about tax breaks and land giveaways, the Los Angeles County Board of Supervisors and the Los Angeles City Council gave final approvals Tuesday to a sprawling mini-city atop Bunker Hill that will alter L.A.'s skyline and set a course for future development in downtown.

Elected officials and other backers of the Grand Avenue project described the vote as a turning point for Los Angeles, whose civic leaders have tried for decades without success to establish a central cultural hub downtown that would draw people from throughout the region."This is a historic day for Los Angeles. It changes the entire complexion of the center of our city," said civic booster Eli Broad, who is spearheading the development.

The $2.05-billion Grand Avenue project would be the largest single development in downtown history, and would be built almost entirely on public land that would be leased for 99 years to mega-developer the Related Cos. It has few if any equals in the region, in part because of the complexity and scope of the private-public partnership.The project also has emerged as Los Angeles' most ambitious effort to create dense, high-rise residential developments next to rail lines, offices, cultural attractions and shopping.

Though some consider the project a model for "smart growth" aimed at encouraging people to walk and use mass transit rather than drive, others see it as a tax giveaway that is not in the interests of local government. Critics complain that Related is essentially getting a double subsidy: The city and county are leasing the developer public land for a profit-making business at the same time that the city is granting breaks on future hotel and parking taxes.They also question whether the project would be the regional magnet its backers hope.

Both the council and board voted Tuesday, in part to demonstrate their lock-step support for the project. The City Council approved the deal 13 to 0, with Councilman Ed Reyes absent. The supervisors approved the project 4 to 1, with Mike Antonovich voting against it. By approving the deal, the governmental bodies agreed to transfer the land for the first phase of the project — a county-owned parcel — to the Grand Avenue Authority, a joint city-county agency that will in turn lease it to Related. (Later phases include land owned by the city's redevelopment agency.)The votes green-light all three phases of Grand Avenue, which calls for at least five new high-rise buildings and 3.6 million square feet of development.

The first phase would include two translucent glass residential towers to be designed by Frank Gehry, one 49 stories and the other 24.One tower would include a five-star Mandarin Oriental hotel. Two hundred of the 1,000 housing units included in the first phase would be reserved for low-income residents.

The municipal bodies also approved the development of a 16-acre park between the Music Center and City Hall as part of the project's first phase — one of the civic benefits that backers said was vital to the project's success.The development marks the furthest-reaching effort by local leaders to turn downtown into a 24-hour district on par with areas of New York, Chicago, London and Paris. ..."

Not yet "Sex In The City"

Will most of us agglomerate in and around just a few "superstar cities"? Joe Gyourko and his colleagues suggest that this may be our future. They like New York, Boston, San Francisco and points nearby. Joel Kotkin disagrees (in this morning's WSJ, partially reproduced below).

But it is not about cities. Rather, it is about cities and their suburbs and exurbs, e.g., the "urbanized areas" that make up the whole. The cities and their hinterlands are mutually dependent and it makes little sense to talk about the one and not the other. Consider the Miami, Los Angeles, Dallas, Phoenix, Houston and Atlanta urbanized areas. Not quite (as Pierre Desrochers might say) Sex-In-The-City chic, but these six were all in the top 13 in 2000 population and in the top 12 in terms of 50-year growth and in the top eight in terms of 50-year absolute population growth. So it is not simply the case of small-fry playing catch-up.

Vitality is a many-splendored thing and can be found in quite a few places.

The Myth of 'Superstar Cities'
by Joel Kotkin

These seem the best of times for America's elite cities. Wall Street's 2006 megabonuses created thousands of instant millionaires, and, with their venture-fund soulmates in places like San Francisco, Boston and Greenwich, the best people are prowling for Ferraris, planes, multimillion-dollar condos, the newest $200 lunch place and the latest in high fashion. In some markets, office prices and rents are breaking all-time records.

The bluest of the blue cities can also celebrate their rise to the top of the congressional pole. Speaker Nancy Pelosi of San Francisco, Finance Chairman Barney Frank of suburban Boston and Ways and Means Chairman Charles Rangel of Manhattan all represent something of an economic coup for the "good rich" such as dot-com billionaires, subsidized downtown real-estate developers and "enlightened" investment bankers. The new notables most likely won't find fault with their constituents' windfalls as they have with those of the oil companies, the pharmaceutical firms or Wal-Mart.

Yet these triumphs obscure the longer-term developments that continue to reshape metropolitan America. Economic and demographic trends suggest that the future of American urbanism lies not in the elite cities but in younger, more affordable and less self-regarding places.

Over the past 15 years, it has been opportunistic newcomers -- Houston, Charlotte, Las Vegas, Phoenix, Dallas, Riverside -- that have created the most new jobs and gained the most net domestic migration. In contrast there has been virtually negligible long-term net growth in jobs or positive domestic migration to places like New York, Los Angeles, Boston or the San Francisco Bay Area.

What as much as anything distinguishes elite places -- what Wharton real-estate professor Joe Gyourko calls "the superstar cities" -- are their absurdly high real-estate prices. New York, Boston, San Francisco and Los Angeles have long been more expensive than, say, Dallas, Houston or Phoenix -- but in recent years the difference in price, he calculates, has increased beyond all reason. San Francisco prices since 1950, for example, have grown at twice the national rate for the 50 largest metropolitan areas.

This is good news for those who hold property, but has been less than a blessing for those middle-class families who might want to enter these markets. In some superstar cities less than 10% of households can afford a median-priced home. Nationally the average is about 50%.

Mr. Gyourko traces these surging prices to two basic causes. First, there remains in superstar cities a remarkable concentration of very high-earning families who can bid up real estate. The second factor lies with the regulatory and tax regimes, which greatly limit the production of housing and job opportunities, particularly for middle-income families, not only in the city cores but in surrounding areas.

Of course high productivity from educated workers and companies resident in these cities also contributes to the superstar phenomena. But Mr. Gyourko asserts these earning are not nearly high enough to explain the massive real-estate price differential. "You don't have to be productive to live in these places, you just have to have money," Mr. Gyourko suggests.

What drives the process is a simple combination of limited middle-class housing options combined with strong demand among the wealthy. Given the economic centrality and cultural vitality of a place like New York, there remains a sizeable top echelon, many in business, that can and does consume the [NYC Mayor] Bloombergian "luxury product" as their primary or secondary residence.

Geography and selection

Jared Diamond (in Guns, Germs and Steel) derives amazing explanatory mileage fom linking geographical variation with natural selection. Both are as exogenous as we can hope for.

Sunday's NY Times included a piece on innovation and geography as destiny. This is all about agglomeration economies -- which also link to selection.

Cities (places) compete and the winners are those that manage spatial arrangements so that potential positive externalities are exploited while the negative ones are muted -- other things equal. This is very tricky and requires flexible land markets.

Wonkery

No proper economist wants to be left out of the Pigou Club.

Today's WSJ reports: "Economists Back Fossil-Fuel Tax To Spur Alternative Energies ... most of them say that the best way to do so is one Mr. Bush isn't proposing: putting a tax on fossil fuels. Forty of 47 economists who answered the question in the monthly survey said that the government should help champion alternative fuels."

It's a trifecta. Market signals are enhanced. Sinners are punished. Politicians get more money.

The first appears in every textbook. The second is the part most students (and some others) like best. The third gets much too little attention.

But I just noticed that the Marginal Revolution folks had already suggested the Pigou-Brennan-Buchanan Club. In a nutshell, drug legalization proponents claim that it would deliver more open, responsible and supervised use. So no more heroin (no new tax revenues) for the junkies (politicians) until there are rules on supervised use (spending).

Planning is hard work

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Vision thing

In the New Yorker of Feb 5, Paul Goldberger writes in praise of Robert Moses ("The Skyline: Eminent Dominion"). I suppose that there are some positives no matter where one looks, that designers like Goldberger naturally believe that cities require a top-down master plan, that every maligned historical figure gets a second look and that a golden age hew can be attached to almost anything more that a quarter-century old.

Moses was good at what he did and, thereby, exposed the folly of his enterprise. But critics as well as fans draw all the wrong conclusions. Goldberger writes: ".... he would charter small planes and fly back and forth across the metropolitan area to get a better sense of regional patterns. His vision of New York was of an integrated system with an urban center, a suburban ring, and a series of huge public recreational areas, all connceted by parkways."

This is how designers talk but it is patent nonsense. The region is in reality infinitely complex. It can succeed only insofar as millions of locators evaluate the many complex trade-offs that various available sites (in the city, the region and beyond) offer. The best that we can hope for is that the Moses-Goldberger-type visions do not make this too terribly difficult.

The "vision" that planners should clarify, instead, is that clear and credible property rights are required for locators to make good choices and for cities to function (to be the "engines of growth"). As they advise policy makers, planners should point out the instances where well meaning policies cause fundamental problems. That would be valuable work and that activity is miles away from Moses-Golberger.

Hide your wallet

I am writing this in my Jerusalem hotel room, watching Jacques Chirac on TV as he scrambles for the high ground on climate change. What is one to do when almost all of the political hacks from the U.S. and abroad do the same? Hide your wallet.

One does not have to go back very far in time to find a majority of elite opinion convinced that socialism (or worse) was humanity's future -- no matter the cost. (The sound bites from Davos were as nuanced and diverse.)

Ronald Bailey has abandoned his skepticism on climate change. But is the proposed cure worse than the disease? Do we expect the political-and-media crowd to consider cost-effectiveness?

Beyond all that Art DeVany reminds us that the models that scientists rely on cannot plausibly be extrapolated to the extent that they now are. DeVany recalls how large-scale econometric models failed when pushed to perform beyond their capabilities. He also knows that scientists do not easily agree ("consensus science is not science") -- but that they do know from where the money flows.

More to life than footprints

Matt Kahn and Ed Glaeser love NYC because they like its environmental footprint. But what are they maximizing? Not many new New Yorks are coming along these days. Newer forms are outcompeting the NYC form almost everywhere. This is no riddle.

Cities exist because they facilitate economic development. Market forces typically trump urban policies and we get the cities that work best. Even Manhattan's density keeps falling.

Few serious people will admit to loving Las Vegas or Houston or Phoenix. But their likes are the future. Even with European urban policies, the continent's cities are "sprawling."

Something useful

The economy is doing well. Housing-doomsday was wrong. Economists make crummy forecasts. In fact, if they made better forecasts, more of them would be rich.

There are many reasons to be analytical in discussions of the future. Survival requires no less. But this is different from quarterly forecasts of macroeconomic aggregates. We simply do not have the equipment to get this right. Our best models are hopelessly inappropriate in light of the complexity of the real thing.

What the best economists get right is to achieve a better understanding of history. (No small thing.) And that may help us to be better prepared for what the future may bring.

A wonderful example is Deepak Lal's Reviving the Invisible Hand. Once we train (and reward) young scholars to decode (and learn) history -- instead of making silly macroeconomic forecasts -- we will have done something useful.

Why is Europe different?

We passed through the Golan Heights yesterday and travelers can enter one of many remaining (Russian built) Syrian bunkers and peer at the Kibbutzim that the Syrians fired on daily for almost 20 years. What is so stunning about it all is the nearness of the downhill targets. Literally a stone's throw. Yet the targets somehow and defiantly went on with their lives.

Middle East politics revereberate everywhere, especially in Europe. Some people wonder why so many Europeans do not take Islamic terrorism seriously. George Weigel (The Cube and the Cathedral) wonders why it was impossible to get allusions to Europe's Christian past into their draft constitution. So what makes Europe different?

Robert Kagan (Of Paradise and Power: America and Europe on the New World Order) believes that most of the continent was traumatized by the bloodshed of the 20th century. Weigel believes that all the 20th century disasters (1914-1989) themselves go back to earlier departures from Christianity, in the direction of modern secularism.

But Christian Delacampagne, writing in the January 2007 Commentary alludes to plain old fashioned vote-counting by French politicians. With ever more Muslim voters, the politicians react.

Speaking truth to power

I love the usage, "speaking truth to power." It may be a leftover from the '60's.

Trouble is that the ears have walls. Power may not want to listen This episode reported in the WSJ is too good to miss:

Will Al Gore Melt?
By FLEMMING ROSE and BJORN LOMBORG
January 18, 2007; Page A16

Al Gore is traveling around the world telling us how we must fundamentally change our civilization due to the threat of global warming. Today he is in Denmark to disseminate this message. But if we are to embark on the costliest political project ever, maybe we should make sure it rests on solid ground. It should be based on the best facts, not just the convenient ones. This was the background for the biggest Danish newspaper, Jyllands-Posten, to set up an investigative interview with Mr. Gore. And for this, the paper thought it would be obvious to team up with Bjorn Lomborg, author of "The Skeptical Environmentalist," who has provided one of the clearest counterpoints to Mr. Gore's tune.

The interview had been scheduled for months. Mr. Gore's agent yesterday thought Gore-meets-Lomborg would be great. Yet an hour later, he came back to tell us that Bjorn Lomborg should be excluded from the interview because he's been very critical of Mr. Gore's message about global warming and has questioned Mr. Gore's evenhandedness. According to the agent, Mr. Gore only wanted to have questions about his book and documentary, and only asked by a reporter. These conditions were immediately accepted by Jyllands-Posten. Yet an hour later we received an email from the agent saying that the interview was now cancelled. What happened?

One can only speculate. But if we are to follow Mr. Gore's suggestions of radically changing our way of life, the costs are not trivial. If we slowly change our greenhouse gas emissions over the coming century, the U.N. actually estimates that we will live in a warmer but immensely richer world. However, the U.N. Climate Panel suggests that if we follow Al Gore's path down toward an environmentally obsessed society, it will have big consequences for the world, not least its poor. In the year 2100, Mr. Gore will have left the average person 30% poorer, and thus less able to handle many of the problems we will face, climate change or no climate change.
Clearly we need to ask hard questions. Is Mr. Gore's world a worthwhile sacrifice? But it seems that critical questions are out of the question. It would have been great to ask him why he only talks about a sea-level rise of 20 feet. In his movie he shows scary sequences of 20-feet flooding Florida, San Francisco, New York, Holland, Calcutta, Beijing and Shanghai. But were realistic levels not dramatic enough? The U.N. climate panel expects only a foot of sea-level rise over this century. Moreover, sea levels actually climbed that much over the past 150 years. Does Mr. Gore find it balanced to exaggerate the best scientific knowledge available by a factor of 20?

Mr. Gore says that global warming will increase malaria and highlights Nairobi as his key case. According to him, Nairobi was founded right where it was too cold for malaria to occur. However, with global warming advancing, he tells us that malaria is now appearing in the city. Yet this is quite contrary to the World Health Organization's finding. Today Nairobi is considered free of malaria, but in the 1920s and '30s, when temperatures were lower than today, malaria epidemics occurred regularly. Mr. Gore's is a convenient story, but isn't it against the facts?

He considers Antarctica the canary in the mine, but again doesn't tell the full story. He presents pictures from the 2% of Antarctica that is dramatically warming and ignores the 98% that has largely cooled over the past 35 years. The U.N. panel estimates that Antarctica will actually increase its snow mass this century. Similarly, Mr. Gore points to shrinking sea ice in the Northern Hemisphere, but don't mention that sea ice in the Southern Hemisphere is increasing. Shouldn't we hear those facts? Mr. Gore talks about how the higher temperatures of global warming kill people. He specifically mentions how the European heat wave of 2003 killed 35,000. But he entirely leaves out how global warming also means less cold and saves lives. Moreover, the avoided cold deaths far outweigh the number of heat deaths. For the U.K. it is estimated that 2,000 more will die from global warming. But at the same time 20,000 fewer will die of cold. Why does Mr. Gore tell only one side of the story?

Al Gore is on a mission. If he has his way, we could end up choosing a future, based on dubious claims, that could cost us, according to a U.N. estimate, $553 trillion over this century. Getting answers to hard questions is not an unreasonable expectation before we take his project seriously. It is crucial that we make the right decisions posed by the challenge of global warming. These are best achieved through open debate, and we invite him to take the time to answer our questions: We are ready to interview you any time, Mr. Gore -- and anywhere.

Dysfunctional in LA

Heather MacDonald wrote the following in yesterday's LA Times:

THE LOS ANGELES City Council recently paid $593,000 for a report on how to end the city's rising gang violence. The taxpayers didn't get their money's worth. The much-ballyhooed study, directed by civil rights attorney Connie Rice, makes a whopping 100 recommendations yet can't bring itself to mention the most important driver of gang involvement — family breakdown.

"A Call to Action: A Case for a Comprehensive Solution to L.A.'s Gang Violence Epidemic" recycles all the failed nostrums from the war on poverty, such as government-created jobs, "life-skills training," "parenting education and support" and "crisis intervention." Since the 1960s, trillions of dollars have been spent on such programs without so much as making a dent in the underclass culture that gives rise to gangs. And these initiatives will never make a significant difference in that culture as long as the vast majority of young males in inner-city neighborhoods are raised without their fathers.

To be sure, plenty of heroic single mothers are bringing up law-abiding young men. But the evidence by now is overwhelming: Boys raised in fatherless homes, on average, are disproportionately likely to get involved in crime and fail in school. Without a strong paternal role model, these boys are vulnerable to the lure of macho gang culture as a surrogate for a father's authority. When the norm of marriage disappears from a community, furthermore, the pressure for young males to become socialized evaporates as well. Boys in South Los Angeles and other gang-plagued neighborhoods grow up with little expectation that they will have to woo and marry the mother of their children. The standard assumption is that girls and women will raise their children by themselves, resulting in an out-of-wedlock birthrate of greater than 70%. Freed from the necessity of marriage, boys have little incentive to develop the bourgeois habits of selfdiscipline and deferred gratification that would make them an attractive prospect as a husband.

Compared to this overwhelming reality, Rice's jargon-ridden recommendations border on irrelevancy. For instance, Proposal 4.21, addressed to no one in particular, holds: "Acquire expert assistance to provide culturally competent, linguistically fluent, developmentally appropriate services that improve program performance, facilitate communication and improve access to services for immigrant and/or isolated and alienated communities."

Big city government in America is mostly dysfunctional. So are serious people who pen such gibberish. Leaving the big cities is the only logical response -- and people continue to do just that. People who can, vote with their feet. All the rest are stuck and at the mercy of their advocates.

History and war

Off to the Middle East and greatly enjoying Bernard Lewis' The Middle East, A Brief History of the Last 2000 Years. Also watched the Battle of Algiers last night and looked at Niall Ferguson's "A War to Start All Wars" (will start the book too).

Do politicians listen to intellectuals? Mostly not and mostly that's a good thing. I believe that Lewis and Ferguson once favored the Iraq invasion. In any case, they are refreshingly wise about all things.

More later.

A terrible thing to waste

Charles Murray's WSJ op-ed (Jan 16) begins this way:

Education is becoming the preferred method for diagnosing and attacking a wide range problems in American life. The No Child Left Behind Act is one prominent example. Another is the recent volley of articles that blame rising income inequality on the increasing economic premium for advanced education. Crime, drugs, extramarital births, unemployment -- you name the problem, and I will show you a stack of claims that education is to blame, or at least implicated.

One word is missing from these discussions: intelligence. Hardly anyone will admit it, but education's role in causing or solving any problem cannot be evaluated without considering the underlying intellectual ability of the people being educated. Today and over the next two days, I will put the case for three simple truths about the mediating role of intelligence that should bear on the way we think about education and the nation's future.

Like all nature-nurture questions, this one is complex. But speak English to Europeans and speak any foreign language to Americans and the power of better education is quickly apparent. And language facility opens many doors -- on the job, reading, traveling, thinking, etc.

I agree that there is no substitute for intelligence but what a waste to not adorn it.

Invisibile on the trend line

Wendell Cox posts all sorts of very cool stuff at publicpurpose.com. His latest are compilations from the National Transit Database.

We hear so often that approximately 4.5% of Americans commute via transit. But what about all other travel? Transit's share of total vehicle-miles? It was 1.51% in 2005; it was last above 10% in 1955. It was 5.19% in the mid 1960s when the federal coffers became available to the industry. Several hundred billion dollars of subsidies spent since then are invisible on 100-year transit use trend line.

And these data include New York city which accounted for 41% of national transit use.

Matt Kahn (now of UCLA) and I will be blogging about these matters at WSJ Econblog later this week.

Dodging bullets

Steve Jobs (and many others) regularly point us to the future and the next gotta-have items. We all know that these are all the proverbial two-edged swords but resistance is futile. There is usually some predictable grousing but gotta-have is gotta-have.

We have all experienced the temporary panic of power outages -- not so temporary when traveling. But most of the time life does go on.

Last week many millions of people in Asia temporarily lost their email. The WSJ's Mary Kissel (below) takes us through that episode.

We can only say that, "there but for the grace of God ..."

The Great Asian E-Mail Outage

By MARY E. KISSEL
January 5, 2007

HONG KONG -- I have long harbored a secret resentment of electronic mail. I spend hours upon hours, day and night, shooting off notes with little delicacy. "TXS" now suffices for "thank you" and "got your msg, am fine" is all my family gets when they kindly inquire as to my well-being. Among other things, I credit email with my deteriorating eyesight, now-lackluster letter writing (once a fond hobby), and rapidly degenerating prose.

And then, one day, it was gone.

The Great Asian Email Outage caught almost everyone by surprise. Who knew that the notes we zipped off went by sea cables swimming with the fishes? A 6.7-magnitude earthquake off the southern coast of Taiwan on Dec. 27 thankfully did not inflict as much human damage as recent natural disasters -- two people died and more than 40 were injured in Taiwan. But the electronic -- and mental -- destruction was enormous.

In a split second, great swathes of the region's Internet and telecommunications services went black. The snapped cables -- six in all, plus others that were partially mangled -- were located on a key chokepoint for telecommunications traffic, linking North and South Asia with the United States. The damage in this region stretched from Indonesia to South Korea. Lucky users had on-again, off-again service. But most of us just sat, frustrated, fuming at the screen at work or at home, with no connectivity at all.

The timing was, in a sense, lucky. Much of the world was on vacation. Imagine what would have happened if the temblor had hit on Jan. 2, when many people were back at work. Asia boasts 387.6 million Internet users, fully 35.5% of the world's total, according to Internet World Stats. That's well ahead of Europe, at 28.6%, and North America, at 21.3%. Internet connectivity is lower in Asia as a percentage of the population but the number is growing by leaps and bounds as places like India link up.

Still, despite the lucky timing -- if one can call it that -- workers of all shapes and sizes lost their cool over the past week. Banks couldn't trade stocks and bonds. U.S. and European retailers couldn't communicate with their Asian suppliers. Shipping companies reported problems reaching their customers. An education consultant told me she was resorting to mobile phone text messaging to communicate with her clients, many of whom were scrambling to hit January business school application deadlines. Others resorted to ancient technologies such as fax machines to get their jobs done.

At work, the horror sank in quickly for me. Our production system worked only intermittently. The information technology whizzes, normally quick to solve any problem, simply shrugged their shoulders. "Not us," they answered my entreaties, with a sigh. "Taiwan!"
Now, Taiwan is blamed for lots of things in Asia. China can't stand it because it's a functioning democracy with a separate cultural identity. Neighboring countries fear it will one day spark a war with Beijing. I normally feel great sympathy for Taiwan, which struggles to get respect or even recognition in all sorts of supposedly broad-minded groups, such as the World Health Organization and the United Nations. But suddenly, I, too, felt a deep resentment of the place. How could Taiwan have allowed all the cables to run through one narrow stretch of sea?

The telecom companies respond that the Great Email Outage was a once-in-a-lifetime event, and the current setup suffices. The probability that this will happen again isn't worth the money to protect against.

While this past week has been stressful, it's also been instructive. I've learned to love what I hate: namely, those short, zippy e-mails that I had come to detest. Whether I like it or not, email facilitates the vast bulk of the work and transactions I gobble up during the day. The Internet provides the news, weather and entertainment. And the more one has, the more one wants. That's why socialism is a dead theory (except in some tenacious European circles). But I digress.

It's never comfortable to realize how dependent one is on a machine, be it a computer, a car, or something else. But if the Great Asian Email Outage taught me one thing, it's that email is a new necessity, period. And if you don't believe me, try a week without it.

Happy to see each other

Yesterday's NY Times Magazine included Dubner and Levitt on "The Gift-Card Economy", citing the well-blogged Waldfogel result on dead-weight losses from gifting. Also included was "Unconsumption: Can getting rid of stuff feel as good as getting it?" by Rob Walker (could not link this AM; their server is down).

Who would have thought that affluence could be so difficult? We have the means to acquire stuff at a faster pace than we can find to manage or enjoy it. We also have trouble buying or renting enough space. Real estate is the binding constraint.

The Walker piece alludes to recycling our many discards via Freecycle, "a Web-enabled network of about 3,900 such e-mail groups ... Save-the-earth types make up only a fraction of Freecycle users. Like any successful market place, this one works because it links people with widely disparate motivations. Some participants want to declutter. Some see it as akin to a charity. Some just don't want to lug items to the dump. And of course, many people are looking for free stuff ..."

Economists celebrate markets and transactions where buyers and sellers are happy to see each other at the market-clearing price. The Web pushes transactions costs down to a point where the folks that Walker described are also happy to see each other -- but this time at an acceptable transactions cost.

Autos and highways

Will Rogers (may have) said that there would be fewer traffic problems if the government built the cars and the roads were private.

But Ken Orski (www.innobriefs.com) suggests that the world is changing: "Toll concessions, private financing and public-private partnerships continue to dominate the news ... evidence that road pricing and private sector involvement in highway financing have indeed reached (and gone beyond) the tipping point."

And on the flip side, auto regs keep mounting and climate change is shaping up to be latest cudgel.

On related matters, how the game is played at Volkswagen is discussed in this morning's WSJ. It's a delicious story of work habits and work rules in Europe as well as the power of international competition for jobs and capital.

VW's 28-Hour WorkweekGoes Kaputt in Wolfsburg
By STEPHEN POWER and ALMUT SCHOENFELD

WOLFSBURG, Germany -- Time moves slowly in the town Hitler built to churn out his "people's car."

The giant Volkswagen AG factory here still bears the shrapnel scars from World War II bombs and still makes small cars -- but now it takes the company twice as many hours as its competitors to build them, roughly 50 hours for one compact.

At the same time, Volkswagen workers like Ronald Wachendorf, a 50-year-old mechanic, have enjoyed the shortest work week in the global auto industry: 28.8 hours, pulling down a full week's pay while working a day less than the 40-hour norm at General Motors Corp. and even less than the 35-hour standard at other German car makers.
VW's Wolfsburg employees will work more hours.

The extra time off from work has given Mr. Wachendorf ample time for simple pleasures: taking his 10-year-old daughter to soccer practice, playing chess with her after school, reading books about his diverse interests: philosophy, Henry Ford and the development of the German railroad.

But now, Mr. Wachendorf is having to adjust to a more hectic schedule -- at least by Volkswagen standards. In September, Mr. Wachendorf's union agreed to extend working hours at the company's German plants by more than four hours a week, to 33 hours, after the auto maker threatened to shift production outside the country. Volkswagen won't pay the workers extra to compensate for their longer schedule. On an hourly basis, the workers' wages will fall more than 14%.

"We all knew something like this would come," says Mr. Wachendorf. "The general mood among my colleagues is not good."

The change under way at Volkswagen reflects a broader trend in Europe's largest economy. With unemployment running around 10%, companies have more leverage to demand sacrifices of workers. Increasingly, businesses are pressuring employees to work longer for the same amount of money and threatening to shift production abroad.
In a country that is home to the world's best-paid auto workers, Volkswagen goes even further -- paying $69 an hour, compared with the national average of $44 and the U.S. standard of $34. Because of its reluctance to cut jobs, Volkswagen employs thousands of workers to make seat covers, exhaust systems and steering gears -- work most auto makers outsource.

With low-cost Asian rivals making inroads in Europe, Volkswagen is having to implement painful cost cuts. Over the next three years, the company is trying to shed up to 20,000 jobs -- mostly in Germany and mostly assembling cars -- by offering large severance packages to encourage workers to leave.

Despite that, the company's shift to longer hours remains hard to swallow.

"It is a pity for family life," says Sandra North, 34, a mother of two whose boyfriend works for Volkswagen. She works in one of the company's cafeterias. Ms. North says short work schedules allow more time for family activities, such as taking the children for pony rides at a stable near their home. Yet Ms. North says she also understands why her employer can no longer afford to be so generous.

"If you look at other companies around, they have always worked much more -- 38 to 40 hours," she says.

Volkswagen isn't like most companies. Its second-biggest shareholder is its home state of Lower Saxony, which has an interest in protecting jobs. More than half the seats on the company's board belong to German politicians and labor representatives, in keeping with a German law that requires big corporations to give workers a voice in governance.
Within Germany, few towns depend as much on Volkswagen as Wolfsburg, a community of 123,000 surrounded by farmland. The red-brick Volkswagen complex here covers an area the size of Monaco and accounts for more than half the town's jobs. Local streets carry the names of former Volkswagen executives.

Yet sympathy for Volkswagen workers runs only so deep. At the Tunnelschänke, a popular VW watering hole decorated with little plastic VW Beetles, bartender Carmen Stumpf shrugs as she listens to workers grouse about their new schedule.

"They don't see their situation in relation to others," says Ms. Stumpf. Wolfsburg's mayor, Rolf Schnellecke, agrees. "It was not a very just situation" that Volkswagen employees "worked four days a week and still wound up getting more money" than "normal people" in the town, Mr. Schnellecke says.

Volkswagen's short work week began in 1994. Rather than cut 20,000 surplus jobs during an economic downturn, the company shaved its work week by roughly 20%, which if it didn't trim wages and benefits, at least cut down on the cost of building cars no one wanted to buy.

The change wasn't easy for some. Ms. North's boyfriend, Thomas Jung, a 43-year-old VW factory worker, says he initially hung out in bars and played videogames. "I preferred going to work....One feels superfluous when one is needed less," he says. Gradually, though, he began going to a gym three or four times a week, and took vacations in Spain, Portugal or the Dominican Republic "at least once a year for two weeks."

After he and Ms. North began living together, he assumed other duties -- buying groceries for the weekend, picking up her children from school on his day off, making them lunch, and helping them with their homework.
"I really enjoy spending time and playing with the children," Mr. Jung says.

The good times stopped rolling in 2004, after disappointing sales of the company's flagship Golf model dropped the Wolfsburg plant into the red. Last June, the head of the company's core VW brand, addressed thousands of Wolfsburg factory workers. The company, he said, could no longer afford to pay them such high wages for such short schedules.
After months of negotiations, Volkswagen's German labor representatives agreed to extend working hours to 33 a week -- but not without extracting a promise from Volkswagen management to continue building the Golf in Wolfsburg.

The deal means thousands of VW workers are again having to adjust their schedules. Mr. Jung is cutting back his gym visits, and Ms. North has hired a baby sitter for an extra day since Mr. Jung can't pick up the children from school on Fridays now.

But the most dramatic ripple effects are outside Germany. To boost Wolfsburg's productivity, Volkswagen plans to shift some Golf production there from a factory near Brussels -- a move that has outraged Belgium's government and which is expected to result in numerous job losses there.

A Volkswagen spokesman says the company "is aware of its responsibility for" the 4,900 workers in Brussels and "will develop a socially responsible settlement." The auto maker has proposed building a new Audi model at the Brussels plant, a step that could significantly mitigate the number of job losses there.

Mr. Wachendorf, the mechanic, puts matters more bluntly. "That's part of the contract, that [VW managers] supply more [Golfs] for us," he says. "It's their problem where they get the cars from."

Smart people

The LA Times ran their annual "New Year's wishes" lead editorial today. Some wishes are whimsical and some are serious. High on the list is this one:

"For local officials to spend some of their Proposition 1B bond riches on extending the Red Line subway down Wilshire Boulevard to Fairfax Avenue; getting it all the way to Westwood would be even better."

The existing 16-mile line accounts for negative net benefits of near $300-million per year, all things considered. Extending the line will surely make this worse.

But this is now an old story. The larger problem is that many smart people (including many economists) ignore the application of basic economic principles when it comes to questions of public policy.

(I had never thought that any serious person took "internalities" seriously until I read in Jonathan Gruber's Public Finance and Public Policy that they were a reason for government to regulate smoking, p. 164. Slippery slope, anyone?)

Many see (negative) externalities practically everywhere. These are, of course, remediable by politicians. Many observers will not take delivery when possible externalities have been accounted for. Others see redistributional opportunties everywhere. Some of them ignore the fact that governments typically make a hash of redistribution -- and that the opportunity cost in terms of growth avoided is an anti-poverty opportunity missed.

Politics is bad enough. But politics given a pass by smart people is worse.

Mantras and pieties

Today's LA Times includes an op-ed by Michael Skube, "Duke attempts damage control." The piece notes that,

"... the university has undertaken a 12-city nationwide public relations campaign called 'A Duke Conversation,' involving not only [Duke President] Brodhead but also hundreds of alumni and Duke students. Their messsage: What you read and hear about Duke -- drunken parties, out-of-control athletes, pervasive arrogance and privilege -- is far from the truth."

Huh? One is tempted to say that some liberal academics don't get it.

Duke's problem was better described by Stuart Taylor, Jr. and KC Johnson in last Wednesday's WSJ:

"As for Durham's black leaders, and many in the media, and much of Duke's faculty, history will mark them down as enabler of abusive, dishonest law enforcement tactics. They will share responsibility for the continued use of such tactics, mainly against black people, after the Duke Lacrosse players' innocence has become manifest to all serious people and the spotlight has moved on."

It appears that the "Duke Conversation" will be nothing but a rehash of the mantras and smug pieties that gave rise to the tragedy.

Forecasters and policy makers

Ten-year Treasuries and mortgage rates have not gone through the roof. As a result, housing is going to be OK -- and a thousand doomsday forecasts must be put aside.

Our current account deficit interacts with international savings rates (and many other phenomena) to maintain the demand for Treasuries, putting a damper on interest rates.

Why then the pilgrimages to Beijing to beg (and press) for dollar/yuan devaluation?

The forecasters have had a bad year and the macro policy makers are wandering in the wilderness. We do remarkably well in spite of both groups.

A good year for urban economics

I had earlier blogged (as have many others) about Bob Bruegmann's wonderful Sprawl: A Compact History. Then came Wendell Cox's excellent War on the Dream.

Now we get William Bogart's delightful Don't Call It Sprawl. What a year, to find all of these. Teachers of urban economics and their students are very fortunate.

Here is one of many superb passages from Bogart.

A fundamental misunderstanding of how metropolitan areas work has hampered the current debate on the causes and consequences of urban sprawl. This misunderstanding is analogous to the pre-Copernican fallacy that the earth is the center of the universe, and everything revolves around the earth. In the discussion of urban sprawl, the downtown or central city takes the place of the earth in the Ptolemaic cosmology, and the rest of the metropolitan area is defined only in relation to the downtown.

It is possible for the basic urban structure of a metropolitan area to change over time. Such a change has been occurring in U.S. metropolitan areas for the last 100 years, and the change is coming to fruition at the beginning of the new century. To plan for future urban growth, it is vital to recast our understanding of how urban areas operate. (p. 41)

Perspective

Lawrence Summers, in today's LA Times, writes: "The future's so bright? The markets are pricing in tranquility as far as the eye can see. The commentariat begs to differ. ... The year 2007 will begin with a vast difference between the popular view of global risks as priced in financial markets. While the commentariat has been more alarmed about the state of the world than global markets for some years, the gap increased in 2006 as markets became more serene and everyone else grew more anxious."

Looking at the frequency of financial and terrorist disruptions, Summers concludes, "While each of these events was unique, the record does suggest that crises of some variety occur in about one of every three years. At least as far as the markets are concerned, perhaps the main thing we have to fear is the lack of fear itself."

Who or what predicts best? Is it the markets or the experts? Both have formed subjective distributions of the likelihood of such episodes. Perhaps market participants are also factoring in the amazingly quick recoveries from each of the events Summers mentioned.

The anti-Dobbs

Lou Dobbs (and many others like him) has a large following because economic illiteracy is widespread -- in spite of the best efforts of many of us who have spent a lifetime teaching principles.

Diane Coyle, in Sex Drugs and Economics, has some things to say about all this. But hers is not the only one of a spate of recent books (by Arnold Kling, by Tim Harford, by Tom Sowell, and many others, some listed here) which are absolutely readable, insightful and informative. The writers have done their job; it is the readers who are not doing theirs.

Coyle ends her book with "Ten Rules of Economic Thinking". (Among them is: "3. Metaphorical time bombs don't explode."). Perhaps these should have been labeled "Ten Inconvenient Truths."

But Coyle has done her job, finally linking sex with economics. She has neatly outflanked Lou Dobbs.

Racism

Shelby Steele writes (in today's LA Times):

"Racism -- fact or faith? The truth is, in today's America, intolerance is no longer tolerated. ... we must acknowledge one of the most profound achievements in recent human history: the death of white supremacy. ... The great mistake Americans made after the civil rights victories of the 60's was to allow race to become a government-approved means to power. Here was the incentive to make racism into a faith."

We are now made to wallow in racial politics at every level and in almost every arena. Tribalism is ancient and destructive. When it recedes, when we are willing and able to hire and do business with people outside the clan or the family, we make great strides and reap great benefits all around.

Irving Kristol supposedly remarked, of Jews and gentiles in America, that they [gentiles] no longer want to murder us [Jews] but rather they want to marry us.

Perceptions are, of course, all of the map but I liked starting my day with Steele's column.