Trembling on the brink

Just the other day, the NY Times reported this re the goings on in Bolinas, CA:

BOLINAS, Calif. — Marc Dwaileebe would like to build a house for his family on land he owns in this bucolic town just 20 miles north of San Francisco. But he cannot hook up to the water main that runs right past his property unless he has a water meter. And a water meter, in Bolinas, could cost more than $300,000.

The Bolinas people are serious.  According to the story, the price cited comes from a recent auction of the meter . Call it cap-and-trade, but with a very low cap.  It is transparent and it does beat allocation via political "pull".

On a related theme, today's WSJ includes "Reducing Emissions, and a Guilty Conscience".  The story cites and compares five vendors that currently sell carbon-footprint-offset dispensations (some have likened these to indulgences once upon a time made available for all the wrong reasons by Roman Catholic church officials -- and really getting Martin Luther upset).  The story mentions that looking for offsets verified by a third party is a good idea. It's early in the game and branding and trust relationships will form if these markets take off.

What makes both stories appealing is that they include glimmers of alternatives to the way most people still think about environment -- that it is only about one-size-fits-all standards.  The people at PERC have been telling similar stories for many years.   Are we trembling on the brink of now seeing it go "mainstream"?

Depressing

Thie country's biggest problem is probably the public schools.  Many of us had a pretty good idea that competition and choice are the obvious fix.  Diane Ravitch (interviewed by Russ Roberts here) has taken a hard look and is not so sure. 

The most depressing thing about the interview is that there is so little good news.  The Catholic schools (which Ravitch admires) are in decline. The charter schools (which she also has good things to say about) offer a mixed record.  No Child Left Behind testing has (in her words) institutionalized fraud as all teaching and prep are geared to one test.  And even the scores on reading and math (the only focus of NCLB) have gone nowhere.

What to do?  This is not my field and I have no idea.  The only question that remained after I listened to the interview is that competition if given enough time and scope could bring forth models that no one has yet considered.  The tests to date have been few and for just a few years.  Otherwise, Ravitch's findings (which she articulates compellingly) are very depressing.

Fixes and failures

As transactions costs come down, we do more transacting.  Last week, experiencing great NY weather and walking around Manhattan with two of my favorite ladies, I was made aware of the SitOrSquat iPhone app.  Today's NY Times includes "Need a Free Parking Spot? For $5, He'll Find You One" (print version).  Here's how the other great need is addressed:

Standing outside 477 Amsterdam Avenue one morning last week, we posted a query to see what spots were available nearby. Nothing at that instant, but someone had informed StreetParkNYC that in 20 minutes he would be leaving a spot 0.15 miles away. Getting the exact address costs $5, which we clicked to pay. Then we headed off, to 177 West 88th Street.


Just as promised, at 10:30 a.m., a fellow named Josh Fein got in his 2009 Black Acura MDX and drove off. He got $3 in his StreetParkNYC account, and we got a spot until the next morning. We tried twice more, with similar results: nothing perfect or immediate, but something, eventually, in the neighborhood.

Not just markets in everything, but two more cases of tech and entrepreneurialism lending a hand where the Great Big City's policy makers had failed.

Another explanation for lower big-city crime

The textbook treatment of public goods leaves out a lot that goes on right before our eyes.  Where their benefits are focused on an identifiable space, many of these goods can be supplied by private means.  You cannot visit a major US downtown these days without encountering private law enforcement personnel, many of them financed by Business Improvemt Districts (BIDs).  This paper by Philip Cook and John MacDonald (which I had not seen until seeing it cited here in The Economist) makes the case that crime reduction via BIDs is cost-effective.

Measured crime is down in most US big cities and there are a variety of competing explanations.  Cook-MacDonald provide evidence that some of the credit goes to where few of the analysts have looked.  Also give credit to lawmakers that made BID creation legal. Yes, some coercion is involved.  If a super-majority of local businesses sign up, the others must join -- or move elsewhere.  But the crime-reduction benefits may also be cost-effective for the individual business.  

Smart czars

Don't bite off more than you can chew.  That one makes the top 101 American-English proverbs and for good reason.  Witold Rybczynski describes city planners elevated to the growing Washington fraternity of czars.  And why not?  They deal in "smart plans." F.A. Hayek called attention to "fatal conceits".  He focused on the problems of socialism , but most grand plans (even "smart" ones) are subject to exactly the problems Hayek highlighted.

But perhaps it's a bigger phenomenon.  In some walks of life, defeats prompt retrenchment. ("Pivoting" in current discussions.)  But in other fields, frustrations with the smaller problems only whet the appetite for bigger ones.  In my city and state, officials cannot fix the potholes, so they focus on global warming.  Never mind that localities' impacts would be negligible absent the cooperation of, say, China.  The same folks cannot get the schools under their jurisdiction to adequately teach the basics so they focus on what students ingest at lunch and recess. 

And it seems to work.  We keep re-electing people of the same mind set.

Four little numbers

The internet is congestible, as are most networks.  Most U.S. roads and highways are managed on a first come-first served basis.  We even call some of them freeways.  Call it "road neutrality". 

My colleagues and I play with data from the 1990 and 2001 national surveys (NHTS).  All you need to know are four numbers:  Proportion of all person-trips that were nonwork trips during the AM peak in 1990 (Mondays-Thursday only, 6am-9am): 55%; proportion of all trips that were nonwork during the PM peak in 1990 (Mondays-Thursdays only, 4pm-7pm): 75%.  Corresponding proportions in 2001: 62% and 76%.

Backing off from "neutrality" and rationing by, say, willingness-to-pay might shift some of these trips to less congested periods (others might disappear or be consolidated or use alternate modes). 

There is no end of moaning about road and highway traffic.  But the next time you find yourself in a serious conversation on the merits and demerits of "net neutrality", think about these four numbers.

Go back to first square

The message of Econ 101 is that price signals guide scarce resources to their highest and best uses.  The complexity of the task suggests that nothing but market prices and people free to respond to them can get the job done.  Substitute calculations are impossible.  And when and where there markets do not generate price signals, it is time to think hard about why that's that case and how signals (and trades) can come about where they are absent.  Emissions fees and tradable permits are often suggested.  But no one has yet figured out how these could be implemented without being politicized.

On top of all that, politicians and friends like to rush in with command-and-control.  Among the friends are those who are serious about green accounting.  The Econ 101 message, including the impossibility stuff, have not impressed them.  I recall that "energy accounting" was promoted 30+ years ago by many serious people.  This has morphed into "green accounting" and "carbon accounting" and perhaps other variants. Today's NY Times includes "How Green Is My iPad?"

But there are problems.  Choose or not choose an iPad based on this particular accounting?  My accountant might disagree.  And do I become a cost minimizer?

And aren't all resources scarce?  And doesn't that make the accounting much more complex than the op-ed suggests.  Go to first paragraph, above.

Local news

A recent WSJ blog post by Phil Isso includes this interesting map (from NY Fed economists Jaison Abel and Richard Deitz) on the variation of housing boom and bust across the U.S.  We know that aggregation is a problem, but the economic news (and a mountain of analysis) is mainly about national aggregates.  The actual story is about regional differences.  High amenity places suffer from high demand and, as a consequence, tougher regulations.  Both forces explain high prices.  And high prices are most at risk when bubbles burst.  These simple thoughts pretty much explain the various colors of dots on the map.

Yes, there were policy mistakes compounded by errors of judgment all over the place.  But these were consequential because of the regional differences mentioned.  There is always more to the story than the cliches about actions in Washington DC and New York.

No surprises

Almost 400 years ago, some immigrants bumped up against Plymouth Rock. Most population and migration trends since then can be seen as attempts to correct that mistake. The westward drift and the snowbelt-sunbelt migration are well established, although the interruptions and exceptions are always newsworthy. Wendell Cox calls attention to the latest developments, which are punctuated by housing market bubbles and busts of various intensities. Bubble differences and house price differences, not surprisingly, are seen, as is the propensity of international immigrants to go where there are strong network effects (the presence of previously settled arrivals from the newcomers' home country or region).

Look at Cox's top-ten metro areas and how they score in terms of domestic migration. Three large sunbelt metros (Dallas-Ft. Worth, Houston, Atlanta) continue to be the magnets. These are the ones where prices were less crazy.

Colleagues Gary Painter and Zhou Yu tell a similar story here and corroborate the expected pull of established networks for international immigrants.

There are still some things in the world that make perfect sense.

The long view

David Henderson has already blogged about the Gary Becker interview in today's WSJ, so there is not point in trying to say much the same. Becker is old enough and accomplished enough to merit being seriously referred to as "wise". This is why I find his optimism so attractive.

Day-to-day, there is plenty to fret about and there is enough ugliness in the world for serious worry. But the long view is not so bad. Who better to take the long view than someone who we can seriously accept as being wise?

Moving targets

No one has an easy time defining "middle class". It helps that so many people move up and down the income distribution.

James Surowiecki has an equally tough time defining middle market ("Soft in the Middle") in the March 29 New Yorker.

Most accountrements (cars, electronics, attire) are now so widely available that they defy easy links to any "class" of customer. He writes:

The boom in information for consumers has also severely weakened middle-market firms. In the past, these companies were able to charge a premium price because their brands were taken as signals of reasonable quality and reliability. Today, consumers don’t need to rely on shorthand: they have Consumer Reports and J. D. Power, CNET and Amazon’s user ratings, and so on, which have made it easier to gauge differences in quality accurately. The result is that brands matter less: a recent Nielsen survey found that more than sixty per cent of consumers think that stores’ generic products are equal in quality to brand-name ones. In effect, the more information people have, the tighter the relationship between quality and price: if you can deliver a product or service that is qualitatively better, you can charge top dollar. But if you can’t deliver the quality you can’t get the price. (Even Apple, after all, couldn’t make Apple TV a hit.)

Of course. Retailing and merchandising were never simple. Fashionistas will forever be looking ways to signal status. But as the writer seems to acknowledge, hierachies are ever more difficult to nail down. And this trumps the class-warfare rhetoric that so man low-lifes cling to.

Hope and change

Governments grow, but the specifics from recent U.S. history are interesting. Thomas Garret, Andrew Kozak and Russell Rhine of the St. Louis Fed have just published "Institutions and Government Growth: A Comparison of the 1890s and 1930s." Here is their abstract:

Statistics on the size and growth of the U.S. federal government, along with the rhetoric of President Franklin Roosevelt, seem to indicate that the Great Depression was the event that started the dramatic growth in government spending and intervention in the private sector that has continued to the present day. Through a comparison of the economic conditions of the 1890s and the 1930s, we argue that post-1930 government growth in the United States is not the direct result of the Great Depression, but rather is a result of institutional, legal, and societal changes that began in the late 1800s.

The trends cited are familiar and powerful. Politicians are loath not to compete on the basis of promises and favors to voters. In the U.S., we get big-government Democrats competing with big-government Republicans. Is there any room for optimism re a lighter touch on the morning after the health care vote? There probably is. Here is the opening of Thomas Friedman's column in yesterday's NY Times ("America's Real Dream Team"):

Went to a big Washington dinner last week. You know the kind: Large hall; black ties; long dresses. But this was no ordinary dinner. There were 40 guests of honor. So here’s my Sunday news quiz: I’ll give you the names of most of the honorees, and you tell me what dinner I was at. Ready?

Linda Zhou, Alice Wei Zhao, Lori Ying, Angela Yu-Yun Yeung, Lynnelle Lin Ye, Kevin Young Xu, Benjamin Chang Sun, Jane Yoonhae Suh, Katheryn Cheng Shi, Sunanda Sharma, Sarine Gayaneh Shahmirian, Arjun Ranganath Puranik, Raman Venkat Nelakant, Akhil Mathew, Paul Masih Das, David Chienyun Liu, Elisa Bisi Lin, Yifan Li, Lanair Amaad Lett, Ruoyi Jiang, Otana Agape Jakpor, Peter Danming Hu, Yale Wang Fan, Yuval Yaacov Calev, Levent Alpoge, John Vincenzo Capodilupo and Namrata Anand.

No, sorry, it was not a dinner of the China-India Friendship League. Give up?

O.K. All these kids are American high school students. They were the majority of the 40 finalists in the 2010 Intel Science Talent Search, which, through a national contest, identifies and honors the top math and science high school students in America, based on their solutions to scientific problems. The awards dinner was Tuesday, and, as you can see from the above list, most finalists hailed from immigrant families, largely from Asia.

We still get a steady infusion of people who cherish and understand an open economy. To be sure, not all of them are immune to rent-seeking, but it's great to see them enrich the talent pool and bet on the possibility of upward social mobility.

Light touch? Don't be silly!

Public choice economics has been around for a while, has earned James Buchanan a Nobel, but still has remarkably little traction even among economists. Most still see "market failures" almost everywhere and look to politics to make things right.

Don Boudreaux and Russ Roberts discuss the unexamined romance that most people have with democracy (ergo politics) in this podcast.

In this morning's NY Times, Douglas Holtz-Eakin describes "The Real Arithmentic of Health Care Reform ... With fantasy accounting, Democrats pretend to reduce the deficit." But it's not just Democrats. The Congressional Budget Office is required to judge the bill before it in terms of a 10-year window. So why not rig the bill so that the 10-year accounting looks good while the 11-year, 12-year, etc. accounting are less attractive. No one will notice.

Trouble is that the cheats are right. The gimmick works. Night after night, TV bubbleheads report that the CBO has discovered that money can be saved by actually spending more because the smart people in Washington have rolled up their sleeves and thought hard about how to fix health care.

The health care status quo has problems, of course, but light-touch incremental approaches (extend the tax exemption to non-employer insurance contracts, allow more insurance provider competition, make medical retailing simpler, etc.) have also never achieved any traction.

But even the smart people should know that light-touch incrementalism is the only way to go because the topic is much too complex for grand plans and grand planning. Social engineering is, indeed, impossible. The light touch is the only touch.

UPDATE

Here is the way Doug Elemndorf explains it:

That calculation reflects an assumption that the provisions of the legislation are enacted and remain unchanged throughout the next two decades, which is often not the case for major legislation. For example, the sustainable growth rate mechanism governing Medicare’s payments to physicians has frequently been modified to avoid reductions in those payments, and legislation to do so again is currently under consideration by the Congress. The current legislation would maintain and put into effect a number of policies that might be difficult to sustain over a long period of time.

MORE

Greg Mankiw's posts of March 19 and March 21 elaborate.

Policy problem?

Elizabeth Kolbert writes about some of the recent books on happiness in this week's New Yorker, "Everybody Have Fun: What can policymakers learn from happiness research?" I suppose it was inevitable that this would become a question of policy. The article notes the study commissioned by Pres. Sarkozy to look into the matter. The investigation was headed by Amartya Sen and Joseph Stiglitz and included the sensible reminder that GDP does not do a good job of measuring happiness.

But there is so much more. Daniel Kahneman points out that the happiness we experience and the happiness that we recall of the same event are not the same. This makes it very difficult. Daniel Gilbert had written that the happiness we plan for and work for are also problematic because we cannot really predict what the future us is going to be like or will enjoy. Bobby McFerrin says, "Don't worry, be happy." Kolbert makes it even more difficult by mentioning "fun", which almost everyone confuses with happiness.

None of them mention (as far as I can tell) the old rabbinic idea (I expect that it also pops up in other faiths) that happiness is forever elusive, but being good may be within our reach. And some may even find happiness when they do good.

When politicians of all stripes are busy fanning the populist flames, it may be too much to add that some people even do well when they do good.

How do they sleep at night?

"Progressives" like to keep the poorest kids in the worst schools, keep these schools afloat, wring their hands over the state of the cities, and complain about earnings at the low end of the income distribution. Here is their latest victory. They seemingly resolve the dilemma by offering to ever spend more on the public schools (and the folks who routinely vote for them). But this has not worked.

It's worth adding that this crowd thinks of itself as the most compassionate as well as the most intelligent as well as the most high-minded. The last I heard, they have no trouble sleeping at night.

UPDATE

Theodore Hesburgh puts it this way in the WSJ (gated).

Doomsday on hold?

Econbrowser includes this discussion of oil availability in the near term. The Economist includes this discussion of game-changing ways to drill for natural gas -- even mentioning an impending "glut".

It's almost a cheap shot to side with the optimists. Long run forecasts without prices are an impossibility -- as in Club of Rome. If global warming results from humans burning fossil fuel, that will change for the better; technology is never fixed or predictable. Gas burns cleaner than oil and it just got cheaper. If warming is not caused by humans burning fossil fuels then all the "green" policies in the world are irrelevant.

New look, new URL

New look and new URL. You are now at PeterGordonsBlog.com.

Visitors to old URL will be automatically redirected.

Now if we can only find a way to get away from losing an hour in the Spring, only to get it back in the Fall. I hate having to make interest free loans of my time. And electricity uses and personal time schedules are more complex and idiosynchratic than ever. I doubt that the original rationale for the policy make sense any longer.

Gap police

If you've never heard of supply and demand, you are probably walking around with a cost-mark-up theory of prices. If you happen to wield political power and have the politician's instinct to grandstand, then rising prices are easily cast as a law enforcement issue (opportunity).

Today's LA Times reports on the Obama Adminstration's effort to investigate food prices. It's all here. But the punchline is simple:

The government is also trying to ferret out reasons for the sometimes vast gaps between what farmers are paid for the food they produce and the retail prices that shoppers pay at the grocery store. Time and again, federal officials underscored that the government was going to push for more transparency in the food sector's business practices.

There are probably "vast gaps" all over the place. I have even heard of people who enjoy gaps between their cost of living and their salary.

Whodunit?

Here is Jim Lehrer News' Paul Solmin's interview with MIT Prof. Andrew Lo.

Lo suggests that an investigation by an "independent panel" into the recent financial crisis can uncover the culprits. He likens the crisis to an airplane crash and mentions that a 747 is pretty complex; if we can learn the one, we can learn the other. Huh?

And who would form the "independent panel"? Who would be appointed?

Absent any panel, some very smart people are working very hard to unscramble the eggs re the Great Recession -- as well as the Great Depression.

Some years ago, friends and I were working in Mexico. We befriended a young man who told us he was a federal "secret agent." We did ask about his current case and he mentioned that he was investigating the high price of sugar. We wished him well and told him that we hope he finds the bad guys.

Crazy story, but what to do with Prof. Lo's proposal?

Moral progress?

Is humanity making moral progress? And how do we know? These belong on anyone's short list of The Big Questions. Some of us tend towards optimism and cite data on improved longevity in most of the world. These are explained by the fact that we are killing each other less frequently than ever and we cooperate more than ever to keep each other alive (as in better food, shelter and medical care).

But read The Economist's coverage of "Gendercide ... What happened to 100 million baby girls?" It's almost embarrassing to ask about moral progress in this light.

Modernity scares many people, but it is so much more attractive than the alternatives.

This time is different?

David Cutler knows much more about health economics than I ever have or ever will. He gives a thumbs-up to the Obama health plan in an op-ed in today's WSJ. He ends it this way:

My own calculations, mirrored by other observers and a host of business and provider groups, suggest that the reforms will save nearly $600 billion over the next decade and even more in the subsequent one.

Of course, no one knows precisely how much medical spending increases will moderate. But one cannot doubt the commitment to try. What is on the table is the most significant action on medical spending ever proposed in the United States. Should we really walk away from that?

But here is the Administration's report on $18.6 trillion of unfunded liabilities that were never planned or counted on.

What will be different this time?

28th Amendment

I just received this proposal via email from a friend.

Proposed 28th Amendment to the United States Constitution:

"Congress shall make no law that applies to the citizens of the United States that does not apply equally to the Senators and/or Representatives; and, Congress shall make no law that applies to the Senators and/or Representatives that does not apply equally to the citizens of the United States".

What took us so long? Are the founding fathers (wherever they are) blushing at their oversight?

"Jobs, jobs, jobs"

Today's WSJ includes (gated) Robert Litan's "Visas for the Next Sergey Brin ... To create more jobs, let's import more employers ..."

It's one of my favorite themes and I cited recent supporting research in Saturday's blog. But Litan points out that this is more than a long-term growth strategy; it is available for doing something about today's unemployment fairly quickly.

And it sounds like a much better bet than ever more "stimulus". It is a way that politicians can actually do something to "create jobs".

Use it or lose it

The phrase "use it or lose it" is pretty unambiguous. It turns out that it's true. Susann Rohwedder and Robert J. Willis report results of their tests (in the Winter 2010 Journal of Economic Perspectives)of whether we retire because our cognitive skills have slid or whether retirement is the cause. They find that we do have some control and should stick with an "engaged life style".

Let more of them in!

It's too bad that these authors have to rely on metropolitan area data. Nevertheless, the finings are interesting and plausible. Inventive types from various immigrant groups cluster and (apparantly) flourish when doing so. This paper makes the point by studying the spatial distribution of patents awarded (in the name of the patent applicant) and does so using ethnic name lists.

Three in one morning

Whether it is comparative crime statistics, obesity counts, traffic congestion, or a number of papers by urban economists writing about the joys of population density, most rely on metropolitan averages.

The crime, obesity and traffic reports all came my way in one morning.

I too have been guilty and metro areas are often as detailed as the data get. But many of these areas house millions of people. The NY and LA metro areas account for almost 18 and 12 million, bigger than many countries. The variances are often huge and should at least be mentioned.

To be sure, I cannot describe the LA area (where I live) as particularly obese or svelte. Traffic is heavy or amazingly light, depending on where you happen to cruise. There are plenty of areas where you never want to walk at night. The density contrasts are staggering.

I realize that some writers like to categorize whole countries as happy or unhappy. Others like to speak of the whole Earth as warming or cooling. I know, I know, "climate change" is much preferred and much more accurate.

How did he know?

When alcohol became legal in the U.S. in 1933, politicians got to tax it. They never looked back. Yet, antipathies to other "vices" are so powerful that even the prospect of new revenue sources has not been enought to get them to legalize, say, prostitution or pot. (Even congestion pricing has been a hard sell.)

But why be subject to the trade-off? Keep it illegal and tax it too. According to "A fine too far" in the Feb 20 Economist, quite a few governments do attempt to tax illegal stuff.

Yes, the report mentions Kafka. How did he know all this?

Crazy?

Here is a survey that reports 88% of Americans want high-speed rail. Does Hugo Chavez win support this wide?

Where to start? Who did the survey? Poke around the website to see what business these folks are in. Where is the questionnaire that was used? We are told that 88% of respondents are "open" to high-speed rail. That's probably a sound basis for spending mega-bucks. It is even bracing that the press release comes clean that the 88% is down slightly from recent highs.

Crazy. It did make it to the Scientific American website here.

Rise and fall

Niall Ferguson's op-ed in today's LA Times is a fine conversation starter. Seeking patterns in the rise and fall of nations is an old sport and not ever likely to go away. Predictions of a U.S. eclipsed by fill-in-the-blank (the USSR, the EU, Japan, Islam, China, etc.) have (mostly) come and gone. Along the way, there are inevitably some silly things that are asserted, but this is in my view interesting, not as forecast, but as discussion.

Over the last three years, the complex system of the global economy flipped from boom to bust -- all because a bunch of Americans started to default on their subprime mortgages, thereby blowing huge holes in the business models of thousands of highly leveraged financial institutions. The next phase of the current crisis may begin when the public begins to reassess the credibility of the radical monetary and fiscal steps that were taken in response.

Neither interest rates at zero nor fiscal stimulus can achieve a sustainable recovery if people in the United States and abroad collectively decide, overnight, that such measures will ultimately lead to much higher inflation rates or outright default. Bond yields can shoot up if expectations change about future government solvency, intensifying an already bad fiscal crisis by driving up the cost of interest payments on new debt. Just ask Greece.

Ask Russia too. Fighting a losing battle in the mountains of the Hindu Kush has long been a harbinger of imperial fall. What happened 20 years ago is a reminder that empires do not in fact appear, rise, reign, decline and fall according to some recurrent and predictable life cycle. It is historians who retrospectively portray the process of imperial dissolution as slow-acting. Rather, empires behave like all complex adaptive systems. They function in apparent equilibrium for some unknowable period. And then, quite abruptly, they collapse.

Washington, you have been warned.

Yikes!

The April 2010 Reason (not yet online) features a cover story on "The Big Lie ... The White House claims the economy is on the mend. That's a fantasy." Editor-in-chief Matt Welch's column is "Obama and the L-Word ... the president's habit of telling untruths." In 2008, millions fell in love with candidate Obama because they believed he was not a standard politician. Falling in love with politicians is never a good idea.

The March 1 New Yorker included a profile of Paul Krugman which noted editing help that he gets from wife Robin Wells.

He had written, “As Obama tries to deal with the crisis, he will get no help from Republican leaders,” and after this she inserted the sentence “Worse yet, he’ll get obstruction and lies.”

There are intelligent adults in the world who go to bed each night believeing that the other side tells lies, but their side is above all that.

New frontiers for twelve-step programs?

Adam Smith did not invent capitalism, but he explained it in ways that resonate. Joyce Appleby's The Relentless Revolution: A History of Capitalism does a splendid job of documenting the complex social and technological developments that occurred way before (and after) 1776. Her story shows the roots of the tensions and antipathies (and confusions) that we see to this day. Guy Sorman's Economics Does Not Lie re today's points and counterpoints brings the story up to date.

Sorman's words are cited in the yesterday's Bret Stephens column in the WSJ, "Europe's Crisis of Ideas". "All European economic policies are the cultural derivative of one dominant, nearly totalitarian statist idoelogy: the state is good, the market is bad." The column is about the Greek crisis and Greek Prime Minister Papanderou's musings that, "This is an attack on the euro zone by certain other interests, political and financial ..."

Tiger Woods took the path of admitting he has a problem. He did not blame "certain other interests." Twelve-step programs for certain heads of state?

News flash: NY Times editorial writer on the side of the angels

How do we assure the survival of endangered species? (i) Place them in preserves and police these places? (ii) Persuade people not to hunt or poach them? (iii) Farm them and let markets provide incentives for breeding and preservation? What if the setting is among relatively poor people and where law enforcement is sketchy? An editorial in today's NY Times ("China's Tiger Farms") is squarely on the side of the angels and wants Chinese authorities to "find a way to alter consumers' tastes". Trouble is we may run out of tigers long before Chinese authorities "find a way".

I love LA

Good food is a wonderful thing. Spectacular international variety of good foods is even better. Here Jonathan Gold toasts some of what Los Angeles has to offer. He even gives a nod to urban planners:

Los Angeles, as urban planners are fond of telling us, is a constellation of a hundred languages and a thousand micro-ethnicities, a complex, Blade Runner–esque metropolis. Does such a postmodern city provide the road map for the future of American food? As a hungry native Angeleno, I can say, We should only be so lucky. —

But the critics often lament that LA is so "unplanned". As always, it depends on what you mean. Jane Jacobs (and many others) did have something to say about the kind of city you get when you stand back and let buyers and sellers do their thing. (H/T TMG).

What evidence?

Happiness researchers keep looking for the link between money and happiness. But it is clear that being poor is not attractive. A lot of research on poor neighborhoods finds reduced consumer choice and higher retail prices. Interpretations are all over the place, including discrimination and the assorted evils of capitalism.

But Debabrata Talukdar's study ("Cost of Being Poor: Retail Price and Consumer Price Search Differences ...") concludes that the carless are hampered from doing comparison shopping and (so to speak) pay the price. (H/T Marginal Revolution).

Public transit does not help -- even though it is promoted as a way to "help the poor." A half-minute of introspection suggests what is obvious: getting around to comparison shop via public transit is too costly in terms of people's time and patience. Declining ridership in spite of rising subsidies provide hard evidence that no one really cares to look at. The transportation reauthorization proposals now before Congress suggest even more money for public transit. Politicians from both parties are on-board. And why not? They get to dole out money to favored constituencies while posturing about how "equitable" and "green" it all is.

And policy making is now all about being "evidence-based"

Matches

There are some changes on my film favorites list.

We all see and hear ads about "scientific" matching that the online dating services now offer. I have not used them (and am not in that market), but Netflix tries very hard to match me with movies. I have been a member for some years (and have rated 662 of their movies as of this morning). I have also seen that they have invested serious money in developing better matching algorithms. But no luck. Either I am too quirky or the algorithm they use is severely limited. They send me recommendations; they direct me to the suggestions and reviews of other members who have "similar" tastes; they predict how much I will like various films as I browse the Netflix site. But I think that I can count the number of successes via this process on one hand.

There are many reasons that I fervently hope my wife keeps me around. Add to that the perils of online matchmaking if it's anything like my Netflix movie matching experience.

What do they know?

Wendell Cox compares various aspects of development in Portland and Atlanta here. Atlanta wins. But Portland, we hear all time, is the more "livable". Never mind that many more people, voting with their feet and wallets, choose Atlanta. But what do they know? Top-down planned livability is now on its way to becoming national policy.

Campus speech

Some who hang out at universities and claim to be involved in academic discourse are actually clueless about it. Here is what happened to Israeli ambassador Michael Oren when he tried to speak at UC Irvine the other day.

Almost a half century ago, the students at another UC campus made history with their Free Speech Movement. But that was then.

About those EV1 charging stations

Today's WSJ includes "The U.S. Needs an Industrial Policy" by former Shell Oil pres John Hofmeister. Well, no. It's about the last thing anybody "needs". But special pleadings by oil execs (and others) is nothing new. Separation of church and state is a good thing, as is separation of big business and big government.

Yesterday's NY Times included this story about the new Tesla electric car. The article noted: "A few blocks from the Tesla Motors dealership here is one of California's charging stations for electric vehicles. But the Tesla Roadster, just the car that planners had in mind when the statewide network was conceived, cannot be charged there." Yup, these stations are all over the State and they are relics. They were put there by industrial policy makers who wrongly bet that many of us would be driving a GM EV1. Things did not work out that way.

The joys of getting governments (politics) involved in picking green winners is now a staple. But not from Tea Party hoi polloi, but rather from captains of industry and Ivy League brainiacs.

Do it in public

Alex Tabarrok and and Tyler Cowen at Marginal Revolution have been good at bringing examples of Markets in Everything to our attention (summarized here). I now see the theme popping up in various blogs. Why not Markets in Everything? Buyers and sellers have strong incentives to help each other. They even find ways to overcome legal prohibitions and taboos.

Today's WSJ includes "Bucks Populi: Making Democracy A Going Conern in Kiev ... Rent-a-Crowd Entrepreneurs Find People Fast to Cheer or Jeer for $4 an Hour." No one can be shocked that there is money in politics or gambling at Rick's. It is only a question of whether the rent-seekers and the rent-extractors do the dance in public or not. Given those options, the choice is clear.

Transit-oriented development?

The LA Times calls this an "interesting experiment" and "an urban complexity." A new Hollywood high-end hotel complex with subway access -- in LA!

Will more arrivals be by limo or by subway? Who cares? LA's MTA, always short of funds and always threatening to cut bus service, owns the land.

Yes, you cannot make this stuff up.

Economic thinking via YouTube

Dan Klein sent this.

Teaching about markets can be great fun. It is all common sense to some, but obscure or exotic (or worse) to others. The video captures this exquisitely.

Shoes dropping

The Watergate conspirators not only burgled, but they badly misjudged the size and scope of their problem. And covering up only made it worse. The rest is history.

How will Climategate play out? Look at this from The Guardian.

H/T The Browser.

No mystery to the mood swing

Prof. Shiller discusses the mood swings among market participants. It is now clear that most people were too optimistic circa five years ago and it is perhaps not unreasonable that they swing to the pessimistic side today. What can be done?

Wendell Cox discusses the high-speed rail boondogle ("The Runaway Subsidy Train") in today's WSJ and I cannot imagine that these investments can make anyone beyond the Baptists and bootleggers (greens and construction interests) involved (thank you, Prof. Yandle) less gloomy. I can imagine that they signal, instead, that policy makers are confused and spenders are in charge.

In this week's Becker-Posner blog, Judge Posner writes about subsidies and deficits. He ends with this:

There is an enormous amount of idle productive capacity in the U.S. economy at present. There is thus a case, as liberal economists such as Paul Krugman keep urging, for further stimulus spending. The problem is that such spending is irresponsible unless coupled with a credible commitment to repay, after the economy recovers, the money borrowed to finance the spending. Not only is there no such commitment; at present the only realistic prospect is of staggering deficits stretching indefinitely into the future ...

I would say that the extreme unlikelihood of getting a "credible commitment to repay" explains the "malaise" that worries Shiller.

Three items on finance

Bankruptcies are no picnic, but politicized bail-outs are also unattractive. Here a couple of smart people introduce the idea of the "bail-in" alternative.

How would it have worked? Regulators would be given the legal authority to dictate the terms of a recapitalisation, subject to an agreed framework. The details will vary from case to case, but for Lehman, officials could have proceeded as follows. First, the concerns over valuation could have been addressed by writing assets down by $25 billion, roughly wiping out existing shareholders. Second, to recapitalise the bank, preferred-stock and subordinated-debt investors would have converted their approximately $25 billion of existing holdings in return for 50% of the equity in the new Lehman. Holders of Lehman’s $120 billion of senior unsecured debt would have converted 15% of their positions, and received the other 50% of the new equity.

The remaining 85% of senior unsecured debt would have been unaffected, as would the bank’s secured creditors and its customers and counterparties. The bank’s previous shareholders would have received warrants that would have value only if the new company rebounded. Existing management would have been replaced after a brief transition period.

The equity of this reinforced Lehman would have been $43 billion, roughly double the size of its old capital base. To shore up liquidity and confidence further, a consortium of big banks would have been asked to provide a voluntary, multi-billion-dollar funding facility for Lehman, ranking ahead of existing senior debt. The capital and liquidity ratios of the new Lehman would have been rock-solid. A bail-in like this would have allowed Lehman to open for business on Monday.

Many investors would no doubt complain about the rough justice of a regulator-imposed reorganisation. To preserve value, officials would have to move very, very quickly, leaving little time to fine-tune various claims or observe normal procedures. The new structure would be based on bankruptcy reorganisation principles, allocating value in accordance with investors’ seniority and ensuring that each class of investors would be better off than in liquidation. The process would not be pretty but overall, investors should be relieved by the result. In this example the bail-in would have saved them over $100 billion in aggregate, and everybody—other than short-sellers in Lehman—would have been better off than today.

Where and how did investors fail? Where and how did politicians fail? Who will unscramble the eggs?

In "Why Didn't Canada's Housing Market Go Bust?" James McGee finds that "Housing markets in the U.S. and Canada are similar in many respects, but each fared quite differently since the onset of the financial crisis. A comparison of the two markets suggests that relaxed lending standards likely played a critical role in the U.S. housing bust." It seems that the Canadians never got around to creating a Fan and a Fred. What were they thinking?

In "Alt-A: The Forgotten Segment of the Mortgage Market," Rajdeep Sengupta describes "aggressive underwriting" by various banks. What were they thinking?

No falsifiability

Strange things happen when people put their faith in politicians. Noted economists have recently discovered the concept "jobs saved". Others have discovered the win-win two-fer of clean environment plus economic recovery from one investment.

Today, it's high-speed rail in Florida. This project will save-or-create jobs. And it will save-or-create clean air and/or global warming relief.

But if serious people can live with the save-or-create idea, then anything goes. In fact, plausibly serious people have one more line of defense. If the save-and-create results (somehow) fall short, then the obvious response is that we just did not push hard enough. Even more stimulus (high-speed rail, "green" jobs, you name it) will surely be the remedy.

There simply is no falsifiability.

UPDATE

Here are some Florida high-speed rail project numbers from Bob Poole.

Barter

Money exists to reduce the inefficiencies of barter. But barter makes a comeback where money is suspect (think Zimbabwe). It also makes a comeback when and where people experience liquidity shocks (think U.S. circa now) and where they have access to cheap information exchange opportunities (think Craig's List).

Look at "Let's Make a Deal ... The growing role of barter in the marketplace" in yesterday's WSJ.

Modern communications have changed our lives (mostly for the better) in uncountable ways. Now add people (and businesses, according to the article) finding ways to cope with the recession.

Consumer sovereignty

Karen Stabiner's piece in this morning's LA Times is the latest contribution to the LA-NYC-compared literature.

Among the items compared are women's hair treatments.

Blonds. Clairol's 1960s ad campaign, "Is it true blonds have more fun?," implied that being a genetic minority made life more worth living. But now a highlight and lowlight epidemic on both coasts has turned the stubborn brunet into the outlier. Is it true blonds have more fun? Hard to tell; there are too few non-blonds left for a viable comparison.

This brings to mind Malcolm Gladwell's wonderful "True Colors: Hair Dye and the Hidden History of Postwar America," a chapter in his What the Dog Saw and other adventures.

Do blondes have more fun? Is blondness more alluring? I guess the market has spoken. Gladwell alludes to a "blondness periodic table" published in Big Hair: A Journey into the Transformation of the Self by Grant McCracken, which I must read.

There are appatently six categories in the periodic table ("bombshell" [Mae West, Marilyn Monroe], "sunny" [Doris Day, Goldie Hawn], "brassy" [Candice Bergen], "dangerous" [Sharon Stone], "society" [C.Z. Guest] and "cool" [Marlene Dietrich, Grace Kelly].

All that may have been so in 1995. But, Stabiner would probably agree, the six have have multiplied in NYC as well as in LA as well as in-between.

Consumer sovereignty is a wonderful thing.

2010 economic freedom

I was introduced to the (possible) endogeneity of market friendly institutions some years ago via John Powleson's Centuries of Economic Endeavor. Since then, the possibility of a virtuous cycle (economic freedom prompts prosperity and prosperous people demand more economic freedoms) has received increasing attention.

The evidence keeps accumulating. Yesterday's WSJ included the Heritage-WSJ 2010 Index of Economic Freedom rankings. There is more than one way to create an index, but the results (general rankings) are fairly robust.

This year's ranking has the UK at #11 and the US at #8. But of the 179 countries ranked, but eight of the top 11 have been significantly influenced by British institutions. Yes, British colonialism had a dark side, but Hong Kong, Singapore, Australia, New Zealand, Ireland, Canada, the US (seven of the top eight) were able to send the colonialists home and build relatively free and prosperous societies on the foundations they left behind.

Nice place to visit

As many as eighty cities can now get new streetcars. Read about it here.

Where to start? One size never fits all. And there are no cost-benefit studies that suggest these modes are a good idea. That was 100 years ago.

All these new streetcars would be in the service of "livability." But do we expect that livability can be scripted via Washington (or any other) politics?

On the positive side, there has been some discussion in recent days about becoming more like Europe. Well it's a nice place to visit.

UPDATE

Re life in Europe, I just found this link at Cafe Hayek.

MORE

Clive Crook reflects on US-Europe comparisons. In passing, he says that the mostly one-way migration (from Europe to the U.S.) is "a mystery"

An old confusion

The Efficient Markets Hypothesis (EMH) is a pretty good conversation starter. Equilibrium requires that we somehow get to equilibrium. No $20 bills laying around sidewalks means that some are (have been) busy snatching them up.

So it is with the risk-return trade-off. It describes an equilibrium across financial markets. But very interesting things transpire as we move towards the equilibrium. So moving along the trade-off curve is one thing, but moving towards it is quite another.

Writing in the Jan 18 New Yorker, Malcolm Gladwell ("The sure thing: How entrepreneurs really succeed" -- partly gated) chooses to describe entrepreneurs (including Ted Turner and Hank Paulson) who have made a (financial) killing as "predators". That may be an unfortunate choice of words in these times. Many in politics and involved in popular discourse live in a zero-sum universe and associate wealth with theft. Do we call those who first see $20 bills laying around "predators"?

Gladwell's review is worth reading. If only we could live with two ideas at once: equilibrium is an interesting mental gadget, but it should not pull us away from the interesting discussions of how in the world we might ever get anywhere near it. In fact, the equilibrium idea and the story of the forces in play in diseqiulibrium cannot be separated.

You cannot make this up

I am no fan of the War on Drugs, the 1970s, Richard Nixon or Elvis Presley. But put them all together and you get this hilarious story. You've seen the photo, now enjoy the rest of story.

Free lunch anyone?

The Jan 8 WSJ included "Clean Energy Sources: Sun, Wind and Subsidies ... As Governments Increase Spending and Support for Renewable ower, Even Fans Wonder If Aid Could Be More Efficient" Read it and look at the graphic that compares "the costs of producing energy before subsidies, per megawatt hour" Coal and natural gas come in at $50, wind goes as high as double that, offshore wind goes as high as four times, solar much more, and so on.

Prof Andrew Morriss sums it up nicely when he writes:

If you got an email offering you the chance to invest in a business that would create new profitable industries, employ millions of people, reduce energy consumption without reducing quality of life, and improve environmental quality, would you be skeptical? And if the email went on to claim that the technologies to do all this exist now and could save existing businesses billions of dollars in just a few years by reducing waste and energy use, would you wonder why no one was already implementing all these “common sense” ideas? If the email went on to promise that you could do this all at no risk by investing borrowed money, you’d likely be reaching for the delete key.

If we substitute “the federal government” or “the United Nations Environment Programme” or “the European Union” for “you” and change the email to a proposed law, however, we discover that politicians from Washington to Brussels are embracing measures to “green” the economy and create “green jobs” with an almost religious fervor, despite weak empirical support for these proposals. The Obama administration included billions of spending and tax incentives for green initiatives in its budget, and last spring’s “stimulus” bill poured $62 billion in transfers plus $20 billion in tax cuts into “green initiatives.”

The favorite narrative of President Obama's fans is that he is intelligent and sophisticated. But this is not rocket science. The free lunch that he (and many others) promise is an old fashioned political scam. Among Republicans, many (including Schwarzenegger) peddle the same nonsense. But Governor Arnold does not claim to be an Ivy League sophisticate.

Are these the sorts of policies (and policy makers) that will help us avoid stagflation when the bills come due? For their sake (and everyone elses) I can only hope so.

Institutions trump policies

Back when I first took undergrad economics, there was "micro" and "macro". And since then there has been much work to try to integrate these. But the original Keynes denies the workings of the price system. Robert Higgs explains how this is so in this delightful essay.

Read it and see how and why the Keynsian policies being mounted to make things better are most likely to make things worse. Recovery will, therefore, be in spite of policies than because of them.

But that same debate is still going on re New Deal policies. That ground is covered here, among other places.

The famous cover graphic of Charles I. Jones textbook suggests that we will somehow revert to the same growth path. Institutions trump policies.

On the case

Clifford Winston is not impressed with anit-trust policy (as implmeneted by Democrats or Republicans).

The legally sanctioned NCAA cartel has been much discussed and derided. Even the hit movie and book The Blind Side shows the NCAA cops on their silly mission.

The myth of amateur college sports is widely seen as a joke, but the hypocrisy of high-minded college athletics PR is widely accepted. Now Forbes reports the market valuation of the various "amateur" footbal programs.

Here is a situation where the "compassionate" among us have grounds for complaining about the exploitation of the players. To be fair, it should be noted that Congress and the President are on the case. They want a football championship playoff to replace the BCS Bowls.

The best and the brightest

In the Feb 2010 Reason (apparently not yet online), Matt Welch writes about "More Than Zero ... Anyone who has expended energy arguing for free trade, market competition, and the open exchange of ideas has repeatedly encountered the same obstacle: zero-sum assumptions misapplied to dynamic nonlinear phenomena. ..."

In California, politicians and public sector unions help each other and government is now very expensive. The WSJ (Jan 2-3) reports that "The Golden State starts the year another $6 billion in arrears despite a large income and sales hike last year." And there were some cuts, including to the budgets of the UC system.

Meanwhile, from back at the old school, we get this report from the New Yorker's Tad Friend. "All morning at Pauley, people proposed direct actions. A student facilitator summarized each idea on a projection screen: 'rolling strikes'; 'nationalize all universities'; 'socialist revolution'; 'a tent city in Sacramento'; 'create a shadow Board of Regents'; 'occupy Wells Fargo bank downtown Oakland'; 'strike in March'; 'act now f**k March'; and 'capitalism is bad.'

To be sure, the story highlighted the efforts of Prof Ananya Roy to moderate the crazies. But nowhere is anyone cited as pointing to Sacramento politics. The protestors revert to the romance of class warfare, but their predicament was created by the redistributionists who are their natural allies.

It's very simple and all the people cited in Tad Friend's piece are supposed to be among the brightest students and professors we have.

Panic mode and poor analogies

Today's WSJ, includes Nick Gillespie's "Don't Fear the 2010s" which tours the last decade's fears and phobias (Y2K, "peak oil", avian flu, etc.). Gillespie includes a reference to John Mueller's comparison of an American's odds of dying at the hands of a terrorist (outside a war zone) with the odds of dying in an auto accident. The latter is 1,000 times greater. We seem not to have things in perspective.

Yet, this well worn analogy is weak. The trade-offs involving auto use and auto safety are more or less understood and freely chosen. And most of us have experienced years of vastly improved auto safety (steering columns used to impale drivers in a head-on collision). Many people are not so sure that the terrorist threat is trending in a benign direction. It is one thing to be in a "game" against a well understood system (autos and highways); it is quite another to be in a "game" with fanatics who do occasionally score big hits against civilian populations.

One can poke at any analogy. And hysteria is easily incited; some people in politics make their living this way. The long term growth in the size and scope of governments is a fact of life and will not subside until we see the panic mode for what it is.

Green shoots in Detroit

Markets recycle resources. This story mentions the conversion of parts of Detroit to farmland.

Growing cities reallocate peripheral land from rural to urban uses, but the reverse can also be an option. Some of the older places (New York, Boston) have been able to renew themselves by adapting to new technologies and industries. But not all cities can do this, including various places in the northeast and north central. Detroit may be the prime example. What else, then, but have it shrink? The highest and best use of some of its acres is in farming.

"Saving" GM and Chrysler is politically expedient, but land, labor and capital are best reallocated and recycled when politics are not involved.

In good times and in bad, the capability to reallocate scarce resources to their highest and best uses has first-order importance. Detroit's urban farmers show the way in bad times.

A thousand flowers bloom

In today's NY Times, William Falk ("Should Old Articles Be Forgot") itemizes what he sees as major news from 2009. He dwells on Robotic Warfare (ever more drone attacks over Pakistan and other places), Car-Crazy in China (duh), Real Working Wives (wives are now "needed" as breadwinners to keep ever more families "afloat"), A New Source of Stem Cells (superb), and Teeming With Planets (yup, we are unlikely to be alone or even unique).

Re China and cars, when people have money they want cars. And when people have cars, origins and destinations disperse. But then more people want cars, etc., etc., etc.

In today's WSJ, James B. Stewart cites Amazon's amazing sales in an economic downturn and describes a " ... paradigm shift: the coming-of-age of Internet shopping and the long, slow demise of the mall,"

Perhaps. Yesterday, I finally visited the Americana at Brand in Glendale, near LA. It is a mixed-use, vertical "lifestyle center" that could sustain downtown Glendale. It has lots of parking.

Paradigm shifts (such as Amazon and internet shopping) occasionally happen, but it is also fascinating that regional sub-centers (like downtown Glendale) can accommodate up-to-date developments that can give them new life. Glendale (its politicians and various local lobbies) and market-savvy developers found a way to live with each other -- as well as with "car-crazy" Southern Californians.

Immigrants

Immigrants enrich this country in many ways. Today's NY Times includes "Taking Hold in Silicon Valley, a Ping-Pong Boom."

The Economist (Dec. 19) calls is "A Ponzi scheme that works ... The greatest strength of America is that people want to live there ... No matter where an immigrant hails from, he can find a cluster of his ethnic kin in America."

In a better world, those on the left who see the U.S. as a great evil, would spend some time looking at the world through immigrants' eyes. Those on the right who only see a threat to a romantized past would spend some time looking at America as it was before the arrival of immigrants gave us better science, medicine, art, music, food, sports, literature, you name it.

Who to trust?

The Independent Review (Winter 2010, apparently not yet online) includes "Lost Trust: The Real Cause of the Financial Meltdown" by Bruce Yandle.

Yandle cites the importance of trust in financial transactions and cites three "assurance mechanisms" -- credit ratings, international accounting standards, and credit-default swaps. All three collapsed when easy credit and policy makers' push to make housing more widely available combined in the crazy ways that we now read and talk about on a daily basis.

But the author's focus on how the three assurance mechanisms were overwhelmed by policy errors (well documented by the Yandle) is informative and eye-opening.

Markets expanded when trust was formed, and they collapsed when the politically distorted assurance devices failed to function. In the process, government, the lender of last resort, also became the owner of last resort.

Read it in print or when it comes online.

UPDATE

Here it is. Silly me.

Pigouvian subsidy?

The Copenhagen confab on climate change may have "failed", and we can only speculate on what "success" would have meant. The November 2009 HUD Research Works includes "Powered by the Sun". Look at Table 1. Place a $50,625 solar panel system on a New Jersey home and your outlay is $6,049 (just less than 12%).

Is this a Pigouvian subsidy? But Pigouvians (as well as Keynesians and many others) have given statists a club (and a gift). But public choice analysis does not get equal billing in the textbooks, nor anywhere else. Governments with rare exception grow. What does it take for Pigouvian and Keynesian study to be tempered by a discussion of how these are used to to grow the state? This is not a trivial matter.

Lose-lose

Here is Reason's report on the nation's public roads and highways. California ranks 48th and I am not surprised. I was in Mexico last week where I found much better roads.

It has been California policy for years to divert gasoline taxes to pay for public transit. It's been lose-lose all the way because transit ridership is still going nowhere but the roads are generally awful.

There were 1200+ delegates in Copenhagen last week, most of them eager to give us many more such policies. And Copenhagen skeptics are seen as the ones who don't "get it."

If you can make it there ...

New York is the subway capital of the U.S., but in the 21st century, it's hard to sustain subways even there. Here is the story.

But last night on the Jim Lehrer Evening News, IPCC Chief Pachauri noted that more transit use in Houston was the way to go to reduce global warming.

Wine economics

This is excellent.

History, mathematics, economics

Of all the Paul Samuelson obits and reflections that I have seen, I liked this one by David Henderson best. A remarkbale man, economist, body of work as well as the state-of-the-discipline are all touched on, including Samuelson's "tin ear" re the fraudulent economic news from the Soviet Union.

Henderson touches on the tension between economists who rely on mathematics as opposed to those who look to history. Obviously, both have much to offer. But when it comes to being wrong about the most auspicious economic event of the twentieth century, the fall of communism (and the demise of Marxist economics), does that tell us something about how mathematical economics leavened by a deep understanding of history would have been helpful?

History and mathematics are each glorious, but the pendulum in economics graduate curricula has been pretty much stuck at the math extreme for many years. A pendulum is, of course, a model that fails to account for stickiness.

Photo-op of the year

"The coming energy abundance" (H/T Manny Klausner) is much more plausible than "peak oil". The case for policy makers to sit on their hands (I know, impossible) rests on the fact that scientists and entrepreneurs are not sitting on their hands. This is why I have much more faith in technological advances than I have in political action to save us from rising sea levels.

From Poverty to Prosperity by Arnold Kling and Nick Schulz offers a delightful tour of the intelligence behind the optimistic view. I think it's a superb holiday gift (to yourself or others). It may even help one get over the depressing spectacle of LA's mayor and California's governor (among many others) jetting off to Copenhagen so that they do not miss the photo-op of the year.

Modernity is never simple

Bob Nelson has written a fair bit about religion and here he chimes in on the problem revealed by "climategate". Neither "sound science" nor "sound religion" are to be found.

Religion gets a bad name when zealots use it to violate one or more of the commandements. The episodes that make the news are the ones involving murder and mayhem by suicide bombers who think they are holy warriors.

But people who shade the truth because they see themselves as crusaders also present a serious problem. Brett Stephens discusses the various aspects that add up to a complex.

The East Anglia emailers as well as celebs that get caught in embarrassments are painfully waking up to the fact that it's now a whole world of paparazzi.

Some brew

It's not beating a dead horse to expand on yesterday's post re Prof. Frank's huge "if". The horse is not dead and the consequences are not pretty. New Urban News includes this item re $1.5 billion in stimulus money to promote "liveable communities" (H/T Alan Pisarski).

The spenders have no clue on whether or not real people want to live in what experts decree is "liveable". The built environment is hugely complex. Jane Jacobs had some things to say about the ability of planners to get this right.

It appears that in the name of "stimulus", anything goes. And in the name of "green", anything goes. What a brew.

If pigs could fly

In today's NY Times, Economist Robert Frank writes "How to Run Up A Deficit, Without Fear ...Taking on debt can be a good thing, if government spends wisely."

That's a very big "if". Prof. Frank is clearly a smart man and many smart men and women speak this way. But at the $4 trillion margin, how fanciful is that "if"?

The politicization of most of these expenditures (and the same can be said of the revenue side) is clear. Add the simple idea that most of these programs are much too large and too complex to be managed by a bureaucracy (politicized or not) and one has to wonder how anyone can be serious about the "if".

Frank is a fan of Pigouvian taxes, but this is textbook stuff that statists feed on. But here is just one small ($700 billion) dose of reality from today's Washington Post.

They can't beat our weather

Cities compete on many margins, but who would have thought of tours of the city's ganglands? Today's LA Times reports "The 'hood as a tourist attraction ... Activists hope to use money from bus tours for community good."

Most cities have cheerleaders who openly sanitize. What is interesting about the new LA venture is that the cited politicos are trying hard to sell tours of the "cradle of gang culture" as some sort of cutting edge eco-tourism. Why not? Newark, Camden, Baltimore, Detroit and many others can't beat our weather.

Opposite ends of the spectrum

Reason's Martin Bailey occasionally writes about "Markets, Not Mandates". In the January 2010 issue (not the one linked; the new one not yet online), he notes that if the tax credit now available only via employer purchased health insurance plans were universally available, many people would shop for cheap high-deductible policies.

Such policies are already available. The online clearinghouse eHealthInsurance pulls a quote of $131 per month from Anthem Blue Shield for a single 55-year-old male with a $3,000 annual deductible, no co-payment after the deductible, reasonable pharmaceutical benefits, and lifetime maximum benefits of $7 million with an option for health savings accounts. ... That was the cheapest plan, but more than 80 other insurance policies were available. As deductibles went down, of course, prices went up.

But imagine what would be available if the tax credit were widely available and if competition were not stifled by politicians.

It is, of course, revealing that the "reforms" that get all the attention (and that are likely to become law) are at the opposite end of the common sense spectrum. I can understand what the political class wants. It gets a little weirder when one tries to fathom how and why so many of the "elites" are in love with the most unpromising, the most expensive and the most politiczed plans.

Inconvenient poll

We are often told that Oregonians are more enlightened than the rest of us. So the report that "Poll finds Tigard residents prefer widening Oregon 99W to adding light rail" cannot be true (H/T The American Dream Communicator).

It's really a very old story. Public transit is best for other people. And this is why many more others should be obliged to pay for it. True believers have no trouble with this, just as they have no trouble dismissing inconvenient questions on climate change.

But the recent urban rail line additions have been much less costly than the planned high speed rail projects. "Kick it up a notch" as they say. At least on the cost side.

Perspective

I often cite Cox and Alm's Myths of the Rich and Poor when getting students to think about the poverty stats and the general hand-wringing over how bad things are. Most people take little time to reflect on the stunning differences between their own material wealth and that of their ancestors. Comparing the time it took the average worker to earn enough to buy a 3-lb chicken 100 years ago and now is a place to start.

Some of this is updated at this post at Carpe Diem.

The post's bottom line is worth repeating.

Bottom Line: As much as we hear about declines in median income, economic stagnation, the disappearance of the middle class, falling real wages, increasing income inequality, the data tell a much different story: The rich are getting richer and the poor are getting richer.

The first ever?

Cap and trade = carbon tax plus corporate welfare. That's apparently a Greg Mankiw theorem. The corollary is that carbon taxes are the way to go. This morning's WSJ piece on AC Pigou cites the "bipartisan appeal" of Pigouvian taxes.

And these will not be politicized? Why is the U.S. tax code 17,000 pages long? Because clarity is not a useful political posture. It seems that unpoliticized taxes are a rarity. Will carbon taxes be the first?

Researchers' bias

Dan Klein points me to this essay by Michael Marlow. Bias among researchers is what we prefer not to think about, but it is probably inescapable. Marlow notes "good intentions bias" in his discussion of research on smoking bans.

I tell students that reading widely is the only antidote. Waiting for unbiased findings in this life is fruitless. Read widely for perspective. It's the best use of your time.

There are many findings on climate change and there are many findings on smoking bans. They all compete for our attention.

And, yes, it's all made much more difficult when arm-twisting and other chicanery are involved. Exposing the egregious cases is, of course, essential. But in the end the onus is on each of us to reach conclusions. Sharing any wisdom thereby gained is also a serious responsibility.

Embarrassing

Religion gets a bad rap whenever true believer zealots are prompted to use it to violate any or all of the 10 commandments. This is a very old story.

And some have claimed that Green has become the religion of those who cannot abide the old-time religions any longer. To be sure, many of these folks describe themselves as enthusiastically secular.

But now we have this. Quite a lot of nastiness is directed at the climate change heretics. We may have more religious tolerance in the West than ever in our history. But these moderns are trying to play it both ways.

I hope we don't have to worry that IPCC types get caught in an ACORN-type sting next.

Planning for the future?

Alan Pisarski testified to a House sub-committee hearing on the reauthorization of the omnibus transportation bill. Among other things, he said this:

Design the transportation system of the future that will serve the needs of a population with a value of time double of that of today’s average traveler (say $50 an hour in current dollars) and serving an economy with an average value of goods moved double present average values per ton.

Good idea. But will they hear? Here is what Ron Utt says they are really up to. More backward-looking than forward-looking. And more wishful thinking than analysis or common sense.

Our leaders are running up record deficits and some economists are cheering them on. But aside from the raw deficit numbers, just look at where the money is going. I often hear that there is even more waste in the Department of Defense. That may be true, but the two-wrongs-make-a-right defense is pretty feeble.

Shedding light

Speaking of cool data, everyone has seen the famous satellite shot of lights for North v South Korea. Vernon Henderson and his colleagues have exploited accumulated lights data from outer space and are using them to test stories about development contrasts around the world. And in many places where the official GDP stats are questionable, the lights data are a fine truth test.

A Federal Govt Program You Have to Like

The Census Bureau abandoned its long-form questionnaire from the decennial census, but switched to annual (American Community Survey) surveys that cover the same ground (and more). There will soon be the beginnings of a time series of very rich data. I just heard a presentation by Bureau staff and got a taste of some of this. Next year, there will even be a question in health insurance coverage -- about which there has been some controversy.

LA story

Friday's LA Times reported "Gold Line links downtown to East LA ... The 6-mile light rail extension, which cost $898 million, will open Sunday with free rides and entertainment." The report also mentioned that MTA expects 13,000 daily riders.

The original 13.7-mile Gold Line link from downtown LA to Pasadena opened six years ago and cost $859-million to build, included 13.7 miles of guideway and served about 18,500 boardings per day.

Both sets of numbers are dismal. I reported some time ago that, all things considered, the original Pasadena line accounts for a net negative $80-million per year of cost-effectiveness, including plausible non-rider ("externality") benefits.

Today's LA Times, however, calls attention to all the public art ("L.A. on track ... Eight new Metro Gold Line stations roll toward an exciting future").

I know, I know. The pyramids of ancient Egypt were also costly. The rulers of their day had slaves; we have compliant taxpayers (and reporters) who never do the math and who buy into the myth that projects like this are "green" and/or "create jobs".

UPDATE

Sunday's (Nov 15) LA Times includes this re the $5-billion extension of LA's Red Line Subway. That is expected to pull in "an estimated 49,000 daily boardings at the new stations and a total of 76,000 new daily boardings throughout the system." Cost-effectiveness is beyond the pale. Yesterday's story was all about what the Eastside gets and todays is about what the Westside gets. Getting this balance right exhausted the energies of everyone involved. Questions of mega-waste are not interesting.

Who's counting?

Ken Orski reports the following:

In a revealing article that should be required reading for smart growth advocates everywhere, Gerrit-Jan Knaap, executive director of the National Center for Smart Growth Research and Education at the University of Maryland, offers a sobering appraisal of Maryland's smart growth policy. Writing in the current issue of the Journal of the American Planning Association, he concludes that there is little evidence after a full decade, that Maryland's smart growth laws have had any effect on residential development patterns. Ironically, the Smart Growth Center, was founded by the University of Maryland (and supported by former Governor Parris N. Glendening) to advance research and awareness of the very same policy whose effectiveness the Center is now questioning.

And Ed Stevens pointed me to State Exploring Strategy for Detailed Growth, referring to California.

And while we're on the topic, the WSJ notes Pfizer and Kelo's Ghost Town.

The Supreme Court's 2005 decision in Kelo v. City of New London stands as one of the worst in recent years, handing local governments carte blanche to seize private property in the name of economic development. Now, four years after that decision gave Susette Kelo's land to private developers for a project including a hotel and offices intended to enhance Pfizer Inc.'s nearby corporate facility, the pharmaceutical giant has announced it will close its research and development headquarters in New London, Connecticut.

The aftermath of Kelo is the latest example of the futility of using eminent domain as corporate welfare. While Ms. Kelo and her neighbors lost their homes, the city and the state spent some $78 million to bulldoze private property for high-end condos and other "desirable" elements. Instead, the wrecked and condemned neighborhood still stands vacant, without any of the touted tax benefits or job creation.

That's especially galling because the five Supreme Court Justices cited the development plan as a major factor in rationalizing their Kelo decision. Justice Anthony Kennedy called the plan "comprehensive," while Justice John Paul Stevens insisted that "The city has carefully formulated a development plan that it believes will provide appreciable benefits to the community, including, but not limited to, new jobs and increased tax revenue." So much for that.

Kelo's silver lining has been that it transformed eminent domain from an arcane government power into a major concern of voters who suddenly wonder if their own homes are at risk. According to the Institute for Justice, which represented Susette Kelo, 43 states have since passed laws that place limits and safeguards on eminent domain, giving property owners greater security in their homes. State courts have also held local development projects to a higher standard than what prevailed against the condemned neighborhood in New London.

If there is a lesson from Connecticut's misfortune, it is that economic development that relies on the strong arm of government will never be the kind to create sustainable growth.

It's been twenty years since the Berlin Wall fell and, yes, memories fade. If advocates want to argue that Kelo and Smart Growth are a kind of benign central planning that is worthy, the onus is on them.

Still dull and boring

Richard Florida has had some success helping urban economics and urban geography (and related fields) shed their dull and boring images. Researchers now try to identify the places that the young, cool, hip, creative types prefer. But every so often, Joel Kotkin comes along to show us that it's not all that simple.

But even though the research is potentially trendier than ever, the researchers are still trying to pin labels on areas (counties or metro areas) that are much too big to be so easily characterized. Metro area average population density, for example, can be misleading. In previous blogs, I have noted that I am late-to-the-party in discovering the smaller PUMAs (Public Use Micro Sample Areas).

It's easy to take a leaf out of the playbook of the Creative Class researchers and study the link between "hip" in-migrants and PUMA population density. Occupation code 2600 is “Arts, design, entertainment, sports, and media occupations”. Correlate arrivals of these people with small area (metro PUMAs) population density and do it for the nine Census Divisions. The results are all over the map (sorry!). They range from 0.06 (Mountain States) to 0.41 (Mid-Atlantic). In five of the Divisons, the correlation between all arrivals and PUMA population density is higher than for creative arrivals.

Our field is probably stuck with dull and boring.

Many densities, many foods

My favorite LA novel is The Tortilla Curtain by TC Boyle. Another great guide to today's LA is "The Scavenger: Pig's ear, octopus, and fish-kidney curry with LA's most adventurous eater" in the Nov 9 New Yorker.

The report follows the adventures of Jonathan Gold, "the high-low priest of the Los Angeles food scene." Gold describes LA as the "anti-melting pot". And "... unlike in New York, where immigrants quickly broaden and assimilate their cooking styles to reflect the city's collective idea of 'Chinese food,' the insular nature of Los Angeles allows imported regional cuisine to remain intact, traceable almost to the restaurant owners' villages of origin. 'The difference is that in New York they're cooking for us ... Here they're cooking for themselves' [Gold tells writer Dana Goodyear]."

Gold could have mentioned that LA also has plenty of the New York-style "they're cooking for us" options.

Urbanists keep writing about density, but neither explain what they mean or fall short with meanignless measures such as metro area or countywide density averages. The real fabric and the real nature is far too complex to capture with such vagaries. Interestingy, LA is melting pot and anti-melting pot. One can find the "cooking for us" dishes one day and the "cooking themselves" dishes the next. Whatever "the density" of LA is, it is, both "insular" and not-so-insular as to make both cuisines possible.

Perhaps urbanists can take the hint. Let a thousand densities bloom.

Was Ayn Rand boorish?

The November (2009) Reason includes "Are Property Rights Enough? Should libertarians care about cultural values? A reason debate".

It seems to me that libertarian (or any serious) discussions cannot avoid touching on cultural questions. But libertarian individuals and positions are another matter. All are products of a culture and all have individual interests in many aspects of that culture, but the three debaters do not pursuade me that there is a tight fit or connection between the libertarian approach to property (economics and politics) and all the rest.

We argue for standing up to those who want to tax us (on the left) as well as those who want to arrest us (on the right). And that alone can keep us quite busy. But we are also put off by the boorishness that we encounter every day, much of which is not linked to the agendas of those who want to tax or arrest us.

When my fellow concert or theater goers behave in ways that curtail my enjoyment and if it is the business model of the theater or concert hall owner to allow that kind of behavior, the property rights are clear and that is fine, but I still have a problem. I'll probably enjoy more entertainment at home. "Home theaters" are a growing phenomenon anyway. But I am not sure that any of this can be or should be a part of any "libertarian agenda". Much of life is beyond and independent of that agenda and that's fine.

When people bring their lifestyle priorities to political conventions and meetings, they usually do seek state sanction for their cultural positions (be it anti- or pro-abortion). I thought that libertarians were the ones who left that stuff at home when they do politics.