What mainstream?

The Tea Party idea is that the federal government has gotten too big and too intrusive. I suppose we shall see in November how widespread this view is. When commentators bemoan the divides in American politics and invoke a mythical "mainstream" view, I suspect that they see themselves as squarely in the reasonable middle.

In yesterday's WSJ, Alan Blinder dismissed the "diehards" who are not on board with the idea that FDR's New Deal ended the Great Depression. But I learned back in high school that prosperity came after WW II ended and government spending (as well as conscription) was scaled down. I think that Bob Higgs has some things to say about this.

In today's NY Times (not The Onion) there is an unbelievable piece about school authorities wanting to end the practice of young kids having best friends. Where to start? Is this their mission or their core competency? How many parents send kids to school for this kind of "help"? Is this dumb idea really from some Tea Party plant in the educational establishment? Will we soon hear that advocates of best-friend interventions are actually part of the "mainstream"?

Talk about growing divisions in American politics.

Read both

We hear many people make claims that they had long known that the U.S. was in a housing bubble through the early 2000s. But most of them did nothing about it. We now know that a very few did and they made a lot of money. Michael Lewis tells that story beautifully in The Big Short: Inside the Doomsday Machine. It takes us inside the sausage machine like nothing else I have seen.

We encounter many insiders (some we had heard of and others not) that we would not enjoy having as friends or neighbors. Lewis has an easy time citing their "greed" and linking it to so many not-so-wise choices and bad behavior.

Russ Roberts' paper includes the argument that a history of hundred-cents-on-the-dollar bailouts explains bondholders' tolerance of the many ill-fated gambles that Lewis describes.

You have to read both. Lewis hardly goes where Roberts treads and leaves readers with an incomplete understanding. It's much too easy to go with the greed (and accompanying hideous traits) explanation and leave it at that.

I have to add that Lewis' book will lend itself to a better movie than would Roberts' paper.

Get real?

The June 28 Forbes includes Philippe Legraine's "Let Them In ... Opening America's Borders is Morally Right, Economically Beneficial -- And Would Even Make America Safer."

Our politicians (either party) don't quite put it this way.

But read the article and consider the graphic "How long must I wait ... estimated time to acquire a U.S. green card." The range is from six months (for a 40-year-old British PhD bio-engineer) to 131 years (!) for a 30-year old Mexican with a high-school diploma and sister who is a U.S. citizen.

Unbelievable. Most choose not to wait 131 years and who can blame them? Just like the flat-tax proposal, discard the entire apparatus and offer a one-size-fits-all four-year (or whatever) renewable green card. One-size-fits-all has its problems but it beats the monstrosity now in place.

Strange review

I just read William Easterly's NYTBR review of Matt Ridley's The Rational Optimist. I had to look twice to be sure of the name of the reviewer.

Yes, Ridley makes the case for optimism, but is it reasonable for a reviewer to wheel out the straw man of the unblemished "free market"? I recall the book's discussions of markets, but never an allusion to the textbook straw person. Knocking that one down is child's play and an argument easily available to anyone.

No, this is not paradise, but evidence of progress is powerful. And good things happened to humanity in the twentieth century despite two horrid world wars, the Great Depression, the Cold War, the influenza epidemic of the 1920s, etc. Ridley likes "half-full" better than "half-empty", but to mention that he forgot Lehman Bros and Richard Fuld's salary is a cheap shot.

We do not have "free markets", we have crony capitalism with way too much of "crony", but in spite of the obvious shortcomings, no informed person would trade places with his/her ancestors. That's an awesome fact and the best explanation we have is the workings of the market -- even the imperfect type.

UPDATE

Here is Ridley summarizing the book.

Magic trick

In the current New Yorker, Laura Miller asks: "What's behind the boom in dystopian fiction for young readers?" Good question and I will leave it to others to decide how satisfying her answer is.

I am much too old to get my head around the young dystopians' worries. But I am greatly enjoying Matt Ridley's The Rational Optimist: How Prosperity Evolves. I have no idea whether young dystopians would be moved by the historical record which establishes just how amazingly well off most young dystopians are. Ridley is a fine writer and if he cannot move the young dystopians, perhaps nothing can.

Why didn't I think of this way of describing comparative advantage? "It is common to find two traders that both think their counterparts are idiotically overpaying: that is the beauty of Ricardo's magic trick."

Getting real

Today's LA Times includes "Blue Line cuts across L.A. County's invisible boundaries ... The oldest light-rail line is a rolling improv theater with a lively cast of characters running 22 miles from Long Beach to downtown L.A." Reporter Mike Anton has fun with a day in the life of the train.

They are strangers on a train. Text-messaging businessmen and hawkers selling pirated DVDs, cotton candy and drugs. Teenage mothers pushing strollers and weary scavengers with strollers heaped with cans and bottles. Students quietly reading textbooks and proselytizers shouting passages from the Bible.

There is the blind man who takes out his glass eyes for money and the tightly coiled gangbangers with whom direct eye contact is not advised. Commuters lost in their iPods next to full-throated yakkers broadcasting personal confessions.

The Metro Blue Line cuts up the middle of Los Angeles County, from Long Beach to downtown, like a surgical incision, exposing an element of the metropolis many never see.

In a place dominated by freeways and the automobile's numbing isolation, the 22-mile light-rail line — the oldest in L.A. County, marking 20 years of service this summer — is a rolling improvisational theater where a cast of thousands acts out a daily drama that is by turns poignant, sad, hysterical and inexplicable.

Whoa! Did a guy just get up from his seat and urinate before stumbling off the train?

Yes, folks, he did.

Five bucks gets you a day pass to one of the most unpredictable shows in town.

Trouble is that the perennially optimistic ridership forecasts that boosters like to use to justify the huge costs involved ($864 million of capital costs and $64 million in annual operating costs, 2005, serving just 78,000 boardings per day) presume that there is a middle class audience for these systems -- just like the European systems that fans once visited and forever pine for.

As much fun as the reporter had with the story (and that some readers might have with it over their morning coffee), it tells us quite a bit about why so many Americans avoid so many public spaces and public facilities.

For love or for money?

If you teach economics (for love or for money), you quickly find out that the thought of cooperation via exchange goes down better with some than with others. It seems that some are able to grow up but still hang on to a suspicion of any exchange that is not based on love. Hence, they are baffled by much of the real world - including the market economy. Dan Klein reports that this describes children as well as those on the political left. Here is the detailed report.

Good news, bad news

Today's WSJ reports that "Intermarriage Rate in 2008 Hits New High". This is good news because tribalism has outlived any usefulness and often turns ugly. In fact political scoundrels around the world and through recorded history have used it for their own advantage. The separation of race and state should be high on anyone's list of priorities.

I have seen no data that compares intermarriage rates for countries with mixed populations. My guess is that the U.S. would rank high if not first -- if such a cross-country comparison could be done. And if there is any discussion of American exceptionalism, then include this accomplishment.

It is nothing but atavistic when U.S. politicians (and others) embrace identity politics. But with enough intermarriage, this ploy may be on the way out.

UPDATE

Here is the view of the tone-deaf, who only want to know with which group the offspring of mixed marriages will identify/vote with.

Borders

There are quite a few illegal immigrants in Japan. Better than any wall, Japan has ocean on all sides. But put a rich country near poorer countries and labor markets kick in. This is all obvious and helps to put into perspective the shallowness of arguments to "put a fence" at the US-Mexican border. An extra 1,200 or 6,000 agents will make little difference.

This morning's WSJ includes "The Meaningless Mantra of 'Border Security'", The writer remind us that

The most secure border in modern history was probably the Cold War border between East and West Germany. To keep their people from leaving—logistically much easier than keeping others from entering—the East Germans built more than 700 watchtowers, sprinkled more than a million antipersonnel mines, created a deep no-man's zone of barbed wire and electric fencing, and deployed nearly 50 guards per square mile with shoot-to-kill orders. Even so about 1,000 people each year somehow managed to find a way across.

Renewable work permits that would legalize a large number of crossings would make managing the border easier. But a political constituency for a sensible border-labor policy is apparently not yet formed. Instead we get lots of naive talk about how we can or should "close the border."

Promises and uncertainties

Paul Krugman ("The Pain Caucus") writes that our economic problems stem from inadequate re-distribution because of (everyone else's) mean-spiritendess.

Mark Steyn ("We're too broke to be this stupid") says that politicized redistribution (here and abroad) got us into the mess, but we are now too poor to stay with it. Politicians here and abroad make promises they cannot keep.

Becker and Posner describe how and why social and economic policies in Europe came to be that way -- and why Americans should be wary.

Tyler Cowen notes that, no matter how you come down on fiscal policies (the aggregate demand management and/or redistribution varieties), watch out for the uncertainties that remain in the air. "Until the underlying uncertainty is resolved, the economy remains in the doldrums."

It seems to me that the underlying uncertainties have to do with promises made that cannot be kept -- and no clear way out of that bind.

UPDATE

Here is a more optimistic view.

In a dangerous place

I just found Luigi Zingales' "Capitalism After the Crisis" in the Fall 2009 issue of National Affairs. He makes several interesting points. First, unlike in the other western democracies, U.S. politics was for some years able to keep the electorate's general pro-market appreciation from morphing into pro-business politics. But this seems to have ended and pro-business has won. We are headed in the direction of "European corporatism."

The repeal of Glass-Steagall pre-dated the fall of the major investment banks, but these had not been its beneficiaries. Rather, the Gramm-Leach-Bliley repeal bill aligned the politics of all the financial players. Zingales thinks that this is one of the reasons we got Wall Street bail-outs. But that brings on public anger and populist politics. We are now, therefore, in a dangerous place.

We thus stand at a crossroads for American capitalism. One path would channel popular rage into political support for some genuinely pro-market reforms, even if they do not serve the interests of large financial firms. By appealing to the best of the populist tradition, we can introduce limits to the power of the financial industry — or any business, for that matter — and restore those fundamental principles that give an ethical dimension to capitalism: freedom, meritocracy, a direct link between reward and effort, and a sense of responsibility that ensures that those who reap the gains also bear the losses. This would mean abandoning the notion that any firm is too big to fail, and putting rules in place that keep large financial firms from manipulating government connections to the detriment of markets. It would mean adopting a pro-market, rather than pro-business, approach to the economy.

The alternative path is to soothe the popular rage with measures like limits on executive bonuses while shoring up the position of the largest financial players, making them dependent on government and making the larger economy dependent on them. Such measures play to the crowd in the moment, but threaten the financial system and the public standing of American capitalism in the long run. They also reinforce the very practices that caused the crisis. This is the path to big-business capitalism: a path that blurs the distinction between pro-market and pro-business policies, and so imperils the unique faith the American people have long displayed in the legitimacy of democratic capitalism.

Unfortunately, it looks for now like the Obama administration has chosen this latter path. It is a choice that threatens to launch us on that vicious spiral of more public resentment and more corporatist crony capitalism so common abroad — trampling in the process the economic exceptionalism that has been so crucial for American prosperity. When the dust has cleared and the panic has abated, this may well turn out to be the most serious and damaging consequence of the financial crisis for American capitalism.

UPDATE

Arnold Kling says: "What de-regulation"?

Enabling the enablers

Writing about U.S. business cycles in his wonderful textbook, Ed Leamer notes that eight of the ten post-World War II recessions are rooted in housing busts: "It's homes ... As far as homes are concerned we suffer from collective bipolar disease, swinging back and forth between manic buying and depressed waiting. In both manias and depressions, the housing market does not work right." (p. 196). He characterizes housing booms as giving rise to upward-sloping demand curves. Rising prices suggest more price rises and leverage opportunities facilitate boom-bust cycles. He goes on to discuss the "enablers" -- those who issue mortgages.

Russ Roberts singles out moral hazard from past federal government bailouts as the enabler of the enablers. Bond market participants relaxed their guard and went along for the ride because they had been given good reasons to think that government bailouts are likely -- especially re the GSEs, Fannie and Freddie.

Good news re the schools

When I voiced my disappointment over Pres Obama's letting Democrats abandon the DC voucher program, friends mentioned to me that he was preparing to take on the teacher's unions over charter schools. Yesterday's NY Times included "The Teachers' Unions' Last Stand ... How Obama's Race of to the Top Could Revolutionize Public Education" which reports that this is in fact the case. That would be very good news.

Yesterday's 60 Minutes included a report on the SEED School which was also very good news. It's a charter boarding school run on private and public money. If schools alone cannot do the job when the home is chaotic, create charter boarding schools.

Two plausible and uplifting reports on U.S. schools in one day. What a day.

Clones, not colonies

How did we get so rich?  Was it about “the West and the rest”?  Or was it about the Anglophone world vs. the rest?  James Belich in Replenshing the Earth argues that the British colonies were more clones that colonies.  And they maintained links with the “oldlands” unlike France’s colony in Algeria, Russia’s in Siberia or Spain’s in Argentina.  The author alludes to continuing reciprocal “re-colonization” (re-cloning?) meaning the boom-bust-encouraged links that seemed to have worked best in the Anglophone world – separated by politics and geography, but united by language and culture.  He shows why the newlands colonized by Spaniards (in the New World), Russians (in Siberia) and the French (in Algeria) never matched the levels of development nor the continuing benefical links to the oldlands that the U.S., Canada, Australia and New Zealand were able to sustain.

Local schools

This study argues for (heterogeneous buyers concentrate their buying and search; high quality private schools may be found near some low quality public schools; school quality may be regarded as a luxury good) and finds a nonlinear relationship between school quality and house prices. 

One would think that this relationship adds to the incentives of homeowners to demand high quality schools.  Fewer limits on charter schools might help.  But getting from here to there has always been a problem, especially when it comes to improving school quality.

The value added of good schools is hard to identify.  High achieving families demand good schools for their kids, but also supply important inputs to successful education. That would be another reason for a nonlinear relationship between school quality and valuation.  This piece in the May 22 Economist reports mixed results from experiments that involved paying students to perform.  It's very hard to find a substitute for the educational inputs provided a home atmosphere in which learning is encouraged and valued.

UPDATE

Give neighborhoods the power to tax themselves -- and fix what they want to.  Arizona is apparently trying this approach.  It resembles Bob Nelson's thinking on how to fix neighborhoods.

Laugh or cry?

A newspaper story with the head "Invasion of the Full-Body Scanners" (today's WSJ) suggests that it is another report of TSA and airports and privacy issues.  But no.  This one begins with "My wife and I often experience the same things differently, but few as strikingly as the 3-D body scans we had in  New York clothing store." It turns out that when the writer went to shop for a suit at Brooks Brothers, they used a new electronic gizmo that used 16 sensors to produce hundreds of thousands of data points that described the man and from which the taylor created the perfect suit.  The wife was able to use the same technology at Victoria's Secret in order to get a better bra fit.

The punch-line for me was that the technology goes back to a federal government program of some years ago to find a high-tech way to keep apparel production costs down and jobs in the U.S.  It's protectionism-crony-capitalism all over again. 

Put this one in the laugh-or-cry file.

Not to worry

Robert Levy writes this in the latest Cato Policy Report:

PRESIDENT OBAMA: “We need to bend the health care cost curve. I want the food industry to cut chocolate sales by 25 percent.”

INDUSTRY: “But we would lose $100 million from the cutback.”

OBAMA: “Just raise the price of celery to recoup the $100 million.”

INDUSTRY: “Nobody will buy celery at the inflated price.”

OBAMA: “Not to worry. We’ll impose a fine on any family that doesn’t buy a sufficient quantity of celery.”

LEVY: Sounds inconceivable, doesn’t it? Scandalously, it’s more than conceivable; it may be reality. Obamacare— temporarily frustrated by Massachusetts voters—doesn’t require the purchase of celery, but it does require the purchase of health insurance. Here’s (roughly) how Obama’s actual conversation with the industry unfolded:

PRESIDENT OBAMA: “A lot of sick people can’t get insurance. I want the industry to cover preexisting conditions.”

INDUSTRY: “But we would lose a fortune if we did.”

OBAMA: “Just raise premiums paid by healthy people and sell more policies to those who aren’t insured.”

INDUSTRY: “If we have to cover preexisting conditions, healthy people won’t buy policies until they’re sick.”

OBAMA: “Not to worry. We’ll impose a fine on any family that doesn’t buy a policy now.”

 
Along similar lines, Forbes' car guy, Jerry Flint, discusses new federal miles-per-gallon mandates.  He asks, "Is it possible that car buyers will fall in love with smaller cars? The first of the new small cars to be built on this continent, the Ford Fiesta, will be here in weeks, but we really don't know how it will sell. Small cars really don't do that well now; Daimler sold only 1,397 of its tiny Smart cars here in the first quarter, and BMW sold only 8,728 of the somewhat more acceptable Mini. That compared with 103,039 Ford F-Series pickups." 

Not to worry?

Urban myths

Trendspotters keep looking for an end to suburbanization, but Wendell Cox reports that these folks misread the data.  "Suburb" and "city" are hard to define and this is why one has to be very careful. 

The May 2 NY Times included this graphic on how annual miles driven per capita has varied since 1956.  Gas prices matter as do levels of unemployment.  There is not much left to be explained by continuing suburbanization.

UPDATE:  OECD reports: "For the first time ever the number of people killed in road accidents has fallen below 150 000 in the 52 member countries of the International Transport Forum (ITF), excluding India. According to data released by the Paris based organization, which is part of the OECD family, road fatalities recorded the biggest decrease since 1990 with a drop of 8.9% in 2008 compared to 2007. Preliminary data for 2009 shows a continuing significant reduction in the number of road deaths for most ITF member countries, recording a drop of almost 10%."


And while we are on the topic, this book review in this morning's WSJ pins US suburbanization on (among other things) the interstate highway program.  Well, not exactly -- as some of us have tried to show.

Finally, in a better world, people would stop talking about "big solutions" and instead ask "at what cost?"  Dream on.  In todays LA Times, columnist David Lazarus wants LA to have a "world-class subway system."  Once again, evidence is of no interest.  In 2005, LA's 16-mile Red Line subway generated almost $300 million in annual losses, once the huge capital costs are included -- and even when external (non-rider) benefits of reduced auto use are counted.

City rankings

The WSJ's "Numbers Guy" recently wrote about the problems with the "city livability" rankings published by various magazines and others.  Readers love rankings so magazines and various groups will keep doing this. But urban economists model the spatial equilibria among cities as involving adjustments in housing (land) markets and labor markets (see Glaeser and Gotllieb's 2006 paper).  The simple result involves a four-way partition:  high- or low-amenity cities offer high nominal or high real wages depending on where housing prices end up.  New York is a high-amenity place with high nominal wages, but low real wages because equilibrium housing costs are high.   Were there fewer amenities (Houston?), spatial equilibrium indicates lower housing prices. 

The model leaves out differences in land use regulation, but these too should be endogenous.  The other problem is that the metro areas involved are too large, diverse and complex to easily fit the model.  Averages mislead.  There are usually wildly contrasting neighborhoods in each metro that defy the overall characterization.  This is the major reason that ranking the places that are the home of often millions cannot easily be done.

Stalker or stalkee?

Uncertainty is a fact of life, but we have ever more to say about it.  I always liked Peter Bernstein's way of summarizing progress in the field.  At the same time, I never believed that because we have had a good conversation about it (slightly beyond "do not put all your eggs in one basket") that we knew enough to do any more than whistle in the graveyard.  Nicholas Taleb famously makes this case.  He elaborates in this recent econtalk podcast.

This is why I was perplexed by Kenneth Posner's Stalking the Black Swan.  Posner owns up to his own recent investment missteps.  He describes how he diligently applied all of the latest business school/Wall Street tools (Monte Carlo modeling, probability trees, correlation analysis), but came up short.  His concluding chapter notes (what else?) that ya gotta have good judgment.  What would Taleb say?  It's not hard to imagine.

Worthy read

I have greatly enjoyed Anthony Beevor's books on 20th century European history.  His latest (with Artemis Cooper), Paris, After the Liberation 1944-1949, may be my favorite.  Here is part of the summation:

The close of 1949 marks an obvious end to the immediate post-war periond, but the great issues of that time did not of course finish with the decade.  The three main ones coveerd in this book -- the Occupation, and the epuration as part of the guerre franco-francaise; the intelligentsia's admiration for revolutionary ruthlesness; and France's complex relationship with th U.S. -- either continued to affect Parisian life or resurfaced later.

That's quite a chunk of history to do justice to in just under 400 pages, but the authors do it beautifully.  Europe's convulsions of the 20th century will be a subject of interest for a long time, but this book offers an easily readable and well documented explanation of a big portion of what went on.

The current bailout of Greece may signal yet another new chapter.  A better grasp of the previous chapters is timely.

The social contract

Anne Applebaum explains that it's Time for Greece to Play by the EU's Rules.  She makes a compelling argument, but then adds this: 

Resistance could take forms more subtle than rioting. Athens, after all, is a city in which 364 people told tax authorities they owned swimming pools -- and in which satellite photographs reveal the existence of 16,974 swimming pools. If a tax or legal reform is perceived as a foreign imposition, will Greeks abide by it?

Makes you wonder.  It's tempting to believe that the Council of the European Union and the IMF and the US have dictated and that the Greeks have committed to change their ways.  But who believes it?  We have for so many years been told that the Europeans have a "social contract" by which everyone agrees to a certain welfare state. 

And this has always been held up as a shining example.

Is California listening?

Andy Kessler writes about Europe's woes and the fact that one cannot slide into debt expecting no consequences.  He ends this way:

My guess is that the euro will survive, but no one will trust it like they used to. At the end of the day, it's an entitlement problem. In Greece, the public sector makes up 40% or more of the work force, with short weeks, lots of vacation and lavish retirement benefits. All of that needs to be paid for with real income, not debt, and the markets are anticipating the day of reckoning. One can only hope European policy makers listen to the market. I wonder if California and Medicare are taking notes.

The first thing you notice about Cyprus is affluence.  The cars are mostly new, the homes are new and large.  English almost everywhere, denoting an international presence.  Richard McKenzie and Dwight Lee wrote about Quicksilver Capital some years ago.  Wealthy Greeks and other Europeans have been moving to relatively low tax Cyprus for some years. 

Oh, and one more thing.  Cyprus' highways are much better than the potholed messes I experince in California.  Kessler says: Is California listening?  I doubt it.

Depraved or deprived?

Roger Cohen finds reasons to be optimistic about the Israel-Palestinian conflict. Let's hope he's right.

When you encounter cosmopolitan Muslims, our experience has been that they want to reach out and offer a positive image of their religion.  When you mention terrorists, they shake their heads and explain that these are the ignorant and poor who are easily brainwashed.

Trouble is that this is not exactly correct.  We now know that the Times Square bomber was enrolled in a graduate degree program in the U.S. (not that this denotes an unignorant state).  More to the point, economist Alan Krueger has studied a long list of terrorist attacks and finds that the perps all tend to be middle class and educated.  We need a better theory than the standard one ("I'm depraved 'cause I'm deprived.")

Far fetched

In the May, 2010, Harvard Business Review, Ania Wieckowski writes about "Back to the city ... The suburban model of community is broken ..."  The article includes most of the popular cliches on the subject, including the silly one on obesity and suburbanization: people in the suburbs walk less than their urban counterparts. 

USC's Pengyu Zhu and I have been examining the latest (2009) National Household Travel Survey. While the survey's use of "urban" vs "suburban" categories ar much too broad, the data suggest that lifestyles in these settings differ very little.  Daily per capita frequencies of shopping trips were 2.32 (urban) vs 2.28 (suburban); for family and personal trips, it was 2.38 vs 2.28; for social and recreational trips, it was 2.29 vs 2.19; for visits to friends and relatives, the rates were 1.91 vs. 1.92.

We expect to find that demograhic differences explain most of the gaps found.  But the idea of real lifestyle differences between settings seems far fetched.

Good movie, good idea

Prof Gordon Wood's op-ed in the NY Times includes a sketch of the history of term limits in the U.S.  Not suprisingly, it is an old idea that meshed with the founders' suspicion of political power.  But Wood ends with this:

Although federal term limits have been confined to the presidency, the fear of entrenched and far-removed political power, as the present anti-incumbency mood suggests, remains very much part of American popular culture. Yet precisely because we are such a rambunctious and democratic people, as the framers of 1787 appreciated, we have learned that a government made up of rotating amateurs cannot maintain the steadiness and continuity that our expansive Republic requires.

But look at the entrenched committee chairs in both houses and tell me that these veteran professionals offer anything positive.  The "professionals" (as Mancur Olson and others have reminded us) are most likely to have settled into the rent-seeking-rent-extraction derby. Mr. Smith Goes to Washington is my favorite movie.

Sources of discipline

It's May Day and a good time to be in Athens.  There are "manifestations" outside our hotel.  Public sector employees are not happy that generous benefits might end.  Private sector people are unhappy with their public sector colleagues for getting them into the mess.  Discipline will come from the outside or things will get worse.  Downward spirals can be really ugly.

James Carville famously said that he wants to be a bond trader in his next life because they have the power.  He probably meant bond markets.  At some point, sovereign debt becomes unattractive and downgrades occur.  Politicians' vote buying is a fact of life.  If discipline is not available from domestic sources, it has to come from abroad.  The constituencies for profligacy easily take charge.  Where is there a constituency for discipline?  We now have EU countries (the PIIGS?) that may be going the way of Argentina.

In the U.S. case, we have growing deficits, but a Presidential commission to look into the matter.  And we have a Federal Reserve promising that they have plans to some day unwind. 

The U.S. constituency for profligacy is also well established.  What are the odds of a serious constituency for discipline?

Neighborhoods or communities?

From the dustjacket of In the Neighborhood: The Search for Community on an American Street, One Sleepover at a Time:

Peter Lovenheim has lived on the same street in suburban Rochesters, NY, most of his life. But it is after a brutal murder suicide rocked the community that he was struck by a fact of modern life in the comfortable enclase: No one really knows anyone.

It's the old worry.  When (most) people have the means, they opt for independence and privacy.  And there are trade-offs involved.  And most people romanticize communal life. That having been said, Lovenheim's description of his adventures when he actually offers to meet and engage his neighbors (offering to spend a night) beats most of the standard fare on the topic.     

Half is enough

This study finds that calorie postings at Starbucks have only minor effect.  Not exactly the ammunition that some had hoped for.  But recall the famous John Wanamaker quote:  "Half the money I spend on advertising is wasted; the trouble is I don't know which half."  Consumers make choices on the basis of complex assessments of the package offered them.  This includes local ambiance, subjective associations with the brand and all sorts of things, only some (half?) of which are knowable.  Sellers of the world (and now nannies of the world) would love it if their odds were better.  But I hope that it remains as mysterious as Wanamaker said.

The smart set

I have no idea which (if any) trading rules were broken when traders at Goldman Sachs did not reveal who was short on a deal that Deutsche Bank and others chose to go long on.  I imagine that Goldman's customers have the option to sue and/or take their business elsewhere.

Politicians cannot be expected to miss an opportunity to grandstand.  But listening to the news suggests just how bad things are.  Making a profit, speculating, diversifying (in this case going short as well as long on various mortgage-backed securities) -- and profiting on that.  Can you imagine?  All these perfectly normal actions are subject to hand wringing and worse. Last night's Jim Lehrer News interview (Ray Suarez talking to Louise Story) is a case in point.

And these are the high-brow TV news.  Can someone from that perch please explain to the audience that firms are supposed to be profit-seeking, that everyone on Earth speculates, that the shorts are an essential part of the market, that firms will diversify their portfolios.  And that all of these actions are socially beneficial?  You can bet that all of the smart set encountered Econ 101 at some time in their lives.  What happened?

Don't double-down on the failures

Economist Robert Frank argues for progressive taxation in today's NY Times by noting that market pay scales are progressive anyway.  The most productive workers on any team earn slightly less than the value of their marginal productivity and the least productive earn slightly more than their productivity.

In his discussion, Frank invokes the anti-progressivity libertarian straw man. But one can cheer for a more progressive distribution of incomes without signing on to existing federal programs.  One could suggest that real school reforms (for example, not killing programs like Washington DC's voucher program) would go a lot further in that direction than the current tax code.

But that begs the question of the role of the state in impacting the distribution of well-offness.  There are many levels of government, many taxes and many expenditure programs.  What is their net effect in terms of redistribution?  To my knowledge, the big question has never been rigorously answered. 

What do we know?  In the U.S., the role of the state has grown steadily over the last 80 years, but the chorus of complaints is that "inequity" is now greater than ever.  As with all failed programs, the chorus responds by insisting we have not really bought enough of it.   (Unhappy with how program X performs?  Increase its budget.)  This is not how the real world works.  We typically (still) downsize or discard the failures.

History

Mention slavery to most Americans and they reflect on the sad experience in U.S. history.  Most were never taught that slavery was until very recently a universal insititution.  And most slaves that made it from Africa to the western hemispehere were first enslaved by other Africans.  This is why it is a good thing that Henry Louis Gates sets the record straight in this NY Times op-ed. 

Not all of history is mainstream history and not all mainstream history gets taught in the schools.  With any luck, mention slavery to a school kid some years from now and her or she will reflect on a very sad but universal part of human history.  Moral progress, where we find it, must be acknowledged and celebrated.

How did he know?

Today's WSJ includes "Debt 'Masking' Under Fire ... SEC Considers New Rules to Deter Banks From Dressing Up Books ..." and "Senators Seek Cash as They Mull Rules ... Both Parties Have Held Dozens of Fund Raisers on Wall Street While Fashioning New Regulations for Financial Markets."

But yesterday, this WSJ op-ed by Gerald O'Driscoll noted:

Why has this happened? Financial services regulators failed to enforce laws and regulations against fraud. Bernie Madoff is the paradigmatic case and the Securities and Exchange Commission the paradigmatic failed regulator. Fraud is famously difficult to uncover, but as we now know, not Madoff's. The SEC chose to ignore the evidence brought to its attention. Banking regulators allowed a kind of mortgage dubbed "liar loans" to flourish. And so on.


We have now learned of the creative way Lehman Brothers hid its leverage (how much money it was borrowing) by the use of a Repo 105. The Repo 105 meant Lehman temporarily swapped assets (such as bonds) for cash. A Repo, or repurchasing agreement, is a way to borrow money. But an accounting rule allowed Lehman to book the transaction as a sale and reduce its reported borrowings, according to a report by the court-appointed Lehman bankruptcy examiner, a former federal prosecutor, last month.

Are we to believe that regulators were unaware? Last week Goldman Sachs was accused in a civil fraud suit of deceiving many clients for the benefit of another, hedge-fund operator John Paulson.

The idea that multiplying rules and statutes can protect consumers and investors is surely one of the great intellectual failures of the 20th century. Any static rule will be circumvented or manipulated to evade its application. Better than multiplying rules, financial accounting should be governed by the traditional principle that one has an affirmative duty to present the true condition fairly and accurately—not withstanding what any rule might otherwise allow. And financial institutions should have a duty of care to their customers. Lawyers tell me that would get us closer to the common law approach to fraud and bad dealing.

How did he know?

UPDATE

I could not ignore this report on what the regulators were actually doing.  Yes, and if we only had more of these guys, things will get much better.

Spending cuts not in our future

Writing in today's NY Times, Tyler Cowen cites progress in other countries (including Canada) towards cutting government spending.  If others can do it, so can we.  Perhaps. 

It's only been a few weeks since CBO reported that we can insure millions more and cut the deficit.  Most people seemed to believe it.  And it's only been a few days since the President took credit for being a tax cutter.  If you believe neither claim, do you expect we can follow Canada's lead?  Besides, debt can be slashed by inflating the dollar.  And we have taken some steps in that direction.

Britain had to teeter on the brink before Thatcher could start a serious reversal.  Reagen found a rare political seam when real tax reform could become law in 1986.  Neither condition is likely in our case.  After all, serious people say (who knows what they think) that health reform saves money and Obama is a tax cutter.

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.