What if?

Here is how our leaders think about cities (and themselves). From an email blast that just arrived:

WASHINGTON Today, the Senate Banking Committee voted to approve the Livable Communities Act, a proposal to create the next generation of smarter, sustainable and energy-efficient communities. Sponsored by Chairman Christopher Dodd, this bill would authorize HUD's new Office of Sustainable Housing and Communities and create an interagency working group within the federal government to align the community planning and development functions of HUD, the U.S. Department of Transportation and other agencies to allow for a more coordinated and comprehensive approach to building better communities.

The following is a statement by HUD Secretary Shaun Donovan:

Today, the Senate Banking Committee took a bold and forward-thinking step toward creating the next generation of livable and sustainable communities. In particular, Chairman Dodd understands that if we're going to encourage the development of smarter, more energy-efficient communities, we have to break down the policy silos that keep many parts of our government from talking to each another. Not only does this measure align the collective energies of the federal government toward this task, but it will help generate jobs, encourage a new way of thinking about land use, reduce congestion, and generally make our neighborhoods better places to live.

But what what if cities are more like spontaneous orders than complex playthings amenable to politics? What if: (1) people will “truck, barter and exchange” (A. Smith) no matter what their leaders come up with? and what if (2) Prisoners Dilemma situations illustrate the limits of trade (insecure property rights, high transactions costs, low levels of trust), but one man’s problem is another man’s opportunity and entrepreneurs act to remedy prisoners dilemma situations when they can (E. Ostrom); and if (3) the rules of the game have many sources beyond our leaders, including bottom-up common law and many “unwritten rules” that Ostrom and others illustrate; and what if (4) public choice economics highlights the actions that are incited by any set of rules, including many “unintended consequences”; politicization is inevitable; and if (5) top-down planning is impossible; planners lack local knowledge and local knowledge is too complex to be fathomed by individuals or committees (Mises, Hayek); and if (6) planning is universal, but markets reconcile competing plans, and this also challenges the idea of top-down planning; and if (7) the most ambitious top-down planning (the Marxist legacy) has failed repeatedly, bringing on misery and starvation -- and state terror to manage starving populations (North Korea); and what if (8) large bunches of redistributionist policies are enacted with presumably progressive intent, but often end up being regressive; they have been a staple of U.S. politics since at least the New Deal, but complaints about increasing inequality are greater than ever; and if (9) land use controls in America help to explain housing affordability problems; and if (10) the world has been urbanizing for many years because cities are the “engines of growth”; cities encourage entrepreneurial success as long as they foster spatial arrangements that are congenial to entrepreneurial discovery; this includes spatial arrangements that internalize many positive externalities and minimize the possibility of many negative externalities; and if (11) such spatial arrangements are too complex for top-down planning (Jacobs, Mises, Hayek); and if (12) public goods market failures are minimized via Tiebout competition; and this includes private land use planning (in malls, industrial parks, private communities); and (13) designers do essential work; we willingly board airplanes, trusting the engineers who designed them.

And what if, in light of all this, we think very hard about what role is there for planners and designers when it comes to modern cities and decide that the presumption ought to be towards the lightest possible touch? Naw.

Trifecta

The U.S. War on Drugs is nuts. That's by now an old and ever more widely shared sentiment. But how can policy makers get out from under the mess? Is there a winning political coalition in sight? This morning's LA Times includes this story about Oakland, which may show the way.

Jeff Wilcox lopes across the nearly empty parking lot, aiming for a large brick building. Inside, he excitedly shows off the cavernous space, once used to make wire, vacant now for a decade. He imagines it running 24/7, filled with glowing lights, gurgling irrigation systems, whirling ventilators and workers coaxing thousands of pungent marijuana plants to bud.

And that's just one part of his proposal. Wilcox, a retired builder, owns a campus of aging, idled industrial plants. On a wall in an unused conference room, a sketch of the property shows how he could fill most of the 172,000 square feet with growers raising high-end pot and entrepreneurs turning out brownies, drinks, tinctures and other products.

"My idea was a business park of cannabis," he said.

The story mentions support from Oakland City officials. Just marry industrial policy to local government budget shortfalls to pot policy reform.

Cutting edges

Most teachers of introductory economics ("Econ 101") touch on price discrimination practices and also on copyright controversies. But I did not know that in the "real world" these are joined. And the inevitable litigation has implications for eBay, garage sales and your local public library. Today's WSJ includes this column by Eric Felten. Here is the story:

Omega, you see, sells its watches for far less money in some countries than in others, a common enough practice known to economists as "geographical price discrimination." The U.S. market will generally bear more than the market in a Latin American republic, and so Omega offers its goods to distributors in places such as Paraguay for less than it does to American distributors.

Which is where the grey market comes in. Given the difference in prices, there is a tempting arbitrage opportunity in importing Omega watches from Paraguay to the U.S. It is just such watches that Costco bought from a stateside importer, allowing the warehouse store to offer an Omega Seamaster for $1,299 when the brand preferred them sold in the U.S. for $1,999.

Omega eventually sued, after some savvy planning. The company couldn't complain that Costco was peddling fakes—the watches were authentic goods. Nor did U.S. trademark law give the Swiss company the power it needed to block the sales. And so Omega crafted a copyright strategy. They fashioned a small globe logo and copyrighted the device in the U.S. By engraving the tiny logo on the back of the watch, Omega could claim that it created a copyright in the watch as a whole, one that would give the company more control over when and where the watches are sold.

The appeals court ultimately agreed with Omega, and in so doing limited a long-standing principle of U.S. law known as the "first sale doctrine." The doctrine holds that, once a copyright holder sells a copy of his work, he loses any say in what the buyer can do with that particular copy. That doesn't mean making extra copies—by buying a book I don't gain the right to publish a new edition of it. But I can turn around and sell my copy of that book to whomever I choose without having to acquire the permission of the copyright holder.

The appeals judges decided that, since the first sale of the Omega watches in question happened outside of the U.S., America's first-sale doctrine doesn't apply. It is a small technicality that, in a global economy, could have large implications.

Constrain the first-sale doctrine and you throw a wrench into the business of used-book stores, garage sales (including the electronic garage sale that is eBay), and any and every sort of secondhand shop. And yes, even public libraries might find themselves facing the challenge of figuring out which books on the stacks were first sold in the U.S., and which were first sold abroad.

No doubt Omega was smart to turn to copyright law, given what an increasingly powerful tool it is. The number of years copyright lasts has been repeatedly lengthened, and juries have been known to hand down fines in the millions for illegally downloading a few dozen songs.

Fancy wristwatches are peculiar international signals of status. This is increasingly exposed for what it is because wearers of an Omega Seamaster are ever more likely to be carrying a smart phone that tells time (and much more). While there are cutting edge folks designing and building ever finer smart phones, there are also cutting edge lawyers watching out for the brands and the profits of the much more traditional companies.

Awful rules trump great subway

Once people have enough money to buy a car, they will. And when there are enough such people, traffic congestion will be pretty awful -- even when there is substantial public transit. (This is so unless roads are properly priced.) Moscow's pride-of-Stalin subway is only second in the world to Tokyo's in terms of passenger volume. And this was useful in impoverished Soviet days. But a measure of prosperity ended that. Details in this week's New Yorker (abstract here; rest is gated).

But the modern Moscow touch makes a bad situation much worse. The rules of the road are missing. Both law enforcement and driver etiquette leave much to be desired. Awful (or no) rules trump a great subway.

UPDATE

How about Beijing? H/T Craig Newmark

Before Earth Day

David Leonhardt writes about global warming and cap-and-trade politics in the context of the Ehrlich-Simon debate and wager. I always like to see the E-S bet make it to public discussion, but here is Leonhardt's concern that E-S is not relevant when it comes to global warming:

But global warming is different. The fact that carbon emissions are warming the planet doesn’t make it more expensive to produce those emissions. So companies do not have an ever-increasing incentive to emit less — the way they would if the problem were, say, a lack of oil. Global warming doesn’t solve itself the way that resource scarcity does.

But richer is cleaner. The clincher is that richer predicts greater longevity.

Absent unforeseeable calamities, our successors will be richer and they will laugh at the idea that we made long run forecasts that included impossible-to-predict technological change and that we used these to justify policies that could well impede progress. From burning wood to burning coal to oil to gas to who-knows-what, there is a trend. Cars are cleaner than horses. Considering just the air they breathe and the water they drink, most office workers would not trade for the farm or mine or factory work of their grandfathers.

And most of these improvements came before Earth Day and the EPA.

More on rail transit in America

Cato's Randal O'Toole has assembled data for a cross-section of U.S. rail transit lines and cannot find any good news. Here is the abstract of his paper.

Over the past four decades, American cities
have spent close to $100 billion constructing rail
transit systems, and many billions more operating
those systems. The agencies that spend taxpayer
dollars building these lines almost invariably call
them successful even when they go an average of
40 percent over budget and, in many cases, carry an
insignificant number of riders. The people who
rarely or never ride these lines but still have to pay
for them should ask, “How do you define success?”
This Policy Analysis uses the latest government
data on scores of rail transit systems to
evaluate the systems’ value and usefulness to the
public using six different tests:

• Profitability: Do rail fares cover operating
costs?
• Ridership: Do new rail lines significantly
increase transit ridership?
• Cost-Effectiveness: Are new rail lines less
expensive to operate than buses providing
service at similar frequencies and speeds?
• The “Cable Car” Test: Do rail lines perform
as well as or better than cable cars, the oldest
and most expensive form of mechanized
land-based transportation?
•The Economic Development Test: Do new rail
lines truly stimulate economic development?
• The Transportation Network Test: Do rail
lines add to or place stresses upon existing
transportation networks?

No system passes all of these tests, and in fact few
of them pass any of the tests at all.

Paige Elise Kolesar helped me augment Randal's data. In particular, we added auto external cost estimates from a recent American Economic Review paper by Ian Parry and Ken Small. According to these authors, such costs are in the range of 6 cents/mile (off-peak, Washington, DC) to 31 cents/mile (peak, Los Angeles). We also used Tom Rubin's estimate of how many rail riders are new-to-transit (median near 25%) and asked: What if all of them had substituted away from their cars?

The annualized values allowed us to compute costs (losses) per boarding after non-rider benefits as well as fares had been counted on the plus side of the ledger. The results for eight commuter rail lines were $19.50 per boarding (weighted average; almost $40 per round-trip); for six heavy rail projects, the comparable weighted averages were $8 and $16. For 20 light rail projects, $9 and $18.

These numbers speak for themselves and simply update suspicions that anyone who bothers to look at the data has long held. Of course, none of this makes a whit of difference to the many who know that we "need" to build many more such projects.

I am shocked!

Someone will say that you cannot make this stuff up.

Mass. Sen. Kerry docks yacht in RI, saving $500K

(AP) – 1 day ago

BOSTON — Massachusetts Sen. John Kerry is docking his family's new $7 million yacht in neighboring Rhode Island, allowing him to avoid paying roughly $500,000 in taxes to the cash-strapped Bay State.

If the "Isabel" were kept at the 2008 Democratic presidential nominee's summer vacation home on Nantucket, or in Boston Harbor near his city residence, he would be liable for $437,500 in one-time sales tax. He would also have to pay $70,000 in annual excise taxes.

Rhode Island repealed those taxes in 1993. That has made the state something of a nautical tax haven.

Kerry spokesman David Wade said Friday the boat is being kept at Newport Shipyard not to evade taxes, but "for long-term maintenance, upkeep and charter purposes."

Wade noted the vessel was designed by Rhode Island boat designer Ted Fontaine and purchased in the state. It was built in New Zealand by Friendship Yachts.

A Department of Revenue spokesman said Kerry would be liable for Massachusetts taxes if he berthed the boat in the Bay State within six months of its purchase. If the "Isabel" were brought to Massachusetts after that period, the state would have to decide if it wanted to pursue the taxes.

Massachusetts, like most other states, has been grappling with plunging tax revenues. Last year's budget decifict was $600 million, and officials are bracing for a $1 billion deficit this year.

The 76-foot sloop has two cabins, a pilot house fitted with a wet bar and cold wine storage, according to the Boston Herald, which first reported its Rhode Island berthing. It derives its moniker from the middle name of Kerry's mother and the name his wife, Teresa Heinz, planned to give a daughter.

Instead, she had three sons.

Coast Guard registration records show the vessel is owned by Great Point LLC, a limited liability corporation based in Pittsburgh, Heinz's longtime home. The millionaire heiress to the Heinz ketchup fortune is a philanthropist and environmentalist.

HT: Ross Selvidge, who cites the wisdom of Leona Helmsley.

UPDATE

Bob Higgs explains.

20-year anniversary

Calling attention to the bad fit between rail transit and modern cities gets tiring. But the Los Angeles MTA has now been in the rail transit business for 20 years and has nothing to show in the way of net transit ridership gains. But they can show that they have spent about $8-billion trying. Here is an update.

Note that the only way to add this much rail capacity without any net gain in ridership (while the county grew in population by more than one-million, mostly at the low-income immigrant end) is to reduce bus capacity. But rail offers a higher quality of service. Not exactly. If it were so, there would have been ridership growth.

How deep will the hole be in another ten, twenty years?

"Pricing for the guilt-ridden"?

Pigou Club economists like a carbon tax. Various politicians want cap-and-trade. Public choice economists worry that either one would be politicized and (perhaps) no policy is the best policy. Yesterday's post suggested that the Environmental Kuznets Curve is likely to kick in anyway.

Speaking of the real world, today's WSJ includes "How Green Is My Sneaker?" which mentions an Eco-Index that various manufacturers are developing. Information is always a good thing. But price discrimination is also in play. And why not? I believe that Tim Harford (or someone; apologies if I got it wrong) once described "pricing for the guilt-ridden."

Inconvenient truth?

Wendell Cox links to a European study which reveals that the US leads the world in greenhouse gas emissions reduction.

I imagine that not a single environmentalist would agree that we are doing enough. We are widely believed to be unenlightened laggards. So what is going on? Are we on the right side of the Environmental Kuznets Curve? There are many who would say we are (see here and here and here).

There will, of course, be many to argue that we can do much better. But that's the controversy. What would be the net effect of the various proposals that might make their way through Congress? We got to where we are (the right-hand side of the EKC) not because of inspired environmental policies, but because we found ways to get rich. Richer is apparently cleaner.

Sounds like a very inconvenient truth.

Pirates feeding beasts

Monty Python may have suggested that it it best to "tax all foreigners living abroad," but James S. Henry has has actually come up with the details. Writing in the July 19, 2010, Forbes, he says: "There is at least $15 trillion in private wealth sitting offshore. Let's tax it." (not available at the Forbes site). Here is how Henry would get it done:

"The pile of offshore anonymous loot is now large enough so that even a very modest 0.5% wealth tax would yield at least $75 billion a year. ... The majority of offshore wealth is managed by 50 banks." All of them have known addresses in places like NYC, London, Amsterdam, Zurich, Geneva, Frankfurt, Paris. "These highly visible institutions should be required to withhold a modest 0.5% annual tax, collected quarterly, on the value of their clients' assets. ... Only anonymous wealth should be taxed. If the beneficial owners can show that they're paying taxes on their offshore assets back home, they can claim rebates. Most will just pay up."

Two problems. First, the new taxpayers will not remain sitting ducks for long. They will refine their money laundering. Second, new revenues may just "feed the beast." But that's an old story. I prefer Henry's plan to all the others that I see coming down the pike.

More history lessons

This morning's NY Times includes "Women's Role in Holocaust May Exceed Old Notions .. Research Finds Greater Female Involvement." As if the Holocaust were not awful enough, I suppose one might have hoped that women would not sink as low as men. The new research evokes the argument of Daniel Goldhagen -- that quite ordinary Germans participated in mass murder.

There have been other holocausts and atrocities, but Germany had once been thought to exemplify a higher standard. It is exactly that idea which is examined in an accompanying book review of The German Genius (which goes on the ever growing to-read list). "By 1900, nearly everyone agreed that there was something special about Germans. Their philosophy was more profound -- to a fault. So was their music. Their scientists and engineers were clearly the best. Their soldiers were unmatched." Reviewer Brian Ladd mentions that Nazi propagandists and sympathizers hijacked this view for their own ends. But, "... the educated middle class was too weak to stop Hitler ... it abdicated its responsibility to do so and .. its antipolitical ideals taught a nation to welcome a charlatan's promises of a redemptive community."

As awful as all this is, my impression after several visits to Germany, is that today's Germans have learned from their history.

Why the gab fests?

In an Economist review of John Calvert's Sayyid Qutb and the Origins of Radical Islamism (which I have not read), the reviewer mentions Qutb's two years in the U.S. and notes that many have wondered whether that stay ("the sight of scantily clad women on the dance floors of Greely, Colorado") helped to radicalize him.

Yesterday's WSJ included "Exporting Broadway" which mentioned the popularity of Fiddler on the Roof ("The late Hisaya Morishige played Tevye 900 times over two decades") in Japan and Mary Poppins in the Netherlands (among many others).

Modernity has allure and American culture has been a huge export, probably since jazz and the early movies of the 1920s and 1930s. For some reason, I get "alerts" on the many conferences on "Globalization" around the world. I suppose that international gab fests are a fixture, but globalization will be and will be on its terms, no matter how many conferences or how much hand wringing.

These are worth looking at

On economic development.

On economic thinking.

Medical care.

Baptists and Bootleggers gone wild.

Never so simple.

Very good news.

Deficits.

Not so clean and green

It's a sure bet that federal income tax rates will soon go up. This will incite the usual debates re elasticities: will higher rates mean higher tax revenues?

Elasticities, of course, matter everywhere. This includes whether or not low-carbon ("clean") energy subsidies have the desired effects. This paper (may be gated, but guest access is usually available) by Emma Hutchinson, Peter W. Kennedy and Cristina Martinez suggests that under reasonable assumptions, subsidies of low-carbon emissions can have perverse effects. Here is the abstract,

We show that a production subsidy to low-carbon energy can have a perverse effect on emissions. The subsidy causes a shift in the composition of production towards the cleaner energy, but it also causes an offsetting consumption effect: energy consumption rises because the subsidy causes the equilibrium price of energy to fall. The net effect on emissions can be positive if the low-carbon energy is not significantly cleaner than the high-carbon energy it displaces. We derive
a necessary and sufficient condition for this perverse effect in the context of a competitive energy market. We calibrate an example for an ethanol subsidy in the U.S. and find that this policy is likely to cause an increase in carbon emissions for most plausible parameter values.

Not necessarily clean and green.

Go figure

"Pigou Club" or cap-and-trade? Is it moot because either can easily be politicized? The Obama Administration apparently wants a carbon-dioxide cap-and-trade law, but it's EPA is apparently undermining the existing (and by all accounts somewhat successful) sulfur-dioxide cap-and-trade. Read this.

Coming to a restaurant near you?

Paul, the octopus, is (for all we know) six-for-six in his World Cup picks. This is much better than most of us. The other Paul (Paul Bloom) writes about "essentialism" and all of the episodes that reveal our enjoyment of (and our bids for) artifacts that are "genuine" or that have been touched by the rich and famous. He wonders whether this is adaptive behavior or just a Spandrel. I enjoyed the book, but am not yet convinced of either side of the argument.

But never mind. Octopus appears on the menus of many fine restaurants and I am waiting to hear about the bidding for Paul (the octopus). Paul (the author) mentions that many cannibals are inspired by the idea that they inherit the qualities of the people they partake of.

UPDATE

The New Yorker has this long piece on the challenges of authentication. Score one more for Paul Bloom.

One more sport

I suppose that it's inevitable that discussions of the World Cup and soccer elicit political commentary. Hendrik Hertzberg does this in the July New Yorker. The Bryan Curtis-Eve Fairbanks discussion on bloggingheads.tv also covers this ground.

But the musings can get into the overreach area. For example, what is "socialist" about soccer? Marc Thiessen tries to make that case. I disagree. What the soccer players do on the field (the pitch) is much more improvisation than scripted. It is the opposite for American football, which is very much scripted (check out the quarterback consulting his wristband)-- and gets really interesting and spontaneous when there is a broken play.

Americans are different in that they have many sports and many entertainments to chose from. The commentators are adding their own sport to a crowded plate.

The smart set

On yesterday's Bloggingheads.tv, Brad DeLong argued for more federal stimulus because it is affordable because the long-term budget picture is OK over the next 75 years because of the new health care regime -- if Congress sticks to pay-go for 75 years.

In today's NY Times, Christopher Edley argues for Federal government advances of matching funds to the states when a state runs into fiscal trouble. Here is the punch-line:

What would this cost the federal government? Nothing. There would be zero risk of default, and a guarantee of full repayment plus interest equal to what Treasury pays in the bond markets to borrow. Congress would need only to appropriate the administrative costs of this program, which would be minimal.

Both opinions bank on credible commitments from politicians. If there is an anti-Washington tug among the voters of both parties it is because such credibility is now very low.

I do not believe that either of these gentlemen is a tea party plant. But they do provide fodder for those who wonder about the programs and policies being suggested by the smart set.

UPDATE

It appears that the Massacusetts health care reform is costing much more than proponents had promised.

The New Yorker's view of the world?

Today's WSJ, includes Joel Kotkin's "The Myth of the Back-to-the-City Migration". Many commentators live and/or work in Manhattan and cannot imagine that they are the outliers. Many others have not yet accepted the auto-oriented city -- which is here to stay. Still others cannot imagine that the suburbs offer enough in the way of "density" in various "sub-centers" to fulfill urban areas' role in providing all of the agglomeration benefits and opportunities.

It's akin to high-speed rail, rail transit, downtown convention centers and sports stadia, transit-oriented development, and many variants. One side of the brain (if brains actually have sides) says, "get used to it." The other side says, "this is waste, fraud, and even occasional theft."

I suppose this is why they have Tylenol.

One can never know enough history

I guess there were wheels in the Americas before the Europeans arrived. These people say so and they point to evidence of toys with wheels that archeologists have found in the Americas.

I went searching because there is no mention of wheels in Nathan Nunn and Nancy Qian's "The Columbian Exchange: A History of Disease, Food and Ideas." In any case, their research is fascinating. If you are enjoying globalization via the World Cup (or at your local restaurant), read their paper. Then read Charles Mann's 1491.

The more things change?

Today's auto-oriented cities are very different from pre-automobile cities. The internet has also changed our lives in many ways, but where is the physical evidence in our cities? Perhaps it's too soon to tell or perhaps very old decentralization trends have simply been reinforced. (And on flimsy evidence, some have even suggested that these trends have been weakened and/or reversed. But see here for some perspective.)

The Economist's Economics focus column mentions a recently published paper in the Economic Journal which describes the many survivors of the e-commerce revolution. Harvard Square (among others) is still populated by shops that involve old fashioned physical attendance.

And look at all those people seeking an internet connection at a public place (e.g., Starbucks and many others) when they already have one at home.

City lists

Here is FT's 2010 list of "Top 25" cities. Most people object to lists and rankings but peek at them anyway. Healthy voyeurism?

There are many potshots that one can think of. But if there are going to be city rankings, how about two lists? "Best" to visit vs. "best" to live in? Visitors can stay near historic centers where many locals would not really want to live. There are many cities that would score much higher on one such list than the other. The living vs visiting experiences are vastly different.

Best to visit and/or live in with vs. without young children? Work or retire? Less than one year vs. longer? With or without significant funds? One could go on.

Listen to the micro

In a better world, markets would trump politics and labor would migrate to its highest and best uses. But that is unlikely to happen and Gary Becker suggests how enlightened politicians (???) could or would manage immigration policy in seemingly rational ways. This week's Economist summarizes the strengths and weaknesses of the proposal here.

As so often happens when prohibitions replace markets, we get black markets, criminality and horrid human outcomes, including exploitation and in this case even enslavement.

Becker's proposed immigration market means new sources of revenue. He notes that $50,000 per immigrant means $50 billion for each million immigrants admitted. In the world of political pork, there ought to be ways to divvy up these proceeds to elicit some political interest.

At a time when macro-economists are routinely beaten over the head right and left, how about some attention to what the micro-economists are suggesting?

Some call it "sprawl"

Wendell Cox has been doing a fine job checking the various claims that "the cities are back." Today's WSJ includes "Suburb Population Growth Slows" which cites a recent Brooking study of 2008-2009 population growth in the top 100 cities (not metro areas). The report suggests that recession-year residential moves are down.

But the boundary issues again muddy some of the picture. Five of the top-ten (by population) cities that grew faster than the national average over the 12 months involved here are very spread out. Some would say that they "sprawl". The cities Houston, Phoenix, San Antonio, Dallas and San Jose cover huge areas (average 400 square miles) that include neighborhoods that many of us would think of as suburban.

Best Blogs for Civil Engineers

Betty Jones let me know that I am included in 50 Best Blogs for Civil Engineers. Thank you!

The trouble with averages

Higher urban densities are almost a Holy Grail among many urban planners and urban economists. But as I may have said before, because of data limitations we usually take these measures over areas that are too large and varied for the averages to be useful.

The PUMS areas (PUMAs) are smaller and closer in size to what we would call a neighborhood. There are just over 2,000 of them in the U.S. that are within metro areas; these 2000+ had an average population just over 139,000 in 2005.

Trouble is that as of now, there are only data for these areas for the years 2005-2008. In that interval, many areas became denser and many became less dense. The relationship between initial density and increased densification was very weak (very complex) with a correlation of less than -0.10.

Some would say that the benefits of density are clear and the dense should/would become even denser. This is apparently not what's going on.

We will know more once we get results from the 2010 census, but only if we stop discussing city-wide or metro area-wide averages.

No one embarrassed

The WSJ's Laura Saunders writes that Roth IRAs may be eventually be taxed. Governments "need" the money.

I have a much better idea. Tax all conspiracy allegations. Here are two places to send the tax collector.

This morning, NPR included an interview with Dan Schorr in which he patiently explained to Scott Simon that we, after 40 years of talk, are still "addicted to oil" because various moneyed interests want it that way. Not a shred or even a mention of evidence-shmevidence.

Same thing last night on the PBS Evening News, when Jeffrey Brown interviewed Daniel Weiss and Kenneth Green on energy policy. Daniel Weiss floated the same conspiracy idea.

Ken Green had a witty retort. But just like high-brow-NPR, high-brow-PBS goes with the flow and accepts conspiracy-silliness-with-no-evidence because it goes down well. No one is embarrassed.

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.