Public choice and anti-trust

I was critical of the Justice Department's worry over a possible beer duopoly in this recent post. The NY Times', Adam Davidson is way ahead of me in this story from last Sunday. Here are his numbers:

Every day, the Web site BeerPulse tries to list every single new beer available in the United States. And that’s harder than you might imagine. Recently, the site posted Cigar City’s Jamonera Belgian-style Porter, Odell Tree Shaker Imperial Peach IPA, as well as a rye lager, a cherry blossom lager and a barley wine. And the list goes on, and on. In 1978, there were 89 breweries in the United States; at the beginning of this year, there were 2,336, with an average of one new brewery per day. Most of them are tiny, but a handful, like Sam Adams and Sierra Nevada, have become large national brands. At the same time, sales of Budweiser in the United States have dropped for 25 consecutive years.

But we have to be careful. Luigi Zingales, in his very enjoyable Capitalism for the People, makes a public choice argument in favor of anti-trust.  It is part of his attack on crony capitalism.  He writes, "Yet the most powerful argument in favor of anti-trust law is one that is rarely made: anti-trust law reduces the political power of firms" (p. 38).  The big merged units more easily have their way in Washington, DC.

This is surely not the motivation of the Department of Justice, but it is also worth thinking about.

Over the top

Alain Bertaud has famously compared Atlanta to Barcelona. They are similar in population size but vastly different in the way of spatial settlement patterns. He finds that Atlanta can never achieve the kind of transit service that Barcelona has.

Barcelona’s metro network is 99 kilometers long and 60% of the population lives at less than 600 meters from a metro station. Atlanta’s metro network is 74 km long – not so different from Barcelona – but only 4% of the population live within 800 meters from a metro station! Predictably, in Atlanta only 4.5% of trips are made by transit vs. 30% in metropolitan Barcelona.

Suppose that the city of Atlanta would want to provide its population with the same metro accessibility as Barcelona does (60% of the population within 600 meter from a metro station), it would then have to build an additional 3,400 kilometers of metro tracks and about 2,800 new metro stations. This enormous new investment will allow Atlanta metro to potentially transport the same number of people that Barcelona does with only 99 kilometers of tracks and 136 stations!

The example above illustrates the constraint that low density imposes on the

operation of transit. I have been comparing metro track length and stations but a comparison between bus lines length and number of bus stops in Barcelona and Atlanta would have given the same results. With its low density of 6 people per hectare – compared to Barcelona 171 p/ha – Atlanta would have difficulties developing a viable form of transit, i.e. a transit system that is convenient for the consumer and financially viable for the operator.

In the case of Atlanta, the very low density precludes developing transit as an alternative transport to the automobile. “Encouraging” higher density, as many reports are fond of recommending, is not feasible either. To reach the 30 p/ha threshold over a period of 20 years, assuming that the historical population growth rate of 2.7% per year continues uninterrupted, the current built- up area would have to shrink by 67 %. In other words, about 67% of the existing real estate stock would has to be destroyed, the land over which it lays has to revert to nature and its population and jobs have to be moved into the 33% of the city which would remain.

The example of Atlanta shows how existing spatial structure constrain the number of alternative strategies available to guide a city development. The lack of spatial analysis often leads to recommending unfeasible strategies.

The Los Angeles urbanized area (according to the 2000 U.S census) covers 1668 square miles, a little less than Atlanta's 1963 square miles. But Bertrand's analysis should confirm that, like Atlanta, LA is not a transit city. Thousands of miles of new track and thousands of new transit stations are not in our future.  A rump system is pointless.

But the dream persists. Today's LA Times includes "Los Angeles' major public spaces remain broken works in progress."  Among the writer's big concerns is the worry that we may never get the famous "subway to the sea" (from downtown LA, west).  "When it comes to transportation in Los Angeles, no dream has remained as stubbornly out of reach as a subway to the sea along Wilshire Boulevard."  In fact all the complaints in the article involve the theme that Angelenos have been slow to make progress becoming Paris-like or NYC-like. Not kidding.  Here is the writer: "If the subway to the sea is an expensive dream worth sticking with, the same can't be said of the city's fantasies of turning Grand Avenue into our Fifth Avenue or Champs-Élysées." New York-envy or Paris-envy as public policy.
The front-page story is part of the Times' contribution to the current mayoral race. Not many people read the LA Times these days, but the sentiment is strong among those who talk and vote in LA.

And some of us thought that sequester-doomsday talk was over-the-top. 

Food and profit

Most NY Times readers have pretty good lives because they live in a world where sellers' interests and buyers' interests can be aligned.  It is a sweet spot that business people spend their lives seeking.  Writing in last Sunday's NY Times Magazine, Michael Moss ("How the processed food industry creates the crave") has another view.  He investigated how food industry people work to find the "bliss point".  He refers to foods that consumers like and that are profitable for producers.

The creation of cheap calories can also be seen as a great success for science and market.  Our ancestors worried about famine and death by starvation.  But Moss and many like him are not happy.

I do not know if there is any science to food "addiction".  I do know that self-control is hard for many.  But I prefer a world where we all live with our own demons.

We get nannyism because many prefer that world (e.g., Michael Bloomberg and many others). When pressed, they trot out externalities arguments. There may be second-hand smoke health hazards but most of us can find ways to steer clear.  Private owners of common area spaces can easily figure out what kind of atmosphere their customers prefer.  The externalities argument from obesity-health problems exists because we are not allowed to live in a world where insurance pools and insured can select and court each other.

Finally, I do not worry about Bloomberg's wealth but Moss and many others surely keep an eye on their 401k balances.  In fact, the mantra is that most of us are too skittish about stocks; too skittish, we trade too much.  I will never know how people can be so dismissive of profit-seeking in general but so keenly interested in the profits they earn.

ADDED

Speaking of sweet spots, Craig Newark sends news of Lay's Chicken and Waffle chips.

Michelle Obama writes about healthy sweet spots and how "we" can help businesses discover them.

Hollywood

Mary Theroux explains why she thinks that the recent "Oscars" ceremony was one big Hollywood-Democratic party lovefest.  But are we suprised?  Both groups are seemingly convinced that they have a corner on "fairness".  Both groups believe that by being redistributionists they are on the side of the angels.  Both groups believe that crony capitalism is practiced by everyone but them.  Both groups believe that everyone else is boorish and that they are not.  With so much in common, how could there not be all the public display of affection?

Interesting that Amy Davidson of the New Yorker finds plenty of boorishness on her side.  Read her "Seth MacFarlane and the Oscars’ Hostile, Ugly, Sexist Night."

ADDED

Economist Dave Berri ("An Economist on the Oscars") notes that the best movie of the year was actually Marvel's The Avengers (H/T Freakonomics) -- when judged by 2012 revenues.  Without defending the Academy's choices, can it be that consumer sovereignty falls flat when it comes to artistic virtue?  Of course.  Both are worthy.

Telecommuting and networking

USAToday reports that Yahoo employees will have to work at the office ("Ban on working at home goes against trend").  No more telecommuting. "Yahoo's decision is meant to foster collaboration, according to a company memo sent to employees Friday."

I have mentioned networking often at this blog.  Whereas most of urban economics is focused on commuting and residential location equilibrium, most people make location choices much more complex than journey-to-work-based.

In fact, firms as well as individuals seek locations from which they can manage the various networks that matter to them.  We network from home and at the office.  We network face-to-face, via auto access, via long distance travel and electronically.  We look for places and situations that help us to manage the various networks that matter in our lives.

Firms also manage many networks; they look for locations from which they can do this best.  Firms manage supply chains for goods as well as information.  Individuals manage supply chains for ideas.

The musical chairs that people and firms do as they seek to manage all of their networks gives us the cities we have.  This is all subject to the forces of history and some lock-in effects.  This is why there are no "good" or "bad" city densities.  Rather, there are complex patterns that emerge -- if we let them.

Back to the Yahoo story.  The "best" way to arrange the various networks that matter involves a dynamic process of discovery.  Is Yahoo's new policy re teleocmmuting a good idea or not?  They (and we) will have to see.

Where are the smarts?

David King alerts me to the "Strong Towns" website, in particular, this "orderly but dumb" discussion, where the writer evokes the contrast with the preferred "chaotic but smart."  But who is being smart?

I have been wary of policy makers who arrogate "smart" to their approach because it usually reveals amazing hubris.  "Smart growth" has been city planner's favorite for for some years.  You  must wonder about the unintended irony.  Hillary Clinton would campaign against Republican foreign policy by invoking the prospect of "smart power."  Who can resist that?

Hayek's "The Use of Knowledge in Society" bears a theme that is wise and also studiously avoided by those who could use the message the most. It is their kryptonite.

Alain Renaud was the keynote at the USC Lusk Center's Rena Sivitanidou Annual Research Symposium last week.  He spoke about "Urban Structures, Markets, and Mobility."  Alain presented an amazing amount of data from major cities around the world.  He referred to the "new proletariat." These are people who commute more than one hour each way.  There are many large cities with many such people.  But look at the U.S. data from the ACS.  What proportion of Americans commute longer than 90 minutes (the ACS cut-off). Less than 2.5%. Only 8% report more than 60 minutes.

How did we achieve this benign result in a world of second-best? Policy makers are still wary of proper road pricing. But workers and employers are well aware that it is in their interests to avoid expensive commutes and try to locate accordingly -- when and if we let them.  They are being "smart", as we expect them to be.

Im Possible

Here is on of my favorite Jane Jacobs quotes: “Their intricate order – a manifestation of the freedom of countless numbers of people to make and carry out countless plans – is in many ways a wonder" italics mine.  She got cities better than anyone.

Here is the NY Times' report of the NYU smart cities project.  Big data can be a wonderful thing but I try to digest the Times' report alongside what I read daily happens in Los Angeles' city hall (and many others).

Big and little data on how big money for big transit has paid off for U.S. cities have been around for a long time.  But no one in city hall seems to think that this matters.  City hall is run by interest groups and I wonder if big data will make the policies we get smart.

But back to Jacobs.  The plans that matter most are the plans that people have -- for their businesses, their families, their groups, etc.  Markets are known to coordinate an uncountable number of plans.  So it is with land markets -- if an only if we allow them to be flexible enough.  But our experience has been that big data often gives top-down planners the impression that they know better.  As Sam Goldwyn used to say,  I have two words, "Im Possible." 

Running things

Here is a nightmare:  You own or manage a large (or not so large) business or organization.  How do you manage all of the people involved? How do you incentivize and monitor them? How can you be reasonably sure they are all "on the same page"? How do you manage all of the various transactions costs involved?

Business schools have been teaching classes that mull these challenges for many years.  Ronald Coase famously brought these problems to the attention of economists. The firm is no longer a "black box" that can be adequately described as the challenge of equating marginal this to marginal that to marginal something else.

The variety of actual rules in play is much more complex and much more interesting. Ray Fisman and Tim Sullivan provide a very readable tour of the problems and approaches in The Org: The Underlying Logic of the Office.

 

Where are the happy and the sad?

Big Data, like everything else, will not be an unmixed blessing.  David Brooks elaborates here.  A subset of Big Data is happiness data, and a subset of that involves the geography of happiness. Now there is twitter-based geography of happiness data (hat tip TMG).

The freedom to pursue happiness is a wonderful thing. But the advice of where and how to do it has morphed with the self-improvement genre.  Endless demand and, therefore, supply. Cosmo and Playboy (and such) feasted on offering a steady stream of advice on how to catch (and satisfy) that man or woman.

Unlike slippery happiness, being good is within almost everyone's reach.  In fact, it may even make one happy.   

Economists have good stories

Economists have good stories.  They have theory, math and econometrics, but they also have good stories.  Pietra Rivoli's The Travels of a T-Shirt in the Global Economy (2nd ed.; I am late to the party again) is a superb story. It is one thing to mention supply chains, it is another thing to think about them for a few minutes (I, Pencil) but it is still another thing to follow cotton from Texas cotton field to manufacturer (usually abroad) to U.S. stores and consumers and then to the Tanzania rag trade. Along the way Rivoli tries to disabuse some Georgetown University student activists of the morality tales on which they build anti-globalization protests.

Here is the start of Chapter 13, "Where T-shirts go after the Salvation Army bin ... In the wealthy and normally well-mannered Washington suburb of Bethesda, Maryland, the competition is heating up.  It is a Saturday morning and soccer moms are in a race to throw things away." The truck fills up and leaves before the moms are finished.  Rivoli also mentions that the moms shop for new shirts on the same trip at the same mall where they encounter the Salvation Army truck. "It is easy to see the simple dynamic of secondhand T-shirts in a wealthy U.S. suburb, all supply and no demand" (p. 216).

"My T-shirt story, then, is not a tale of Adam Smith's market forces, but instead a tale of Karl Polanyi's double movement, in which market forces on the one hand meet demands for protection on the other" (p. 255).

No theory without data; no data without theory. But included in the data, there must be the good stories too.

Media bias?

To his great credit, Pres Obama spoke about the problems of families, the lack of fathers, in Chicago and how that contributes to gangs and gun crime.

But as he made clear in Chicago it will take improvements in the home environment for children to keep them off the streets and that this will require help from parents, teachers and clergy.

"When a child opens fire on another child, there is a hole in that child's heart that government can't fill," Obama said. (Reuters)

He went on to cite the lack of fathers in too many homes. But the PBS Evening News (and all the other coverage I saw), to their great discredit, only heard and reported Obama's call for gun control legislation.  But Chicago already has some of the toughest gun controls.  An alert audience would have been wary of the gun control message in the midst of the murder sprees there.  An alert audience would also have noticed that the President acknowledged that there are serious cultural problems. More gun control chestnuts only divert attention from the hard problems.

It's not "media bias".  It is worse.

ADDED

To be clear, is it conscious filtering or unconscious filtering?  I fear it is the latter.

Smart libertarian guy meets smart occupy lady

I have often mentioned how much I enjoy Russ Roberts' weekly econtalk podcasts.  Russ is smart and a terrific interviewer.  This week he speaks with Cathy O'Neil.  Cathy is a mathematician who had a career doing financial modeling on Wall Street.  She became disenchanted and got active in Occupy Wall Street. 

On how much would you guess these two agree?  In the podcast, my judgment is that they are in agreement about 90% of the time.  It's a subjective judgment by me and the ratio could have changed had they gone on for another hour or so. 

I prefer to think that it is their common denominator of smarts and decency that did the trick.

V-Day love

I am a big fan of modernity and tech.  But there are no unmixed blessings.  There are great robotics and amazing algorithms but there are also stupid ones.  The dummest algorithms are the ones that run the voice-mails we too often get stuck in.  I also wonder about the people who run, manage, install these.  (While I'm ranting, the humans that we are usually directed to if/when we are, are often no better.)

But laughing beats crying.  This morning we are treated to news of Amazon's discovery of America's most romantic city.  Relying on their Big Data, they reveal that it is Knoxville.  Here is the LA Times report where I found the news.

The fun never stops.  When you click on the link, the Times' algorithm sends you to the right story but with the name of the wrong columnist attached -- unless they will have gotten the news and fixed it.

I was wrong, but read it anyway.
On Valentine's Day, you gotta love tech.

Theroux on Plantinga

We are built to spread our memes and genes. It is safe to say that most people also think that they are contributing to a better world along the way. There are old and interesting discussions on whether or not all of this reveals the divine.

I follow these discussions from a distance and so am pleased that David Theroux introduced me to the work of the philosopher Alvin Plantinga here. There are various links prvovided that the interested can pursue.  Thank you, David.

"Duopoly"?

The BevMo chain is all over my part of the world and I suspect that there are many like them across the U.S.  Their site mentions 1,330 beers.

Ths mornings' NY Times includes an editorial that supports Justice Department action against a proposed merger of two beer giants "America's Beer Duopoly".

Together the two companies sell about 46 percent of all beer in the United States and more than 50 percent in big cities like Houston and Los Angeles, according to the department’s antitrust division. The proposed acquisition would leave the country with just two companies — the second being MillerCoors — controlling more than 70 percent of the beer business.

These people do not get competition. We know what happened to Detroits' Big Three automakers and many other industries with seeming concentration.  But that was then.  Apple now has to worry about Samsung and others.  If the "duopoly" with about 70% of beer sales misses a beat, they will be up against more imports, more local craft brewers -- and even the possibility of beer drinkers looking at other alcoholic beverages.

If there really are budget negotiations in Congress, I can think of some lawyers that the Department of Justice should do without. 

Wall Street and Washington

Here are two quotes I have used in teaching.  Ben Bernanke (March, 2006): “Again, I think we are unlikely to see growth being derailed by the housing market.” Paul Samuelson and William Nordhaus (1989): "the Soviet economy is proof that, contrary to what many skeptics had earlier believed, a socialist command economy can function and even thrive." More here. There is also Stiglitz on Fannie Mae. Cue the appropriate Goldwinism.

Yet the Department of Justice is now suing Standard & Poor's for its pre-recession ratings of subprime mortgage securities.  You would think that the decision to take the advice of experts and consultants is inherently risky and a matter of choice -- with plenty of chance for error by the advisor as well as the advisee.  You would be wrong.  This WSJ editorial reminds readers that ratings by sanctioned ratings agencies (including S&P) was a matter of federal (SEC) policy.

There will be emails from S&P staffers ca 2007 revealing that final bond ratings were not as authoritative as their accompanying statements. Adults should know this. The poor performance of actively managed funds is well established. Go your own way.  Or make the choice to buy advice. As long as you have a choice.  Even Dodd-Frank recognized the problem. From the WSJ editorial:

And to this day, more than two years after the Dodd-Frank law ordered their repeal, SEC rules still force institutions to follow the advice of these government-anointed credit raters. Therefore the more appropriate defendant for Monday's lawsuit would be the SEC. But as a modest first step before suing a company for $5 billion, shouldn't the government at least stop mandating its products?

Trading on "inside information" is illegal.  Buying and selling on the advice of "experts" is very risky.  But things can go awry when you-know-who mandates where you go for advice.

ADDED

Here is the NY Times Gretchen Morgenson's "On the Waiting List at the Debt-Rating Club" 

Spatial self-organization

Urban economists have developed (and elaborated) models that show cities are self-organizing spatial units. This was a significant accomplishment. But most of the models are static. Is there evidence of self-organization as cities grow?  What do we know?

Joyce Dargay, Dermot Gately and Martin Sommer have shown that when people join the middle class, practically anywhere, they want a car. This is pretty obvious, but their arguement from data is powerful.  Wendell Cox shows that large cities practically anywhere grow outward.

The two findings fit together and they are ubiquitous.  Does this suggest spatial self-organization over time too?

The sure thing is that there are strong policy differences (towards cities directly or indirectly re gasoline and related taxes) among the places in both studies.  But these differences appear not to make a difference.  Call it spatial self-organization.


 

Coasian economy

Ronald Coase enriched economics by pointing to the importance of transaction costs.  Ngram Viewer shows that the expression was not much used before 1965.

But web and app innovators are just now showing us how modern communications can help us to establish reputation and credibility, thereby reducing transaction costs and creating previously unthought of transaction opportunities.

The current Forbes includes "The Share Economy ... Consumers are building multibillion-dollar marketplaces for sharing cars, homes, bicycles, driveways and tools. In looking for a better deal and extra income, they're reshaping business."

I have been skeptical of the various stagnation theses. Standard GDP accounting does not get at the welfare improvements we get when more of us supply and demand more to/from each other.  A matching problem (transaction costs) is scaled back as we communicate more cheaply, transact more and find economic value in all the idle stuff laying around -- much of it even being stored at high cost.

Help for light rail

Portland's light rail gets about 141,000 boardings per day.  Can it do better?  Here is an innovation that could do the trick.

Babies and the "dirt gap"

Many people want land use controls but also worry about housing affordability.  One cannot have it both ways.  Here is one of many reports that corroborate the simple point.

Today's WSJ includes "America's Baby Bust ... The nation's falling fertility rate is the root cause of many problems ..."  Author Jonathan V. Last makes the case, but ends with various policy proposals that may or may not make a difference.  My guess is may not.  Among them is one that addresses "The Dirt Gap."

A big factor in family formation is the cost of land: It determines not just housing expenses but also the costs of transportation, entertainment, baby sitting, school and pretty much everything else. And while intensely urban areas—Los Angeles, New York, Washington, Chicago—have the highest concentrations of jobs, they come with high land costs. Improving the highway system and boosting opportunities for telecommuting would go a long way in helping families to live in lower-cost areas.

I agree.  But I prefer the maximum of land market flexibility.  As people dream up their preferred networking options, as they discover the mix of physical and electronic attendance they like best for work and for play, and as they have a chance at achieving the preferred mix, family formation could be made a little easier.

Housing affordability problems are often thought of in terms of how they impact the poorest people.  But there is more to it, as Last suggests.

Culture + cheap calories

David Friedman is in Europe and notes the "obesity gap" across the Atlantic. I agree.  It is pretty obvious when you look around in almost any U.S. and then any European city.

Calories are cheaper than ever. Friedman also believes that the are cultural differences that matter. Keep in mind that (like it or not) U.S. culture is sooner or later widely mimiced.

Re cheaper calories, I just read Silent Spring at 50 (edited by Meiners, Desrochers and Morriss).  It's a great read and I learned a bit about "The Second Agricultural Revolution" in Ch 9 of the book.  I also found each of the chapters readable and enlightening.

Today's WSJ includes "For Game Day, Restaurants Throw a Party in a Box ... Clear off the coffee table: For this year's Super Bowl, some fast-food restaurants are promoting mega-meals in giant packages designed to make food the life of the party."  There you have it:  culture + cheap calories.

Curse of oil (Venezuela edition)

The recent New Yorker included a depressing story about life in Hugo Chavez' Caracas ("Slumlord"; only an abstract available here). Politicized allocations are bad enough, but they soon beget thuggishness which makes it much worse. Too many examples are available from around the world to require explanation.

A couple of good friend Venezuelan expats (Tico and Aloha Moreno, now in Florida) sent me this video (and accompanying story in Spanish) about how chickens are distributed (not sold) in Maracaibo. You can tell students all you want about prices rationing on the demand side and eliciting on the supply side, but show them the video first.

We can chuckle from a distance, but these are episodes from the real lives of real people. Today's WSJ includes this essay by Mary Anastasia O'Grady on how oil money allows Chavez to buy just enough votes to keep the show going.

This is "curse of oil" Venezuela edition. One more reason to hope for world oil prices to fall is that it would undermine the Venezulean kleptocracy.

ADDED

Flour

Good guys win one

George Stigler taught us about regulatory capture many years ago.  Regulators are more likely to work on behalf of those they regulate than anyone else.  Public choice economics would ask: how can it be any other way?  Yet, most people are still taught that regulators work for the "public interest."

Exhibit A in this discussion has to be the $1 million price tag for a New York city taxi medallion.  This is the market value of the asset that allows operators to work in a closed market.

Today's WSJ includes Andy Kessler's interview with Uber's Travis Kalanick ("The Transportation Trustbuster ... The co-founder of Uber talks about how he's bringing limo service to the urban masses -- and how he learned to beat the taxi cartel and city hall").

Regulators will always try to curb entrepreneurs, but entrepreneurs will always try to elude (even run circles around) the regulators.  In the modern age of apps and social media, you almost have to feel sorry for the city hall klutzes.  Kalanick was clever enough to find limos with capacity and time on their hands, to note that limos without meters are usually beyond the reach of city regulators who have a lock on metered cabs, and that when pushed, the likes of Kalanick can mobilize the support of customers and fans via social media.  "Operation Rolling Thunder" involved creating a Twitter hashtag (#UberDCLove).  Approximately 50,000 emails and 37,000 tweets followed.  Read the interview for the satisfying result.

This is the latest installment of an old story. The new part is how technology lowers transactions costs, allowing consumers to actually get organized and become politically potent.

ADDED

Matt Mitchell adds the important observation that once past the "velvet rope", Uber had the ability as well as the incentive to work to keep competitors out.

Superb read

For those who heard nothing but thinly disguised political payback in President Barack Obama's speech yesterday, here is a pleasant antidote. Madmen, Intellectuals and Academic Scribblers: The Economic Engine of Political Change (Wayne Leighton and Edward Lopez) is pure joy. The authors remind us that it is ideas that matter. But ideas must be transmitted and turned around and then acted on -- often in a political context.  This is a clear enough thought but the authors give readers a guided tour of the work of the important scribblers, from Plato to Kirzner, elaborating many ideas and providing examles of they were implemented (in recent years by the likes of Daniel Moynihan, Alfred Kahn, Steven Spielberg, Martin Luther King, Jr., and many others).  It's amazing how many ideas are so well discussed in 190 pages.  The authors like enterpreneurs and "political entrepreneurs," many of whom explain ideas and also have a hand in implementation.

Danny Biasone saved the NBA by inventing the shot clock and Norman Borlaug saved a few billion people by inventing a better grain.  Saving people from starvation was an uphill battle with environmentalists and other status quo partisans, but Borlaug persisted. Leighton and Lopez like the thinkers as well as the doers. There is a very nice discussion in Chapter 5 on how ideas are formed via top-down (scribblers) and bottom-up (the culture) interactions.

Mark Blaug's Economic Theory in Retrospect has long been the go-to book to learn about the origins of many key ideas in the field.  I would pair it with Leighton and Lopez.

So many questions

Here are the questions: 1) are retail prices sticky? 2) are we entering a period of price inflation? 3) what are today's wine drinkers using for taste buds? 4) are there signs of an economic recovery? 5) is it time for the Fed's QE (whatever the current number) to end and for the great unwind to begin? 6) do retailers know what they are doing when they set prices? 7) what will Obama II be like? 8) will customers take this without picketing? 9) what will go to the top of lawmakers' agenda? 10) should immigration reform be speeded to bring in more farm labor?

Here is the answer "Trader Joe's 'Two Buck Chuck' now goes for $2.49 a bottle."

Oh, one more question:  Will it last?

Rent control?

Today's NY Times includes "What is middle class in Manhattan"?  The place is expensive for anyone "middle class" -- and has been for some years.

In natural-amenity-rich California, politicians have discovered the "sun tax," whereby they have a freer hand than they would in areas that must work harder to compete for labor and capital.  New York has its cultural amenities.  The analog to the sun tax would be the "cultural amenities tax."

The Times piece mentions New York rent control in passing. "More than 280,000 units — nearly half of Manhattan’s apartment stock — is rent-regulated in some fashion. These apartments are either godsends to those who occupy them, or daggers that twist in the hearts of everyone else, left to pay market rate or compete for the borough’s remaining vacancies — 2.8 percent of the housing stock, as measured in 2011. But 30 percent of the residents of rent-stabilized apartments moved in more than 20 years ago."

But what do we know about cities?  Urban economists emphasize that cities are self-organizing spatial arrangements. Labor and capital migrate to cities if/when/where they expect opportunities (including spatial arrangements) to be productive. Entrepreneurs look for spatial arrangements (including networking opportunities) where they can be inventive/productive. And there is considerable debate over whether these phenomena can gain from non-market guidance. But rent control of half the apartment stock?

Sunk

James Surowiecki has an entertaining piece on sunk costs in this week's New Yorker.  The plain truth that bygones are bygones is often a challenge to teach because, while most people easily get it, there is also the nagging feeling (hope) that bygones are not bygones and perhaps there is a way to redeem past mistakes.

Pick the wrong mate or career path -- and people unable to face facts will often indulge in talk of "I have invested so much in this _______ (person, major, etc.) that I cannot simply walk away now."

But other people do sell their bad investments and business do shut down product lines and more.  Cutting losses is no fun, but better than the alternatives.

Throwing good money after bad is more easily done in the case of government programs because it is other people's money that is at stake.  There are quite a few programs that are total busts (long list here) but that are kept alive (even in the age of trillion dollar federal deficits, unfunded pension liabilities and the like) because with other people's money the rationalizations come easy.  Among the rationalizations is the idea that with so much invested, we cannot simply just walk away.  We have to keep digging and make a deeper whole.

No "good" or "bad" densities

Back-to-the-city stories make the news. There are also reports of continuing suburbanization. But the best stories are about the choices that the great cities offer. 

Today's WSJ includes “Urban Planning: Some firms are choosing Manhattan over Connecticut  … For fledgling hedge funds, Manhattan's skyline is shining a bit brighter these days.  When Chris Hentemann left Bank of America Corp in the summer of 2008 with an eye toward starting his own fund, he hung his shingle in Stamford, Conn. By the time the fund launched that fall, he had moved his firm to Midtown Manhattan. The relocation quadrupled Mr. Hentemann's morning commute from Connecticut, but made it easier on visiting pension-fund managers and other investors who flock to New York to shop for hedge funds. ‘There were enough roadblocks to establishing a new fund that I didn't want to create another’ by being outside Manhattan, Mr. Hentemann says. ‘I can capture that investor that may not have made that trip up to Greenwich, but they had an opening in their schedule an hour before they had to go to JFK to go back to Europe.’"

There are many studies of urban densities that assert "too high" or "too low".  But no one knows which fledgling firms of which new industry will cherish which settings at which prices in future years.  In that case, allow for environments where options can become available. Most locators in settings where goods exchange and/or intellectual exchange with useful counterparts are available at reasonable cost.  Flexibility and openness are best.  Call it "really smart growth."

Handicapping the voters

Explaining the results of elections keeps many people busy. Even harder, most political candidates try to channel constituents' thinking. The Economist (Jan 12) includes "Economists v the rest of America" (graphic shown below).  What stands out?

The biggest response gap is whether "Buy American" is good policy.  About ten percent of the economists quizzed say "yes", but almost 80 percent of the public agree. The political favorite is obvious. 

But the two respondent group are pretty close when it comes to "The benefits of America's 2009 stimulus will exceed the cost."  But look at "America's stimulus lowered the unemployment rate.  Most economists say "yes" but less than half the public agreed. 

There is almost as big a gap for "Changes in U.S. petro prices mainly reflect market factors."  The populist view seemingly sees price rigging.  But what about "It's hard to predict stock prices"? All the economists quizzed agreed, but over half of the public disagreed.  But wouldn't the populist view be that it's just a rigged casino and impossible for the non-insider to predict prices?

Perhaps it's the complexities of the populist view that keeps the candidates guessing.

Good times

The Great Stagnation hypothesis is provocative and timely at this time of negligible-to-slow GDP growth.  Robert Gordon (no relation) takes up the same theme.  To his great credit, Tyler Cowen (at Marginal Revolution) routinely posts "there is no great stagnation" examples as he finds them.

We know that measuring is hard.  GDP and other government accounting involves the challenge of measuirng quality improvements.  And there are quality improvements in our lives as never before.  We know that the next electronic gadget will be better; people replace the ones they have long before they cease to function.  More easily measured is improved longevity -- which most of us admit is a good thing.  My favorite rebuttal to great stagnation involves two words, "medical science".

Somewhere in this discussion, one has to include the stories covered in Patricia Marx's "Outsource yourself: The online way to delegate chores" in the Jan 14 New Yorker.  It is gated, but the abstract offers a good hint on what is going on.  Term paper writing services have (unfortunately) been around a while. But the lower costs of transacting and vetting made possible by the web have multiplied the opportunities -- for buyers as well as sellers.  Marx's long list of examples is wonderful.  For $5, for example, she was able to buy "three very good comments or five okayish comments" on Proust's "Remembrance of Things Past" that she could use at her next dinner party.

Not as momentous as electric power, railroads and jetliners? Of course not. But more time savers will enable more people to devote themselves to solving more tough problems.

ADDED

Much more here from The Economist. 

Just people

James M. Buchanan has died.  Here is an appreciation -- which notes and rues the fact that many young economists have never heard of him.  Robert Higgs' appreciation is here. 

In pointing us to politics without romance, Buchanan made us wiser.  How often do we hear casual conversation that alludes to or includes "the government"?  But who would that be?  It would be people, all of whom are just human and face the challenges and constraints that we all do. This beats the view that they are some special breed of "public servants".  Recognizing that, we have to ask whether they can possibly be up to the task of wisely managing all that we defer to "the government"?

Politicization is always a challenge.  So it is interesting that Steve Hayward notes (in today's WSJ) that "The EPA is Politicized -- So Make it Official ... The federal regulatory agency, like many others, would be better run by a bipartisan commission."  Steve argues for more politicization in this case.  Read it to see his point.  Steve would probably agree that his insight owes something to the work of James Buchanan. 

Cities and antifragility

There are quite a few reviewers at Amazon who enjoyed and appreciated Taleb's Antifragile. Many of them mention the fun they had reading it.  Factoids everwhere. Some dinner guests are more fun and entertaining than others, but they may stay a while and most things are good in small doses.  So, in my view, is this book.

I get it that our bones are great because stress makes them stronger.  We rightly appreciate everything with that quality.  Nietzsche's "what does not kill me makes me stronger is approvingly cited."  We have learned that preventing small forest fires makes the big ones more devastating.

Early in the book, Taleb presents a long table, "The central triad: three types of exposure."  The three columns are "fragile", "robust", and "antifragile."  He wants readers to grasp that his idea of "antifragile" is distinct from "robust".  There is a triad, not a diad.  He provides many examples.  In the row labeled "knowledge", "theory" is in column one (fragile), "expertise" in column two (robust), "erudition" is in three (antifragile).

I counted 63 rows (examples).  It is interesting that many have the middle column blank.  Fill these in?  A parlor game for your next dinner party?

Taleb's last row is labeled "Urbanism". Taleb puts Robert Moses and Le Corbusier in the "fragile" column and Jane Jacobs in the "antifragile" column.  The middle, "robust" column is left blank.

Cities survive via flexbility. Land markets should do their thing (allow for flexbility).  The labor force should likewise be adaptable and be able to gain new skills and be allowed into new occupations. Fixed capital is best if it can easily be retrofitted. Think of lofts and apartments in old industrial or office buildings.  I had been calling it "adaptability" but a case can be made that successful adaptations increase the odds of more of them in the future.  Call that "antifragility".  If we define "cities" in terms of their broadest spatial boundaries, we find greatest rank-order stability at the top of the size rankings.

Fatal conceit at LAX

The "fatal conceit" that accompanies social engineering is usually explained as having two parts. First, knowledge is complex and dispersed, beyond the ability of top-down planners to gather or absorb. Second, the intervention is almost certainly hijacked by rent-seekers.

Today's WSJ includes "It's Less Easy Being 'Green' as Los Angeles Yanks Plug on Free Parking for Electric Cars ... Airport Nixes Mad Scramble for Coveted Spots; Frequent Fliers Now Regret 'Expensive, Underpowered' Rides ..."

Professor Donald Shoup has labored long and hard to teach us that getting the prices of parking spaces wrong has serious consequences for cities.  He refers mainly to the knowledge problem.  But the LAX story adds the social engineering/rent-seeking dimension. "Green" has become a cause and a lobby seeking subsidies.

Where does this leave us?  Resources have been wasted as various people responded to politicized price signals and these people now feel cheated. 

Detours and outliers

Do the Bourgeois Virtues make us better people?  Do they make us less nasty?  Less tribal?  Less cruel? Less murderous? I learned about some of this from Benjamin Friedman and also Steven Pinker.  It's an appealing idea. 

But just as you want to buy into it, you should think about 19th and early 20th century Europe, when and where many of the decidedly bourgeois were overtly or covertly beyond nasty.  McCloskey (p. 146) writes, "I suggest that German Romanticism was the detour."

I had kept this report from the NY Times on some of the historical artifacts of anti-semitism. The first paragraph mentions, for example, ugly caricatures of Jews on the handles of walking sticks, ones used by the good citizens of Vienna in the early twentieth century.  These things are daunting when viewed up close.  I am attaching a photo taken on a recent visit to a Viennese museum. Such were the signals that the urban dandies of their day wanted to flaunt.

I cannot do better than McCloskey. Our theories and stories are subject to detours and outliers. 

Fickle Facts

Organizing my materials in my office has always been a problem.  This was true in the paper age, the PC age and even in the Internet age.  Samuel Arbesman in The Half-life of Facts says "Forget about it." Most of them are not worth remembering anyway.  Many are quickly outdated and (the fun part of his story) hang on because we do have our cognitive biases.

The author is a fine writer and takes us through an amazing amount of material in very few pages.  There are many knowledge growth paths that follow a logistic curve trajectory, but phase transitions kick in whereby we jump to the next logistic path. This is relevant when Arbesman quickly considers the Santa Fe Institute work on cities. There are important empirical links of many urban phenomena to city size (he mentions gasoline stations) but there are scale economies whereby the number of stations per capita is not fixed. But there are also phase changes whereby we jump to the next logistic path.

Arbesman does not elaborate, but new facts of life signaled by new prices prompt the phase transitions. Think about how cities have changed as autos and highways came into use.  This phase transition rendered established relationships moot. Costs of Sprawl are a case in point.  The Santa Fe data are fitted across phase changes that are always lurking because price signals are always at work. Those fickle facts.

Taking on the f-word

I frustrate many students when I warn them about using the four letter f-word.  "Fair" inspires much serious work (and fun) by philosphers, but its free and easy use in daily discourse (don't even mention politicians) causes confusions and many problems. At best, recognize "fair" as a rhetorical device.

I am impressed with Stephen Asma's Against Fairness.  The author takes the strongest position on problems of the promiscuous use of the word.  Asma argues that "You can't love humanity.  You can only love people."  We are disposed to play favorites toward kith and kin -- and this is to the good.

He has some fun with the hypocrisy of those who favor a "color-blind" society and in the next breath lobby for affirmative action programs.  A blanket "fairness" towards all is an impossible goal.  Ghandi was a nut.

Asma takes up the dangers of "metaphysical tribalism" (Hitler's Germany, Rwanda, Bosnia), but is much too brief on the boundaries between "good" and "bad" tribalism.  He praises Sonia Sotomayor for her honesty (if not naivete) in admitting during her confirmation hearings that her background disposes her to a particular view of the law.  Much better than dishonest sanctimony.

ADDED

Review by Meghan Clyne.

On the right track

The end-of-year double-issue of The Economist is usually worth waiting for.  The one that came this week includes several very nice essays.  The one I liked best describes life in Kibera, a Nairobi slum.  Here are some short outtakes:

Upwardly mobile Africa ... Boomtown slum ... A day in the economic life of Africa’s biggest shanty-town ...To equate slums with idleness and misery is to misunderstand them ... Kibera is a thriving economic machine. Local residents provide most of the goods and services. Tailors are hunched over pedal-powered sewing machines. Accountants and lawyers share trestle tables in open-air offices. Carpenters carve frames for double beds along a railway line. Whole skinned cows hang in spotless butcher shops. “Give me 30 bob,” says a customer to a paraffin seller, who has just taken delivery of several jerry cans from a porter with a steel-frame wheelbarrow. All day long, sweaty porters cart supplies along filthy lanes, hissing to shoo people out of the way. .. Life in Kibera can be harsh. Disease is rife, food is short for some, and death can come suddenly.

Just after eleven o’clock an explosion thunders past the paraffin seller. Lights in the shops along the lane expire instantly, then a mob charges past, accompanied by sharp screams and a sizzling, dancing power cable that has blasted off a faulty transformer overhead. The cable eventually goes limp and the crowd disperses. Minutes later the lights come back. ... The transformer, like all power in Kibera, is run by shady types who tap into the city grid. They are less than scrupulous when it comes to safety and they charge heavily. But at least Kibera has power, unlike many other parts of Africa. Soft drinks sold in shops are chilled. Rooftops are awash with TV aerials and mobile phones are as ubiquitous as in the West.

Kibera may be the most entrepreneurial place on the planet. ... The key to making it in Kibera is access to capital. A market of one million potential customers crowds in on entrepreneurs, but raising the money to start a business is hard. Most banks won’t lend to them because they have no collateral, perhaps not even a fixed address. Those who manage to borrow face high interest rates. Moses Mwega pays 25% a year and considers himself lucky. Over the years he has built up a cosmetics shop selling creams, wigs and shampoos. The bank recently accepted his stock, a television set and a second-hand sofa, including lace doilies, as collateral. He got 350,000 shillings ($4,000) to expand his business.

There are entrepreneurs all over the world.  For most of them, access to capital is the problem.  Thanks to the internet, crowd-funding has a role.  I am a big fan of Kiva and do most of my giving through them.  Here is an academic paper (by Tillman Bruett) that shows how they and others like them are on the right track.

Those taste buds

The various end-of-year best-books lists are out there.  But of many good 2012 reads, I keep coming back to Jonathan Haidt's The Righteous Mind.  Good people can have honest disagreements on profound questions because they are prompted by deeply engrained and different moral "taste buds" (Haidt's great label).

In my view, not enough people have digested Haidt's findings.  An exception is Arnold Kling's applications of "Three axes of concern" (civilization-barbarism by political conservatives, oppressor-oppressed by modern liberals, and freedom-coercion by classical liberals or libertarians) as he probes policy debates.

The current gun control discussions illustrate the problem.  I just fnished my Sunday morning ritual reading of the NY Times and am grateful that they place Ross Douthat's column at the end of the Review section, well after the standard weekly ritualistic breast beatings.

There will be new gun control legislation but I do not expect it will curtail the mass shootings.  There are 200-300 million guns out there; they will not be confiscated.  Being on the side of the angels and promoting schools as "gun-free" zones simply makes them places where killing sprees can occur.

Here is a thought experiment.  Which gun law would have stopped the gunman in the Newtown tragedy?  Or assume that one or more on the school staff is trained in the use of firearms.  Identifying and vetting such people and encouraging them to be armed and alert (if they choose) would dash the idea that these places are simply protected by a lock behind a glass window.  Which option offers better odds to potential victims?

I think the answer is clear.  But lying between thought experiments and advocacy (and policy) are those moral taste buds.     

Hard work

Matt Ridley (in the Dec 19 WSJ) wrote about "Cooling Down the Fears of Climate Change ... Evidence points to a further rise of just 1 degree C by 2100. The net effect on the planet may actually be beneficial."  So it was interesting to look at the Dec 24/31 New Yorker and find Keith Gessen's "Polar Express ... A journey through the melting Arctic, with sixty-odd thousand tons of iron ore."  It is a detailed account of a haul of iron ore from Murmansk, Russia, to Huanghua, China, via a new Northeast Passage, that is now available because of ice melt.  The author notes savings (including less fuel burned) over alternative routes via Suez or around the Cape of Good Hope. 

People have been looking for better trade routes through most of recorded history.  Polar Express is simply the latest example. Most of the inhabitants of the Americas, for example, are where they are as a result of such explorations. (There are, of course, politicians now seeking to block U.S. natural gas exports, claiming that not trading would be a benefit to the U.S. economy.) 

Climate change is not new and those seeing opportunities will seek to realize them.  As Ridley suggests, it is not all bad news.  Besides, who believes that we can extrapolate anything to 2100 with any confidence?  On the other side, Gessen notes the irony that the haul he accompanied was moving iron ore to China where it would be combined with coal to yield new steel as well as extra carbon into the atmosphere.  Irony on irony would be U.S. natural gas exports to China, enabling them to burn less coal.

Long run forecasting is very hard work. 

Cities and dreamers

I recently cited Alain Bertaud's new paper ("The costs of Utopia, Brasilia, Johannesburg, Moscow").  It's provocative and interesting.

Introducing economists' monocentric model of cities, Bertaud notes (p. 5), "The work of Alonso, Muth and Mills made an important -- but often overlooked -- contribution to urban planning: it demonstrated that the spatial structure of many cities is generated by a self-organizing principle driven by economic forces." 

Yes and no. Cities have changed to the point where the original model is no longer relevant.  Why? Automobiles and traffic congestion externalities have made the model as well as the actual monocentric cities untenable. But the polycentric form that Bertaud writes about was not planned but also came about via a self-organizing principle; it was driven by market forces. In fact, polycentricity is now widespread and obvious. The challenge of defining and identifying urban subcenters is now grist for urban researchers with enough patience and data.

Traffic externalities did not create traffic doomsday ("gridlock"); rather, they prompted land market responses to forestall doomsday.  The remarkable stability of average commuting travel times has been cited by many researchers.  A stronger test of spatial self-organization is the related finding that travel time stability extends to non-work travel also.  The complex land use arrangements that make this possible cannot be planned top-down.

Bertaud sees market forces trumping the efforts of designers. "Haussman did design street patterns in ninteenth century Paris, so did L'Enfant in Washington.  However, these 'urbanists' only designed the boundaries between public and private use ... they did not decide who was going to live where, they did not decide where offices and residential areas will be located and what should be the density in these urban areas. Market forces were left free to fill the bulk volumes alloacted to private use." 

Of course.  There is enough labor and capital mobility in the world so that any traffic doomsday city settings cannot compete.

On this theme, Bertaud studies the "utopian" cities and finds that their dispersion (as he defines it) is the most extreme. 

Likewise, Ed Glaeser writes on Oscar Niemeyer's passing: "Brasilia's hubris is a warning to urban dreamers ... The structures in this artificial capital are impressive, yet few want to walk its barren streets."

ADDED

I should have been clear.  Dispersion by itself is neither a positive nor a negative.  "Good" dispersion is a land market accommodation that keeps travel distances in check; "bad" dispersion does not manage this. The median commute in spread out  Tokyo is 46 minutes (their mean would be longer), which is considerably longer than U.S. average commuting times. 

The hard part

Mass murders terrify us; when kindergartners are slaughtered we sink into despair or beyond. 

Many scramble to be on the side of the angels. This morning's NY Times ("Death in Connecticut") concludes this way: 

"The more that we hear about gun control and nothing happens, the less we can believe it will ever come. Certainly, it will not unless Mr. Obama and Congressional leaders show the courage to make it happen."

We want the guns to be in the hands of the responsible people.  But how do we get from a country where anywhere between 200 million and 300 million firearms are in private hands to one where they are just in "responsible" hands?   Authoritarian regimes know how to disarm their citizens, but that route is not an option.

PBS NewsHour's Mark Shields mentioned last night that it is tougher in the U.S. to rent a car than to buy a gun.  True enough.  But how about "getting a car" or "getting a gun?"

As in so many cases, articulating a preferred end-state is simple.  The getting there part is the tough part.  It is the part that is usually skipped over.

If we cannot identify and disarm the irresponsible, there is no choice but to arm the responsible.  School teachers and officials are the ones that can be vetted. 

Widening divide

Do we live to work or do we work to live?  When I press students, they quickly agree it is the latter.  (This usually introduces the question of whether we import to export or export to import.)  But the recent election showed that people worry about jobs, less about why there are jobs and what they produce.  The President famously blamed ATMs for job losses.  Where will this go if slow growth is with us for years?

I just listened to Russ Roberts talk to Chris Anderson about the latter's Makers: The New Industrial Revolution.  It's a fine discussion and introduced me to "the democratization of manufacturing."  The latest game-changer allows innovators to become manufacturers. I first saw a 3-D printer create gold crowns at my dentist's about ten years ago.  More capabilities move to the desktop all the time.  Add crowd-funding for capital and amazing things will happen.  I also learned that "Tijuana is the Shenzhen of North America."  Who knew?

There are many versions of what divides people.  Charles Murray warned us about one and there are many others that come to mind.  But perhaps the divide to concern us is between those who get the future and those who fear it. Virginia Postrel noted this some years ago. But I fear that divide is widening.

Happiness research we can use

Economist Joel Waldfogel has demonstrated that most gifting is a waste.  There would be no deadweight losses if we give cash.  But non-cash gifting is also universal and has been around for a very long time.  What is going on?  The giver and the receiver usually get something from the act which goes above and beyond the item being gifted.

I have no idea whether tongue-in-cheek prompts Waldfogel, but we should all grasp the limits of homo economicus.  It is a useful theoretical abstraction, but like all such abstractions, it cannot be taken to extremes.  Critics love the straw man and use it to attack all economic thinking.

These thoughts come to mind as I read a gift I just received, Paul Zak's The Moral Molecule:  The Source of Love and Prosperity.  On the book's jacket, Helen Fisher calls it "an important book".  Tyler Cowen says of Zak, "We need more daring economists like him."  There is also praise from Matt Ridley and Frans de Waal.

Zak concludes (p. 209) this way:  "In the nineteenth and twentieth centuries, economics tried to achieve scientific rigor by cutting off recognition of the human element of motives, epxectations and psychological uncertainties.  Fortunately, behavioural economics and now neuroeconomics, has put us back on what I consider the right track, which is a path that combines both rigor and perspective."

Zak's research on the moral molecule explains traditional gifting and acts of kindness.  It also helps us understand various virtuous cycles.  The positive feedbacks between trust, exchange and prosperity are just a few that Zak elaborates.

It is safe to gift Zak's book and not worry you are being wastful.

Cliff

"Fiscal cliff" talk is everywhere and most views are necessarily about generalities.  This is because the details are almost impossible to know.  The NY Times has performed a service by itemizing and publishing some of the details of what is spent these days by the feds.  Who said that "the hell is in the details"?

Economist Robert Frank offers wise counsel to both sides (also in today's NY Times) on how to bargain.  But how about this:

"Both parties could curry favor by embracing proposals to restore money for the programs that voters value most, and the president could delay cuts while Congress was debating those proposals."

Is that really how it works?  Do Frank and the other optimists look at some of the Times' data on where the money goes -- and then dream of some rational process by which it is restored/spent?

I have Sunday-morning TV talk show hangover.  Why not have everyone immerse him/herself in the Times' data, think how we got there and then opine how easily we get out?  

"Smart" or scalable?

Two related posts came my way quite concidentally within a few minutes.  They are worth considering as a pair because of the concerns they illustrate. 

The first is from Richard Sennett who worries about what may come of a confab now in progress.  "No one likes a city that's too smart ... Let's hope Rio rather than Songdo or Masdar is the inspiration for the urbanists gathering in London this week." 

There are amazing new technologies coming into our lives.  Can they replace the spontaneous order nature of successful cities? Sennett ends sensibly with this:  "We want cities that work well enough, but are open to the shifts, uncertainties, and mess which are real life."

On a similar theme, the second post is from Bertrand Renaud who writes about "The Costs of Utopia".  It's actually an old problem but ignored by by people who still see cities as entities they can design.  From The Urbanization Project, here is Renaud's punch-line:

Haussman did design street patterns in nineteen century Paris, so did L’Enfant in Washington. However, these “urbanists” only designed the boundaries between public and private use. They only allocated precise functions to public space: streets, avenues, parks, and public buildings. But they did not design the city in the sense that, with the exception of public monuments, they did not decide who was going to live where, they did not decide where offices and residential areas will be located and what should be the density in these areas. Market forces were left free to fill the bulk volumes allocated to private use.

Yes, it's mostly in-fill which the grand designers have very little to do with.  Sandy Ikeda has many times elaborated the idea that Jane Jacobs was the F.A. Hayek of cities.  Both Sennett and Renaud are writing in the same spirit.

Another way to say it is to consider the scalability of design.  But what does that mean? We rely on designers to do great things.  A pencil, a 787 Dreamliner, a comfortable chair, a skyscraper, my iPhone and countless other wonderful things in our lives rely on the skills of many sorts of designers.  But these involve designs that must meet a market test.  They must be susceptible to error correction.  The utopians that Sennett and Renaud worry about could be tackling a scale that does not easily avail itself of error correction.  Get a Hoover Dam or a high-speed rail line from Madera to Bakersfield California or a Burj Khalifa tower wrong and that's that.

No mystery

About a hundred years ago, privately owned and operated streetcars plied the streets of major U.S. urban thoroughfares.  Then they declined and eventually disappeared because (a) there was a nefarious corporate conspiracy to replace them with cars; or (b) most people preferred private autos for all the obvious reasons. 

Many seemingly serious people pick version (a), ignoring the idea of a market test.  But that's no problem because voter coalitions can often be formed/found to stick taxpayers (here, there and everywhere) with the bill for new ("restoration") streetcars.  Phoney cost accounting often helps. 

This is now an old story and has been repeated many times.  California is now building high-speed rail justified on specious grounds, with final financing unknown.  Making promises that cannot be kept is not new in American politics.

Today's case in point is the recently approved L.A. Streetcar.  Questionable downtown baubles are not new in American cities but LA has a special problem. It is the nation's #2 city (in size) but it it's downtown does not come close to #1 (or even to rival San Francisco's) up the coast.  In my estimation, it never will.

But they keep trying.  Here is some of the L.A. Times front page report from today's edition:

Streetcar line called downtown's missing link ... Approval of a $125-million project is hailed as the way to finally make cars optional in the city center — but skeptics say the money would be better spent elsewhere.

In a city that is often derided for its lack for public transportation, downtown L.A. is the one exception.

The city center has light-rail lines, a subway, a maze of bus routes and shuttles, links to commuter rail and even a tiny funicular that trudges up and down Bunker Hill.

But many residents and developers say that it can still be difficult to get around the far-flung city center without a car. So urban planners and downtown boosters have spent considerable time on what may have once been considered impossible: creating a truly car-optional neighborhood in the center of a region defined by its car culture.

Voters in downtown Los Angeles this week approved key financing for a $125-million streetcar project that might finally put this theory to the test. The streetcar would run mainly along Broadway, and Hill and Figueroa streets, three of downtown's main arteries, connecting various neighbors, including the old banking district, South Park, Civic Center and the fashion district.

Developers — and some residents — see the streetcar as a missing transportation link.

"If you're in New York, or San Francisco or Portland, you forget about your car. You walk, you take public transportation, and you get a much richer experience," said Scott Denham, vice president at Evoq Properties, a downtown developer. "The whole concept of being in L.A. and not having to drive to have a whole Saturday or Sunday to experience downtown… It's really not that far off in reality."

The story points to the political economy we have.  Every evening's news features furrowed brows fretting over deficits, fiscal cliffs, unfunded liabilities, etc.  But there is no mystery.  Milton Friedman explained it clearly in just over two minutes.

Some political economy

"Equity-efficiency trade-offs" are a staple of textbooks.  Best to keep it in quotes because "equity" and "efficiency" are not simple.

Beyond that, there are many cases where there is no trade-off.  End farm subsidies, for example.  The average subsidy recipient is better off than the average taxpayer.  And the efficiency of ending this pork is pretty clear. 

In our crony-capitalism world, there are surely many other subsidy programs that could be ended with similar win-win consequences.  This is apt in light of the current "fiscal cliff" situation.  It is still widely presumed that just about every tax dollar flows to good causes.

I just listened to Russ Roberts' interview with Casey Mulligan at econtalk.  Mulligan's research points to an explanation for high unemployment: a generous safety net.  There is more to the current recession than the standard credit crisis story.

I have yet to read Mulligans' book, but the discussion was interesting and provocative, to say the least.  He depicts cases where there is a high cost from policies that "help people."  Mulligan is careful not judge that the cost is too high.  He simply wants to document the fact that this time there is a trade-off.

While I am on this topic, I just finished Mark Pennington's Robust Political Economy.  It is a superbly written and up-to-date summary of how and why an understanding of classical liberalism is essential in these post-2007 years when markets-misunderstood is the cudgel used to push us deeper into debt and mess.

Knowledge and benevolence are in short supply.  This applies to "private" as well as "public" sectors.  But only the former allows (and punishes) failure -- if we let it.  That is all we have. 

Talent pools

The Journal of Economic Perspectives is my all-time favorite journal.  Much of the good stuff is at the back with Timothy Taylor's "Recommendations for Further Reading."  I had not known about recent research by Pete Klenow.  Here is the abstract in the Fall 2012 JPE:

Pete Klenow reports some calculations about greater equality of opportunity and economic output in “The Allocation of Talent and U.S. Economic Growth.” “In 1960, 94 percent of doctors were white men, as were 96 percent of lawyers and 86 percent of managers. By 2008, these numbers had fallen to 63, 61, and 57 percent respectively. Skilled occupations have become more equally distributed across race and gender, as have earnings within occupations. The result is arguably better allocation of talent and human capital investment. . . . How much of overall growth in income per worker between 1960 and 2008 in the U.S. can be explained by women and African Americans investing more in human capital and working more in high-skill occupations? Our answer is 15% to 20% . . .White men arguably lost around 5% of their earnings, as a result, because they moved into lower skilled occupations than they otherwise would have. But their losses were swamped by the income gains reaped by women and blacks.” Stanford Institute for Economic Policy Research Policy Brief. July 2012. At http://siepr.stanford.edu/?q=/system/files/shared/pubs/papers/briefs/July_2012_brief.pdf.

Letting merit dominate all other considerations is a very good idea.  Expanding the talent pool has many benefits.  It's always good to see the evidence confirm the expectation.

Good ideas are our only hope.  They usually win, but it often takes a depressingly long time.

This morning's LA Times includes various contributions that respond to concerns over the 7-billion world population mark.  Most of the writers discuss their ideas for more as well as more effective family planning.  But some of the really good ideas are not covered.  1. Economic growth prompts spontaneous family planning; and 2. More open borders by the population-poor countries would be a boon to the places that cannot get their institutions in order to facilitate economic growth; it would also refresh and replenish the talent pool of the receiving countries

Only one writer mentions economic growth and he sees it as a consequence of fewer people rather than the other way around.

ADDED

Reader Larry Holt sends this update on fertility trends.

And the Dec 3 WSJ includes an op-ed:  "Obama vs. Silicon Valley on Immigration … Antiquated rules are causing a brain drain of skilled workers.

… Republicans in the House passed a bill that would expand visas for skilled workers, easing the waiting list that can be a decade or longer for technologists from populous countries such as China and India. It would repeal a law that limits visas from any one country to 7% of the total—a quota system modeled on the Asian Exclusion Act of 1924, which limited immigrants from any country to 2% of the number of people from that country already in the U.S. as of 1890."