Sharing

James Surowiecki has an insightful column on the sharing economy ("Uber Alles") in the Sep 16 New Yorker.

Owning is no longer all it's cracked up to be. There is a lot of slack in what is owned but not used. Much of the not-in-use stuff can now be shared because, thanks to the internet, transactions costs are falling.  People are OK not owning but sharing/renting. Re the signaling model, he cites NYU Prof. Ann Sundararajan, "Instead of being tied to owning one car, I can drive twenty different ones." There is a signal!

There will always be the lobbyists and their regulator buddies to slow things down.  Re the one-million dollar price of a NYC taxi medallion, economists have been saying all along that regulators can reasonably regulate safety without closing the market. Well look at this: "If these companies become more established, they’ll have to reach some kind of accommodation with regulators, perhaps along the lines of rules that California’s Public Utilities Commission recently proposed, which would let Sidecar, Lyft, and Uber operate if they implement certain safety and driver regulations."

For 2011, the ACS reports there were 138.3 million U.S. workers, of which 76.4% drove to work alone. Transportation planners rue all of the "wasted" empty seats being driven around. But that's the wrong question. Carpooling has high transactions costs but Surowiecki reminds us that car-sharing has transactions costs that many people are surmounting.

No warning label.

Perceived inequalities are on people's minds.  We spend a lot of time worrying over our status and devising signals that might boost our place in the pecking order.  The measured indicators, including what we earn, get the most attention.  No wonder this makes it into politics; class warriors feast on it. "Fairness" and "equitable" are almost impossible to define in practical terms but serve as indispensable rhetorical devices that are used interchangeably with "justice" in normal political discourse.

Economists are involved because they are skilled at interpreting the data that we have. Data on income distributions are widely available but all of the shortcomings associated with these measures as indices of well-offness are less discussed. This is why one would think that a symposium on "The Top 1 Percent" in the current Journal of Economic Perspectives (open access) is especially useful.

It's easy to be misled. Count dollars per person or dollars per household?  For inter-temporal comparisons, household size changes.  Count in-kind transfers?  How? These are bigger than ever?  What about consumer surplus?  Much of what I get via the internet is practically free but quite valuable.  What about person-to-person swaps?  The list goes on.

But the biggest data challenge of them all involves the "comparing snapshots" problem. Inter-temporal comparisons are complicated by the fact that many people move in the pecking order. Young people, for example, are most likely to move up as they leave school, go to work and eventually achieve seniority. But most of our data on income distributions do not account for this phenomenon. Not acknowledging the problem prompts many people to make the mistake of asserting that the passage of time accounts for increasing inequality.

Comparing the shares of national income that accrue to any group (such as the top 1%) over many years misleads. The normative claim that we do want to be able to test is one that recognizes income mobility. How much is there? How does that compare to other times and other places?

Yet, of the six papers included in the JEP symposium, only one (by Miles Corak) addresses the mobility question. The other six should carry a warning label. I say this in all seriousness because the eagerness to misinterpret the data -- and to suggest ever more redistribution -- practically defines the politics we have.

Coase in urban economics

The passing of Ronald Coase earlier this week prompted many reflections on the man and the work.  I particularly liked this one. Most comments cited his two most influential papers, including his 1937 "Nature of the Firm."

Shorthand summaries of the paper's argument note that firm managers face many "make or buy" decisions. Buying involves transactions costs while making involves monitoring costs.  Management is hard work because these are tough choices that must often be revisited and reevaluated.

Another way to say it is to ask how much of any product's supply chain should be within the firm and how much should be beyond the firm. Here is a fine discussion of global supply chains in the modern world.

All this brings up the corollary of organization. Make or buy? If buy, then buy where? Locally or not? Needless to say, the way our cities look hinges on this elaboration of Coase's question. How much proximate co-location do we get? Consider these two views:

“ … a central paradox of our times is that in cities, industrial agglomerations remain remarkably vital despite ever easier movement of goods and knowledge over space.”  “Introduction” in Agglomeration Economics, E.L.Glaeser); and

“When co-location is infeasible, networks may substitute for agglomeration. This possibility of substitution means that small regions may survive and prosper …” “Agglomeration and networks in spatial economies” B. Johansson and J.M. Quigley.

I do not think there is a paradox. I do not think that it is either-or. The agglomeration vs networking choice is linked to the make-or-buy choice.  It has long been recognized that location and trade are part of the same puzzle. It is a huge and complex puzzle that Coase properly saw as way beyond "chalkboard economics."

Imagine

Greg Mankiw likes the idea of carbon taxes ("A Carbon Fee That America Could Live With ... To deal with climate change, internalize the externalities"). This is is the part of economics everyone likes. It's in all the textbooks. But mainstream economics places less emphasis on the political economy context. Public choice analysis, if it is even included, appears in a separate chapter.

In the Mankiw piece, there is this, almost at the end: 

A bill introduced this year by Representatives Henry A. Waxman and Earl Blumenauer and Senators Sheldon Whitehouse and Brian Schatz does exactly that. Their proposed carbon fee — or carbon tax, if you prefer — is more effective and less invasive than the regulatory approach that the federal government has traditionally pursued.

The four sponsors are all Democrats, which raises the question of whether such legislation could ever make its way through the Republican-controlled House of Representatives. The crucial point is what is done with the revenue raised by the carbon fee. If it’s used to finance larger government, Republicans would have every reason to balk. But if the Democratic sponsors conceded to using the new revenue to reduce personal and corporate income tax rates, a bipartisan compromise is possible to imagine.

The IRS code is close to four million words. Why so complicated? Because every revenue measure is inevitably politicized. This is why Mankiw has to to end with "imagine" -- as in John Lennon.

Patterns or points?

The NY Times' Invitation to Dialogue had touched on the question of whether economics is a science.  In today's Letters, economist Eric Maskin rejects the idea that successful predictions are a plausible a test of science or not. He cites seismology and meteorology as sciences that explain but that do not predict.

But think about general pattern forecasts. Are they not predictions? There are plenty of seismic maps that do not predict specific earthquakes but that are useful to insurers as well as insured.  There are many similar products developed by meteorologists.  It is not a matter of predicting vs. not.  It surely is a matter of patterns vs points.

Science can be involved in either. But so can other areas of investigation, including the study of history.

Whereas the Nobel in economics is (unfortunately, in my view) awarded in the name of "economic sciences," many of the most auspicious awards have been to economists working in a literary/historic tradition, e.g., James Buchanan, F.A. Hayek, Douglass North, Robert Fogel, Elinor Ostrom, Daniel Kahneman, and others. Does that make them "economics scientists"?  Look who's most popular!

Economics vs. physics involves people vs. particles.  Unlike particles, people have mood swings. We should forget about point forecasts.

Contrasts

I went to to see the "Never Built: Los Angeles" exhibit yesterday. These collections are always of some historical interest. And we get to experience the relief of knowing that this stuff was never built.

There were a few appalling Albert Speer-type renderings of creepy civic centers. There was a rendering (photo included in this WSJ coverage of the exhibit) of a more-than-creepy Santa Monica-Malibu offshore freeway that would have paralleled PCH and also obliterated miles of ocean view.  There were the usual "rapid transit" and "monorail" route maps of plans that died. The fun there was to overhear the occasional visitor exclaim "if only we had built this then ... ." There was even a map of how a compact-development LA would have looked like.

There were also the occasional sermonettes posted with drawings and maps.  Here is one of my favorites:  "The city's longstanding culture of timidity, political fragmentation, and subservience to developers has not only thwarted a century's worth of visionary schemes, but has engendered an ineffectual public realm."  How many not-so-bright ideas can one squeeze into one sentence?

Escape was easy.  The exits were not bolted and the Petersen Automotive Museum is right next door.  The restored cars are gorgeous.  Most are arranged with contextual mock-up backgrounds (an old gas station, a vintage auto insurance office, etc.). These autos were the technological marvels of their day, built to satisfy users. "Playthings of the rich" were within the reach of almost everyone very quickly.  It's still amazing  to see what competitive capitalism can accomplish. The Petersen benefits from the contrast with what is housed next door. I worry, however, that not many who hold the mindset of the cited sermonette will be drawn to the Petersen.

What do we know?

Creativity and innovation are hard to measure. Sometimes success is not immediately apparent. Forbes' Rich Karlgaard cites the Apple Newton as an apparent flop in its day but also a scientific success that tested new components and ideas and set the stage for many of the gadgets that we now cherish.

In "Creativity, cities and innovation," LSE's Neil Lee and Andres Rodrigues-Pose report that they were able to identify innovation in various "creative" occupations but not so for the various "creative" industries (UK data).  The authors report that creative people do their thing in not just the creative industries. One would hope so. But the Newton story should give these investigators pause.

Many city planners and policy makers have been smitten by Richard Florida's Creative Class research and have pinned local area revival hopes on finding ways to get the "cool" people to move their way. But this gets back to the problem of necessary and sufficient conditions. There are probably many of the latter. And findings such as reported by the two LSE scholars may be interesting but we do not know enough to boldly go forward with grand plans.  Too often the plans simply represent current fads.

Entrepreneurs and diversification

Diversification prompts resilience. It's a common sense notion but it's nice to see research that corroborates the idea that the notion applies to cities. They are more likely to survive if their portfolio of talent is diversified. We should say metropolitan areas rather than cities because we must include suburbs and hinterlands for it to work.

Alex Anas reports that doubling metropolitan area size only increases average commute times by about 10 percent. How could that be? All that spreading out is much better than "unplanned sprawl;" people do not choose locations foolishly; they consider co-locating with others they do business with.

I had previously blogged about the fact that U.S. suburban area growth does a better job of predicting central city growth than vice versa. First, they complement each other which surprises zero-sum thinkers. Second, suburban locations are opportunities for many; they can connect and link from there also; they can access local labor and they may find cheaper land.

It bears repeating that almost anyone in almost any supply chain manages many networks, some physical and some virtual. We choose networks along with location. Making the good choices keeps business in business. This is the way entrpreneurs maintain their edge. They are not lemmings in some "unplanned sprawl" fiasco.

Diversification is nice but it takes the actions of alert entrepreneurs to cash in on it. Being able to move into new fields is abetted by variety of local talents. Call that a necessary condition but call successful entrepreneurship added to that the sufficient one.

What to do?

NYU's Solly Angel argues that city planners should do what they can to attain "orderly expansion." He wants major infrastructure trunk lines (water supply, sewage, highways, etc.) to be planned and laid out in advance of development. Sounds good and supposes the planners are good at predicting demand (the time and place) for development. If they are good at what they do and practice a light touch, they can let market savvy developers do much of the rest. The hard part is actually attaining this balance. Could we end up with "ghost cities" if we get it wrong? What are the likelihoods?

This brings up the difficult division of labor question when it comes to city development. Randy Holcombe suggested that infrastructure be the domain of public planners while land use development be handled by private planners (developers). The latter wouldd take published infrastructure plans as parts of the "rules of the game." I elaborated in my Spontaneous Cities chapter (of David Emmanuel Andersson's volume), suggesting that only the one-off mega projects be left to public authorities -- and noting the inevitable risks involved.  Anything one-off will be risky but not likely to come into being via private risk taking.

Interesting but how do we get there? For starters, it would be nice if the question of a division of labor were included in planning curricula. Much of the literature presumes that markets are best characterized as "market failure" to be righted by public action immune to "government failure". But there is lots of evidence that the land use planning cherished by so many reduces housing affordability.  Why not start there?

Politics without romance

Many people have puzzled over the seeming contradiction between the fact that approval ratings of the US Congress are near single digits but incumbents keep being re-elected.  The simple story is that the people who bother to vote are not the ones who answer survey responses.  Or Congress in the abstract is easy to dislike but "my rep" is an entirely different matter.

I have just read This Town by Mark Leibovitch which is thoroughly enjoyable. The author is not Fox News or MSNBC. He has the just the right touch whereby he can describe the Washington DC egos and situations and the unfolding spectacle always speaks for itself.

Of all the things I teach, the one that is seemingly the oddest to most students is the story of public choice and "politics without romance."  Many people have an odd romantic attachment to politics and the inchoate idea of "the public interest."  Dan Klein wrote about "The People's Romance" a few years ago.  He has a point.

We chuckle at the bizarre attachments that citizens of petty dictatorships display toward their regime. I refer not to the obvious cronies but the many others who are swept up. Nazi Germany stands out because a broad and educated middle class eagerly took up the state religion. Politics without romance is pretty clear to some but somehow exotic to many others.

Loopy

We have to focus and concentrate to not call the Elon Musk "Hyperloop...(Imagine paying $20 and sitting down inside a Space Age capsule in Los Angeles. About half an hour later, you're in sight of the Golden Gate Bridge") idea hyperloopy (sorry!)  For anyone who thought that the California High-Speed Rail (HSR, the one on which they will soon break ground) is loopy, this one is really out there.

My friends at Reason write that the HSR is $50 billion short and counting. But no problem. There will be the inevitable sunk cost argument that is routinely applied to any once-low-balled project ("We can't quit now after all that has been invested ....!").  So if Musk thinks that the HSR money can be diverted his way, he is really throwing the dice.

The two proposals (HSR and Hyperloop) are obviously different. The first uses a very old technology that has been proven many times but that has been made irrelevant by the aluminum capsules we all fly around in quite comfortably. The second one proposes a technology that no one has ever seen in action.

But the two ideas share a fatal flaw. People who see Los Angeles and San Francisco as mere points on a map to be somehow connected overlook the key fact that we all have origins and/or destinations not at these points but scattered over large metropolitan areas.  High-cost ways to make the distant point-to-point part of journey faster make no sense. If LA-SF air flight time is currently about one hour and if I spend at least an extra hour on the ground at either end, then cutting the point-to-point time in half actually shortens my trip by just 17 percent. What is that worth to me? I can already fly business class and also get Global Entry to save marginal amounts of time. In fact, many people are already making these trade-offs.

Until we have beam-me-up technology, we still have to think about how to get to and from airports, train stations and even loop-ports (if that is the name they end up with).

NY City taxis

The LA Times reports "New York's biggest financial winners -- cabdrivers."  The value of a NYC taxi medallion (permit to operate in closed market) has risen to $1.3 million and has recently outpaced the S&P 500. This has occurred in spite of competition from Uber and similar services.

The story is wrong to suggest that the asset price gains all go to the drivers. Most drivers are not the medallion owners.

The Times story does mention the installation of credit card readers enabling customers to pay and tip with plastic. The lazy customer can simply put a check by one of three suggested tip amounts, 15% or 20% or 25%. Most people choose the middle 20%. When the choices were 10% or 15% or 20%, most lazy customers checked the middle 15%.  So push up the middle option. Behavioral economists would have predicted that most people will take the middle choice -- and these people are unlikely to do the math to fill in an amount of their own choosing.

People that print menus and wine lists have known about such strategies for years. But now the science of behavioral economics corroborates what has long been suspected. But this is what social science is supposed to do. How good are the hunches we have developed over many years?  Usually quite good.

Bay Area news

I have looked at the proposed Bay Area Plan (by the SF Bay Area MTC and ABAG) and can report it is awful. Cliche-ridden and uninformed are among its faults. Throw in counterproductive. Housing affordability and "equity" are often cited as goals but the land use proposals (greater density!) will have the opposite effect.

I can see the religious left (greens) going for it. They will be joined by connected developers who profit when limits are imposed. Reminds us of Bruce Yandle's B and B.

One shudders to think what was spent putting this mess together -- and how much will be spent to defend and see it through. This is all very sad.  But my friends at the Pacific Legal Foundation are making an effort to stand up for common sense.  Here is their introductory video. Here is their press release. Wish them luck.

Stop the shovel brigade

Industrial policy is risky for the well known reasons that it avoids capital markets (the only institution we have for allocating scarce capital) and compounds the problem by politicizing investment choices. This is not to say that we have "perfect" (or anything close) capital markets, but their problems can be traced too much crony capitalism (too little real capitalism).

These are old ideas but they have to be re-learned often.  This morning's WSJ includes "Volt Falls to Electric-Car Price War ... General Motors Lops $5,000 Off Sticker of 2014 Model; Cheap Gasoline Tethers Sales of Plug-In Cars ..."  Read the story. The details are amazing. The layering of blunders is stunning. Bail out General Motors instead of a Chapter 11 reorganization; push a pre-mature "green" but emotionally satisfying technology on the already politicized company; do all this in a city (Detroit) that is already in a deep hole; do all this in the context of an economic and federal budget crisis that are yet to be resolved; do all this as the fracking boom and cheap oil have arrived.

There used to be the idea of taking shovels away from people digging themselves deeper into holes. I expect that there will be more bail-outs of GM, Detroit and many others.  But whatever it is it, will be wrapped in something green and worthy, just like the Chevy Volt.

If we are going to have serious anti-carbon policies, they will be costly.  Further weakening a weak economy is not the way to prepare.

Wrong way

Preference aggregation is a huge problem. When transacting is out of reach, we get politics as the default -- and all the grievances that go with it.

Today's NY Times Sunday Dialogue ponders "Can Suburbs Help Cities?"  The idea of regionalism has been kicking around for a long time. Those who have moved to the suburbs, so the story goes, have skirted their obligations to those "left behind" in the cities.  Simple justice requires that they not get away with this and that we corral them via regional government  There is the linked idea that suburbanites get benefits from the cities that they do no fully pay for.

But that is not the way we address gains from trade in any other context.

In the regionalization process, we cartelize government and lose choice. More choice is better than less. Arnold Kling has argued that we have governmental units that are too large and choice that is too restricted. I agree. Making jurisdictions bigger, more remote, and less accountable to voters is precisely the wrong direction. It is just bail-outs by another name. Detroit (and other cities) got into the predicament precisely that way. It is interesting that proposed antidotes are often prescriptions for more of the same, but big-time the next time.

On a related note, the Times also reports on the city's race for mayor, "16 Vying to Lead Troubled Detroit." In this job market, we have gotten used to job openings drawing large crowds of hopefuls.  Or is that these 16 cannily see that the Detroit mayor these days has no authority and no influence and not much to do.

Downtown LA looking better

We should all claim our bad calls as well as the good ones.  I have long been critical of efforts to revive downtowns.  These had been declining for many years, as cities decentralized. In most cases, there have been downtown renewal/revival efforts and most of these have been too costly to be justifiable.

Los Angeles' downtown had been declining since the late 1940s-early 1950s.  But things are now looking up as gentrification sets in.  Whole Foods has anounced they will open a store in downtown LA in 2015. To be sure, this has less to do with planners' efforts than it has to do with the drop in crime.

The big plan for downtown LA was that it would become the "financial capital of the Pacific Rim." This never happened. The few Fortune-500 headquarters that were here all left. But LA redevelopers and boosters had already seen to it that new class-A office high rises (the new downtown skyline of TV's LA Law) were built.  They overbuilt, office space rents fell, B-office people moved into A-spaces and the B-spaces became available for loft and condo redevelopment, just in time for the drop in crime and gentrification.

The white elephants are still around.  There is a huge and underutilized convention center, a downtown-centered subway line and other baubles that we will be paying off a long time.  Developers have caught on that anything that can be sold as transit-oriented has a better chance of being greenlighted by planners.  My colleague, Jenny Schuetz, and her co-researchers have shown that this is not yet working out in LA.

Nevertheless, many of us apply our wisdom to predictions. Its pretty clear that I should have thought more about gentrification for downtown LA.

What the hell!

The Chetty et al. paper on inter-generational mobility has been getting a lot of attention. Social mobility data are essential to any discussion of economic performance -- and a welcome antidote to all of the misleading conclusions drawn by commentators who simply compare cross-sections. (You know who you are.)  People move between quintiles and it is most informative if we find a way to track their progress.  The Chetty et al. study develops a clever way to use IRS data to make comparisons of incomes, between parents and their offspring.  Have offspring moved up after 30 years?  To their great credit, the authors say that explanations for the geographic variation in their results remain to be explained.

The authors did include a bunch of bi-variate correlations which they point out are only suggestive of where people experience the most and least intergenerational mobility.  The usual suspects pounced on these and concluded it's the "sprawl" that inhibits progress.  I have often posted my thoughts on this misunderstanding. Here is my most recent.

Besides, "sprawl" is a vague and pejorative use. Suburbanization occurs everywhere and is much too varied to be described in overly simple terms.

Wilson and Singer of Brookings report where international immigrants to the U.S. choose to settle. The authors do this for the 100 largest U.S. metropolitan areas for 2000 and 2010. For each of these, they note whether or not the foreign born end up in the suburbs. For the whole set of metros (slightly fewer than 100 in 2010), 56.1% of the foreign born settled in the suburbs in 2000 while 60.6% did so in 2010.

I point this out because these immigrants, by definition, are not in the Chetty at al. data; they were not here (not in the IRS files) in the first year of the study. And by virtue of coming here, they are among the most upwardly mobile (see Lant Pritchett interview).

In the fast-and-loose manner that some have digested the Chetty et al. study, we could conclude that sprawl causes upward mobility.  What the hell!

ADDED

David King's analysis on point.

Less romantic

Thomas Friedman in "I Want to Be a Mayor" writes, "With both DC and the states increasingly AWOL, we need cities more than ever to be our engines of smart growth." 

Cities exist and grow because they are "engines of growth."  But the "smart" part can be many things. That's usually the problem.  Who are these smarties?

Friedman's whole essay is about how cities are governed. When he mentions "cities", does he mean city government?  Many people confuse nations with their governments; many also confuse cities with their governments. Friedman loves it that "Voters are putting up tax dollars for large-scale transit investments in Denver and Los Angeles ..." Politics without romance is adults-only sobering but Friedman will have none of that.

Economists refer to a "sun tax" (or a "commodity curse" or a "curse of oil") when bad governance is made possible in high amenity (or other good fortune) settings.  I have lived in a bad governance setting for many years but economic prospects are still passable.  Exhibit A would be Silicon Valley.  The shenanigans of Bay Area and California politicians have not killed it.  But not all areas have enough "sun" to offset high taxes, crazy policies, unfunded liabilities and such.

By the time a "perfect storm" gathers, it is usually too late. Detroit had badly run General Motors (with many industry soulmates including auto workers' unions) as well as badly run city hall.  Looking back, it is not easy to unscramble these eggs.

Cities are likely to be engines of growth if we do not look for "smart" stuff from city hall; less stuff would be much better. But that is less romantic.

Shipping

Last Sunday's NY Times included a lengthy story about the new Silk Road. Just when I thought that water transport had long eclipsed lengthy overland travel, it seems that the best way to get laptops from Chinese assembly plants to shops in Amsterdam is by train.

Trade begets development and development begets trade. That means both are dynamic and always evolving.

Closer to home, the Panama Canal expansion project is far along. I have found a surprisingly small number of studies that speculate on what this means for shipping and trade. Here is one of the few studies I have found.

Most of what is shipped uses more than one mode of shipment. If U.S. east coast-west coast shipping can more easily move by sea, what happens to U.S. rail and truck use? What about Pacific Rim trade bound for Europe, but that now traverses the U.S. by land routes?  As the use of the various modes changes, does business at the various trans-shipment nodes rise or fall?

But not so fast on mourning what will happen to U.S. overland freight.  Warren Buffett, who knows a few things about investing, made a big bet of trains several years ago. Just like the Eurasian Silk Road, our overland shipping may benefit from the new patterns that will emerge when the bigger and better Panama Canal gets going in 2015.

Detroit

I have long been poaching Wendell Cox’s urbanized area data.  One good reason is that he carefully flags the parts that are core cities. 

Looking at these data for the decades 1950-2000, one can quickly correlate core city population growth with subsequent decade suburban growth.  Using just the 24 largest of these for which six decades of data are available, two types of lagged correlations are easily found.  What does one decade’s growth predict for the next decade’s growth, core areas vs suburbs?  Here are some correlations:

1950-60: core cities growth with subsequent decade suburban growth, r = 0.64; suburban growth with subsequent decade core city growth, r= 0.66;

1960-70: core cities growth with subsequent decade suburban growth, r = 0.18; suburban growth with subsequent decade core city growth, r= 0.39;

1970-80: core cities growth with subsequent decade suburban growth, r= 0.13; suburban growth with subsequent decade core city growth, r= 0.28;

1980-90: core cities growth with subsequent decade suburban growth, r= -0.01; suburban growth with subsequent decade core city growth, r = 0.17.

For each pairing, I italicize the larger value.  Strong suburban growth does a better job predicting strong core growth than the other way around.  These are mostly positive; growth in one part of the metropolitan area is not at the expense of the other. And core areas do well if their suburbs have been doing well.

Paul Krugman reports that “sprawl killed Detroit.” But strong suburbs usually have the opposite effect.

ADDED

Wendell Cox has more to say about this. 

Local screwdriver

Resource allocation is not simple.  It is especially difficult when limited land is available for the various plausible land uses.  Markets (with the possibility of failure) is all we have.  In my walkable neighborhood, there is considerable turnover among retail vendors. Smart people (and their financial backers) often guess wrong re my neighbors' fickle tastes and/or fail to deliver an appealing package of goods, service, price, etc.  They have to go.

The standard textbook objection involves negative externalities. In my June 26 blog post, I noted that textbooks and teachers once evoked the old example of a glue factory somehow ending up on the corner of Park Ave and 50th in Manhattan.  More subtle examples from the real world are rare.

But there is usually another story. Creative destruction animates a lot of political activity. Losing in the market place may still leave the option of winning by other means.  This morning's LA Times includes "Malibu residents complain of becoming Rodeo Drive by the Sea ... Malibu residents are weighing whether to regulate the influx of upscale chains that are driving quaint mom-and-pop stores out of business. ... A few years ago, actor Dick Van Dyke complained in a local newspaper that for all the fancy boutiques, he could not buy a screwdriver within the city limits."

If the land market cannot accommodate Van Dyke, the Planning Department might.  Trouble is that no one will have an inkling of what it will cost to solve Van Dyke's screwdriver problem.    

When in doubt

I had thought that David Neumark and colleagues have the last word on the minimum wage debate.  Yes, there is a Law of Demand. Yes, people respond to incentives. Yes, we assume ceteris paribus and therefore must do more than take a first glance. Yes, we can measure what is seen, but know very little of the unseen (Bastiat), those who never enter the labor force if/when job creation slows. The New York Times and others celebrate the former, those whose wages did go up after a wage hike mandate, but they usually stop there.

Not mincing words, James Buchanan (cited here) famously referred to economists who find that minimum wage effects are benign as "camp following whores."

This morning's WSJ reports "The Shift to Part-Time ... Many Restaurants Avoid Hiring Full-Time Workers Due to Health-Care Rule."  When/if in doubt go with the incentive effects.

"Wild West Texas"

Planners and many others like urban "density".  The 1974 Costs of Sprawl report and hundreds of sympathetic tomes (look at the Sierra Club's "Ten Reasons Why Sprawl is Hazardous to Your Health") provided a focus for various antipathies, particularly those focused on auto travel and personal mobility (and choice). This is an old story. People keep making choices their betters disapprove of.

But the plot thickens. Most urban and regional plans are full of policies to reverse "sprawl" and promote densification. More public transit ("light" rail is the current favorite), more transit-oriented development. More investments in old downtowns, etc.  A 2006 Brookings Institution study sought to classify and categorize all of the planning approaches.

Have they worked?  Look at U.S. urbanized area density trends. They do not line up with the policies.  The Brookings study itemized the many types of measures that planners throughout the U.S. have adopted. The last column of Table 3 of the urbanized area data link indicates thirteen urbanized areas which experienced increased population densities in the most recent decade, the period during which the policies studied should have had an effect. There is not observable connection between increased population densities and regulatory approaches as identified by the Brookings study (Table 3 of their study and their Appendix).

Th researchers surveyed 1,800 jurisdictions which reported planning efforts in six broad areas of land use regulation (zoning, comprehensive planning, containment, infrastructure regulation, growth control, affordable housing). These were represented by twelve policy measures. Factor analysis was applied to classify the metropolitan areas in terms of their dominant regulatory approach, e.g., twelve "clusters" of  policies. The study authors then arrayed the clusters into four "typologies of land use regulations" ("Traditional," "Exclusion," "Wild West Texas," "Reform").  But the Demographia density report (Table 3) shows that very few urbanized areas experienced increased average densities. The few that did were scattered across the four typologies.  Houston, (as in no traditional zoning and as in "Wild West Texas") was one of the few. Houston, do we have a problem?

Many settings

Paul Romer asks whether Detroit is Denser than Denver. It's a set up because Romer is calling attention to the widespread silliness of referring to city-wide overall densities. Readers of this blog have heard it many times. Romer mentions that we have to look at local maps and consider small area peculiarities.

Researchers at the Santa Fe Institute are doing interesting cross-sectional work on cities. They report finding scalability over a large international set of cities. But we know that definitions and boundaries     vary considerably from place to place. There are local economies (labor markets) everywhere, to be sure. Do the definitions of spatial units used in the SFI sample match these?

 Zipf-rule rank-size distributions apparently describe all sorts of artifacts.  SFI researchers often cite the example of gas stations.  But we can bet that the density of these artifacts does not scale.

What matters most is the networking opportunities -- in Detroit or Denver or any place. We prosper when we can exchange goods and ideas at acceptable costs.  We apparently do this in all sorts of densities and settings.

Those human tragedies

What I knew about wiretaps, I got from The Wire.

I knew more about South Asian immigrants to the U.S., having encountered many through their academic contributions -- mostly via their writings but also many as high-achieving students and colleagues. The immigration debates highlight the latter; keeping out large numbers of talented and hard working South Asians is just one of the flaws in current immigration policy that should be remedied ASAP.

But having read Anita's Raghavan's The Billionaire's Apprentice: The Rise of the Indian-American Elite and the Fall of the Galleon Hedge Fund, I know a bit more about wiretaps as well as about elite Indian-Americans. They appear on both sides of the story. I am glad the author had the good sense to cite the David Ben-Gurion quip that the new Israel will have achieved real nationhood once it has its own burglars and hookers. South Asian immigrants, the author shows, are now more than simply a "model minority."  They pass the Ben-Gurion test.

The story is chilling on many fronts. Seeing the prosecutors, the defendants and the bit players (all through Rachavan's eyes), I did not encounter many "good guys". Prosecutors can  now use wire taps when investigating financial crimes and everyone knows it. But it is amazing how much the smart guys involved in illicit trades gab while on the phone.

The rise and fall of Rajat Gupta are the most fascinating parts of the story. Gupta rose about as far as anyone can. McKinsey CEO and Boards of Directors of top schools, corporations and charities. So why did he break the law on insider trading? (Why did he do it in a stupid way, caught by a phone tap?)  His net worth of $100-plus million was not enough. Spoiler alert. When he finally moved to New York (having made it a point to work from Chicago and Scandinavia offices of groups he was attached to), he perceived a new ball game.  He  now wanted to join those who bankroll the causes that he had previously (successfully) collected checks for (p. 401). He could have progressed towards his goal of ending malaria in the world either way, but that was apparently not satisfying enough

He wanted to keep up with the Rajaratnam's, referring to the hedge fund billionaire for whom Gupta played the apprentice.  It is the human tragedies that keep us turning the pages.

Coordination problems all the way down

Aggregation in economics presents problems. In fact, a case can be made that aggregation contradicts and even undermines our understanding of  markets. See Christopher Coyne's "Economics as the study of coordination and exchange" in Boettke's Handbook on Contemporary Austrian Economics.

We study markets because decentralized exchange is the only way we know to solve the immensely difficult and complex problem of getting uncountable scarce resources to where they are most valued. Coyne argues we have to focus on exchange rather than pose mechanical "allocation" problems which can be solved via aggregation and modeling.

Think about the idea of "capital".  Das Kapital denotes a nefarious thing that is accumulated solely for the sake of profiteers -- and at the expense of everyone else. But neo-classical economists also aggregate to get the "capital" that we see in their models.

But these approaches ignore and obscure the interesting problem.  Society provisions itself for a better future if and only if some of today's consumption is deferred in the service of worthy projects that will pay off (be rewarding and rewarded) at some future date. These simple words do not do evoke the scope and the difficulty of the task.  Tremendous risk-raking and coordination are involved.

Readers of this blog know that I view cities the same way.  The managers of firms are part of various supply chains.  In each case, they must decide how much of the supply chain is within vs beyond the firm.  Many of them locate their firm in cities and make the concurrent decision of how much of the supply chain (within as well as beyond the firm) takes place nearby or not (in the vicinity or not, in the same city or not, etc.). Attending to and forming any supply chain is also a coordination problem.  In fact, I often note that there are supply chains for ideas as well as things.  Expanding useful knowledge is a key part of the problem. This complicates matters even further.

We have to think of coordination problems that involve fine-grained spatial as well as temporal dimensions. Markets (always "imperfect" as in straw man) are the only game in town.

But this is not the way most analysts approach the problem.  Google scholar comes up with only 14,500 hits for "coordination problem" entered along with "markets". "Keynesian" gets 169,000.  "Cities" along with "coordination problem" gets 6,160.  "Marx" and "cities" gets 212,000.

These are crude measures, but cities' role in the coordination problem is, in my view, much more interesting than the cities' role in whatever Marxists write about these days.

Off topic: Three recent films

Here are three excellent films that cover the same theme. How do the children of monstrous parents make their way in the world?  Lore is fiction. Inheritance and Hitler's Children are documentaries.  All three cover the same ground and all three are chilling in their own way.

We have trouble understanding evil. We have trouble understanding advanced and seemingly enlightened societies (in this case 20th-century Germany and friends) marching into the abyss.  The educated middle classes caved.

The three movies are about the children and grandchildren of perpetrators who encounter an added difficulty: they decide that they cannot follow the injunction to honor father and mother.

But in all three films, notably the two documentaries, we also see that bad people can have decent offspring.

There are many very bad movies about historical events.  These three are very good.  

All those networks

The many Club of Rome-type "doomsday" forecasts have not done well.  There have been the similar outcomes for the peak-this-or-that forecasts. "Peak oil" (many titles like this at Amazon) looks sillier by the day as the shale revolution progresses. The Economist reports that even Vladimir Putin and his people have had to admit that shale gas is big ("Spooked by shale").

But "peak auto" has also been around for a while.  It has long been promoted by nostalgics who dream of a return to 19th-centruy cities and lifestyles.  In today's NY Times, Elisabeth Rosenthal writes about "The End of Car Culture ... Younger people are less likely than their predecessors to have licenses."

We know that many young (and not-so-young) do a lot of networking electronically.  That is not an unmixed blessing. But Rosenthal writes that, "President Obama's ambitious goals to curb the United States’ greenhouse gas emissions, unveiled last week, will get a fortuitous assist from an incipient shift in American behavior: recent studies suggest that Americans are buying fewer cars, driving less and getting fewer licenses as each year goes by."  Even the shale revolution provides a fortuitous, though seemingly unwelcome, assist.

But most of us are learning to manage (and trade off) many networks in our business as well as our social lives.  A mountain of formal literature by urban economists, urban geographers, urban planners and others evokes the journey-to-work as the basis for understanding the self-organization of cities.  But that was then.  Location patterns in cities and beyond will be better understood as the product of how all of us manage and trade off the many networks in our lives -- including electronic and conventional (and even including the occasional trip to the airport).  

Zoning

Bill Fischel has just posted his "Fiscal Zoning and Economists' Views of the Property Tax."  As usual, Fischel provides a great summary of the problem. We get zoning for fiscal reasons.  Yes, when it comes to nuisance control, the common law offers "retrospective remedies" and these may not be adequate. But economists have established a more plausible rationale for fiscal zoning, emphasizing it over conventional arguments re nuisance control.

There is a lot to learn re-reading Robert Murray Haig's 1926 essay on the topic.  Haig argues for zoning in the traditional way. "A glue factory on the corner of Park Avenue and 50th Street might show a net profit, considered by itself and ignoring the losses of its neighbors" (p.433). This is the version that has made its way into popular discourse and many people still buy it.  I seriously doubt that glue factories would have been located at that address even in the 1920s.  Land markets do not place glue factories where they have no business.

The fiscal zoning story is better because it is a political economy story.  Rather than a panel of wise men and women coming together to do "Regional planning, based on economic analysis ..." (Haig), there are a bunch of self-interested people politicking (fighting) to get the zoning that is best for them.

This morning's LA Times includes "Westside development fuels debate over growth -- smart or otherwise." One simply cannot read it (and a thousand like it) without thinking of Bruce Yandle's bootleggers and baptists.

Tough choices

Tyler Cowen linked to this Joe Satran post about LA vs NY food (also look at the video). LA vs NY stuff is always interesting, especially when food is involved. Predictably, the discussion evokes "sprawl" and "density" and ease of access to a variety of choices.  As readers of this blog know, some of these are bad words.  "Sprawl" is pejorative and vague. "Density" is also vague and is often used when agendas are in place.

Both, NY and LA, are much too big to be described by just plain "density;" I keep noting that if one must play that game, then one has to face the fact that the LA urbanized area is denser that NY's -- and has been for at least the past 25 years. Overall "density" is a poor descriptor.

In this discussion, when the foodies compare, they rely on the poor descriptors. How easily can I access a rich variety of eateries?

The question of where one can find a better quality of life intrigues planners and others. But that question does not work. Preferences and resources vary and we each look for a niche (in this case a neighborhood) that works best in light of our preferred lifestyles -- including restaurant styles, prices, access, variety, etc.

A good friend once confided that he would like Manhattan outside his front door and Santa Monica outside his back door. Until we make progress on this package, we will have to evaluate the trade-offs involved in the packages available and make our choices. 

Simple?

Today's WSJ includes a (seemingly) whimsical piece, "If the World Were Run Like Airlines ... Sandwich Prices Would Spike at Peak Hours and 'Priority' Elevators at the Hotel Would Cost Extra."

What is all the fuss? Price is determined by the interesction of supply and demand. Five little words.

Joking! It's a serious question and the textbooks are not always the best source.

Here is another shot: Sellers charge what they can. That's also five little words and it highlights the fact that pricing is dynamic, on-going, all about feedback, learning-by-doing adjustments and never stops being difficult and challenging. Business people know all this.  It is their "bread and butter," so to speak. Bundle or unbundle services? Charge by level of service, including time-of-day and season-of-the-year?

There is another aspect. What kind of resistance will there be from a public (and media) that routinely expect cost-based prices (whatever that is). Anything that can plausibly be linked to "cost" (not opportunity cost) may be justifiable as "fair". Otherwise, be very careful.

I presume that this is all very simple and basic -- but often beyond the elites who make (and comment on) the policies we have. 

Conversations

Economist Robert Frank wrote in the NY Times "What Sweden Can Tell Us About Obamacare." One could add that the U.S. is not Sweden.

The differences are clear but often overlooked by those who look to European policy examples.  This morning's LA Times celebrates the various "pocket parks" being opened in LA. "Mayor Antonio Villaraigosa unveils new donwtown L.A. park."

The story also notes "Downtown residents, although excited that construction is complete, were already buzzing about the potential problems that could befall Spring Street Park — including crime, litter and pet waste."

I recently blogged about a pocket park in my neighborhood that was fenced off almost as soon as it was built because it became an encampment for homeless as soon as it opened ("City not beautiful").

To borrow from my friends in Washington DC, can we at least have "a conversation" about the fact that street life (and civic life) in U.S. cities is not promising until we find a better way to deal with the "homeless" that we put on the streets because we cannot figure out what to do with/about them?  We do have many "conversations" about how awful it is that so many Americans withdraw to private communities and private spaces.

Can we all just get along?

World War II ended in the popular imagination when the troops came home to victory celebrations and reunions. There may have been a lot of these in the U.S., but the war was much too big and too tragic in Europe for there to be simple endings.  This fact is well documented by Keith Lowe in his Savage Continent: Europe in the Aftermath of World War II.

From the Conclusion: "There were many reasons not to love one's neighbor in the aftermath of the war ... The sheer variety of grievances that existed in 1945 demonstrates not only how universal the war had been, but also how inadequate is our traditional way of understanding it ..."  Communists and nationalists have exploited these grievances with tragic results. Ethnic cleansing in the the former Yugoslavia is fresh in our memories, but massive ethnic cleansings had been in force before 1945, after 1945 and through most of the 20th century.  Ethnically "pure" nation states had been a goal for many groups for many years.  Current economic crises in Europe provide new openings for the demagogues.  In comparison, our own immigration debates seem pretty tame.

"Can we all just get along?" Perhaps. But first we have to (all) learn and digest enough history. Lowe's book is, in my view, a great place to begin.

Many movies simply build on the cliches of history. But there are some that are worthy because they prompt deeper reflections. I liked these: Lore, Inheritance, Worse Than War.

Meta-stuff

Urban planners generally love densities. Many call it "smart growth." Urban economists and urban geographers have embraced density as a proxy for networking opportunities and have suggested that all manner of positive interactions are made possible at high enough urban densities. Richard Florida expects "creative people" to seek high density settings.

I have previously suggested that it is inevitably more complex than that. First, it is misleading to characterize whole metropolitan areas by their overall density because that masks considerable variation within areas. Second, we know that there are successful clusters in high-density Manhattan as well as much lower density Silicon Valley. Path dependence is powerful and we do not expect either place to evolve so as to become like the other.

I have just read "Travel and the Built Environment: A Meta-Analysis" by Reid Ewing and Robert Cervero.  The authors survey the many elasticities that various researchers have estimated.  They admit right off the bat that, "Surprisingly, we find population and job densities to be only weakly associated with travel behavior once these other variables are controlled."  I am not surprised.

One meta-finding (of many) is the elasticity of vehicle miles traveled (VMT) with respect to household or population density (their Table 3) which they report is -0.04. This is very small but, for practical purposes, what does it mean?

New development occurs mostly at the fringes of metropolitan areas but there is also considerable "infill" development. In most cases, there will be pressures to develop the project at a higher density in the name of less VMT.  But there are two problems. First, more people traveling a little less could still generate more overall VMT. Second, if the higher density leaves more space available, would the space be developed? If so, we get even more people and more VMT.  If not, the space will have to be traversed by anyone going to or from the new development, creating more VMT. Simple rules are never adequate.

That aside, Google scholar yields 39,800 hits for the paired words "density" and "sustainability" since just 2009. A small sampling of these involves studies or tomes that link the two in a positive way.  That suggests yet another meta-study.

   

Hard work

This morning's WSJ includes "Rail Lines Bring Housing Clashes ... Cities Take Steps to Promote Affordable Housing While Rents Rise Near New Transit Stops." 

Those who comment on the economic problems of the EU point out that a common currency and and independent fiscal policies (politics) can clash in a big way.  One cannot have both.  And this simple trusim is how we got to all the head scratching and the occasional hand wringing.

If your transit policy requires a transit-oriented development policy, then there will be consequences for the low-rent housing (and occupants) that had been in place.  Planners embrace and also scorn gentrification.

How to escape the conundrum?  The answer has been to subsidize favored developers and coax them into including quotas of new but affordable housing units in their projects. This enriches certain developers and solidifies city hall crony capitalism.

On a bad day, it also takes some developers and some development out of the picture, causing housing to become more expensive. But when people move out of central cities, dysfunctional city government (including public schools) as well as costly housing are often in the mix

Fixing a policy error by piling on more policies is never promising.

On our own

"Eat your spinach," "Take your vitamins," "Live like a caveman."  There is lots of accumulating evidence on how to live longer and better.  I learned a lot from Marlene Zuk's Paleofantasy: What Evolution Really Tells Us About Sex, Diet and How We Live, and have abandoned plans to do the caveman thing.

The serious research never stops and we learn new things all the time.  We have better access to information than ever and the responsibility to go on seeking, learning and deciding is each individual's personal responsibility. 

Agencies like the Food and Drug Administration are supposed to help us in this project.  But the FDA operates in a political context, as does every set of regulators. (This truism is often overlooked as part of the blame for the financial crisis is placed on "deregulation" or "inadequate" "lax" financial sector regulation.)

Yesterday's NY Times included "Don't Take Your Vitamins".  It appears that there is accumulating evidence of real health danger from megadoses of some vitamins. 

And the same story reports that the FDA has been politicized! There are shocking revelations each day. The IRS, the SEC, the NSA, and now the FDA.

I still have no idea what it will take to wean some Americans away from their faith in "regulation."

Here is the punch-line from the Times story:

In December 1972, concerned that people were consuming larger and larger quantities of vitamins, the F.D.A. announced a plan to regulate vitamin supplements containing more than 150 percent of the recommended daily allowance. Vitamin makers would now have to prove that these “megavitamins” were safe before selling them. Not surprisingly, the vitamin industry saw this as a threat, and set out to destroy the bill. In the end, it did far more than that.


Industry executives recruited William Proxmire, a Democratic senator from Wisconsin, to introduce a bill preventing the F.D.A. from regulating megavitamins. On Aug. 14, 1974, the hearing began.

A little more than a month later, Mr. Proxmire’s bill passed by a vote of 81 to 10. In 1976, it became law. Decades later, Peter Barton Hutt, chief counsel to the F.D.A., wrote that “it was the most humiliating defeat” in the agency’s history.


As a result, consumers don’t know that taking megavitamins could increase their risk of cancer and heart disease and shorten their lives; they don’t know that they have been suffering too much of a good thing for too long.

We are on our own and it was foolish to ever believe otherwise

The queue

Most of life's goodies are rationed by price.  Economists like it that way.  Without price, we have to invent and defend alternate rationing mechanisms; we also have to somehow find ways to elicit supply.  Scarcity is a hard fact and rationing is a tough problem.

Nevertheless, many people find great virtue in rationing by queueing.  Last Sunday's NY Times Magazine included "Why the simple line is under attack andwhy we must fight to preserve it. ... Lines operate as self-protecting organisms. The line takes care of its own."  The author goes on to beg the question by invoking "fairness" as though that were a simple and trivial matter.  Saying that waiting in line is "democratic" is also rhetorical. Unlike money, we all have equal amounts of time available, so why not use the queue?

Trouble is that not everyone's time is equal. Yesterday, for example, there were a few traffic jams and re-routings in the West L.A. area to accommodate President Obama's visit to raise funds for his political campaigns. That represented the workings of our democracy as well as the fact that his missions are more important than mine; I had to spend my time so that his could be spared.

On a recent visit to London, my wife reports visiting a McDonald's in The City.  She reports that there was an express line and signs that indicated it was for Bond Traders.    

It's about time

In all of the debate over RR vs Krugman about debt, the bigger point about what and how we count seldom comes up.  But here it is.  Kudos to Kotlikoff and PBS.

Ground zero

We chuckle about "bridges to nowhere" and "trains to nowhere."  For California's bullet train, there is even the occasional Churchillian, "never will so many pay so much to transport so few."  But these people are serious. 

Yesterday's LA Times reported on more California's casino politics.  Gambling laws in the U.S. are crafted to invite political manipulation.  In fact, they coincide with our unique nation-within-a-nation reservation governance arangements.  The Wikipedia entry mentions that "This jumble of private and public real estate creates significant administrative, political, and legal difficulties."

Not many people know much about Madera, California.  But even if you have never been there, you now know two things: 1) The Times story mentions that "a rare ruling from the Obama administration and a deal approved by Gov. Jerry Brown would allow one tribe to build a casino on a 300-acre property once slated to be a NASCAR racetrack in the Central Valley town of Madera. The prospect has divided Indian tribes and touched off an intense fight in the Capitol."; and 2) Madera county is "ground zero" for California's $65 billion (and counting) high-speed rail project.

Once sleepy Madera is now front-and-center of two expensive and politicized boondoggles.  Chinatown (the movie) is almost forty years old.  The LA Aqueduct story is 100 years old.  I hope they do the Madera movie while I am still around.
 

Cronies meet their match and lose one

Driving around LA, you cannot help noticing that there is something different.  The digital billboards have gone dark.  Here is the story.

I have mixed feelings about billboards.  If you are going to have them, the digital ones can add a touch of Las Vegas to otherwise drab cityscapes.  This supposes that they do not divert drivers (and bikers and walkers) to the extent that they cause accidents.

But read the story. There was apparently a "backroom deal" in LA's City Hall to allow the digital billboards. But the dealers overreached.  "The digital billboards, which are largely located in West L.A. and Hollywood, have angered homeowners, who complain about the glare."  Do not place these things where they upset residential property owners.  People care very much about their neighborhoods and neighborhood associations have clout.

Crony capitalism does have its limits.  In this case, the cronies had met their match.

Dots to connect

This morning's LA Times editorializes about the "The 501(c)(4) fiasco ... the public needs to be assured that the IRS can enforce the law independently and fairly ... ."  You bet.

Trouble is that the IRS code we have (courtesy of Congress) is bizarre. The Economist (May 25) reports ("Why Americans love the IRS") Since 2001, there have been 4,680 code changes. The tax code includes four-million words. Each year, three-million man-years are spent complying with the tax code; $168-billion a year is spent complying.  The list goes on.

Today's WSJ reports "In Lithuania, the Tax Man Cometh Right After the Google Car Passeth ... Assessors Use Web Giant's Street View Photos To Find Signs of Undeclared Wealth ... More than 100 people have been identified so far after investigators compared Street View images of about 500 properties with state property registries looking for undeclared construction ..."

Big government advocates want big taxes but that means big politics -- and big and usually awful tax administration.  The latter is just a symptom. That's true in the U.S. and in Lithuania and everywhere.  These are easy dots to connect.

The back door

Paul Bloom had another wonderful essay in a recent New Yorker ("The Baby in the Well: The case against empathy").  It is all about hard to achieve wisdom and perspective. "...[w]hen [Natalie] Holloway disappeared, the story of her plight took up more television time than the concurent genocide in Darfur."

And there is this: "The government’s failure to enact prudent long-term policies is often attributed to the incentive system of democratic politics (which favors short-term fixes), and to the powerful influence of money. But the politics of empathy is also to blame. Too often, our concern for specific individuals today means neglecting crises that will harm countless people in the future."

We are not very good at preference aggregation, but what if we were? Our jumble of preferences is often messy. Writers like Bloom usually end with some wistful hope for better government someday.

The latest Cato Policy Report features "The Public Choice Revolution in the Textbooks" by James Gwartney.  Most of the essay is about how the revolution is slow in coming.

The exclusion of public choice analysis is particularly strong at elite schools like those of the Ivy League and the University of California, Berkeley. Buchanan is exceptional among American Nobel prize-winners in that he has never held a teaching or research appointment at an elite school.


The underrepresentation of elite schools among public choice economists is readily observable at the annual meeting of the Public Choice Society, the professional organization of public choice scholars. For example, 296 public choice scholars presented papers at the March 2012 international meeting of the Public Choice Society held in Miami. Only 5 of the presenters were from either an Ivy League school or the University of California, Berkeley. Among the 5, only 1 was a faculty member with an appointment in an economics department.

Underrepresentation of public choice in the economics departments of elite schools has been a major deterrent to the dissimination of the analysis. These departments supply a substantial share of the new faculty members at other departments throughout the nation. They also command prestige, and faculty at other schools often follow their lead. Thus, it is quite difficult for a new theory or methodology to exert widespread impact without attracting support from the top tier of schools.

But Gartney ends on this positive note:

... there has been a virtual explosion of literature that is now referred to as the new institutional economics during the past two decades. In contrast with the derivation of optimal conditions under restrictive assumptions that characterizes so much of modern economics, the new institutional approach focuses on comparative analysis. Building on the work of Nobel laureates Friedrich Hayek and Douglass North, the methodology of the new institutional economics examines how alternative forms of economic, political, and legal institutions impact the performance of economies. This literature and its methodology are penetrating the elite schools and journals to a greater extent than has been the case for public choice analysis, paving the way for greater integration of public choice into mainstream economics.

Public choice could enter public broader public discourse via this back door.  That may be the only way.  "Experts" will always promote the faith in governance by experts. 

Unemployment and commuting

A recent NY Times story called attention to research by Profs David Blanchflower and Andrew Oswald ("Challenge to Dogma on Owning a Home").  The study shows that states with higher home ownership rates have higher unemployment.  Here is a punchline (from the Times story):

"If the correlation is real, what could be the cause? The professors say they believe that high homeownership in an area leads to people staying put and commuting farther and farther to jobs, creating cost and congestion for companies and other workers. They speculate that the role of zoning may be important, as communities dominated by homeowners resort to “not in my backyard” efforts that block new businesses that could create jobs. Perhaps the energy sector would be less freewheeling in North Dakota if there were more homeowners."

I worry about the use of state averages.  Variations within and between metropolitan areas are big. (ADDED, not to mention urban vs rural areas.)  And I could find no correlations between metropolitan unemployment rates amd commuting. BLS provides metropolitan area unemploymwent rates as well as year-to-year unemployment rate changes. NHTS provides household level commuting data for the metro areas. The correlations that I found for the 43 areas for which I could get data for both variables were these: 2009 mean commute time (minutes, solo drivers) and 2012 unemployment -0.07; 2009 commute time variance and 2012 unemployment -0.12; 2009 mean commute time and 2012-2013 change in unemployment, -0.08; 2009 commute time variance and 2012-2013 change in unemployment -0.10. For the commuting-unemployment link, there is apparently not much there.

More generally, the default assumption has been that homeownership is chock full of positive externalities. So the more the merrier.  So pour on the policy. That has not worked out so well. The theoretical argument goes for market determined homeownership rates, not the ones that have been generated by years of policy push.

Understaffed, overworked, underfunded

The Cincinnati IRS office is understaffed, overworked and underfunded. So says this in the NY Times.

I suppose every agency of government likes to make such claims.  We have heard it from failing public schools for as long as I can recall.

But the unfolding IRS story suggests two entirely different thoughts.

First, in any two-party electoral contest, the strategic choice is between firing up the true believers or moving to the center.  Obama chose the former and it worked.  But a hyper-partisan White House will inspire hyper-partisans all the way down the line.

Second, some of us like the idea of a flat tax because the 60,000+ word IRS code we have is cumbersome, user-unfriendly to the extreme, and simply a way to accommodate thousands of politicized special deals.  The argument has been made many times. Here is a quick summary.

But the politicized administration of this rotten code only makes a bad deal worse.  This does bring the tax code problem home to almost everyone.  Most Americans fear the IRS.  To see the politicized misuse of its awesome powers exposed brings the flat tax argument home to those who had tolerated the tax code status quo.

Ain't seen nothing yet

Contracts beat conflicts.  And when it comes to stagnation or not, we ain't seen nothing yet. Here the NY Times reports on crowdfunding when it comes to real estate development. This may put a damper on NIMBY (h/t TMG). Contracting can replace a bunch of conflicts.

I have mentioned several times that when it comes to the way cities grow, it appears that preferences trump policies -- in spite of the thicket of politics we encounter everywhere.  The scales will tip more towards preferences as we give locals a chance to buy in to more local development possibilities.

ADDED

The Economist (May 18) describes Civic Crowdfunding for infrastructure. Crowdfunding, then, can go to public or private projects. It can include donations as well as investments. I like it.

Puzzles indeed

Today's WSJ includes "Beijing Puzzles Over Urban Growth ... Government Entertains Debate on How to Manage Population Gains as It Seeks Lift From Bigger Cities."  There are no "good" or "bad" city sizes, just as there are no "good" or "bad" city densities.  But many urban theorists and planners continue to chase these gross simplifications.

Cities contribute to productvity and economic development if they allow labor and capital to be productive.  The many agents that we aggregate into "labor" and "capital" can each be productive in urban settings if they manage to find the networking opportunities (conveying things as well as thoughts and ideas) that work best for them.  This describes the intricate locational puzzle that we call "urban structure" -- and that we cannot solve top-down.

Economic growth requires economic freedom, but some wonder about political freedom. In these discussions, there is always someone always who suggests China when trying to make the point that political freedom is not required.  But that means politicized meddling which inevitably gets things wrong ("Beijing Puzzles ...").  It surely gets cities wrong. Sandy Ikeda tells the story a bit more elegantly here.

What works?

Here is Wendell Cox's summary of 1920-2010 U.S. urbanization data. This stuff is indispensible because the Census' urbanized areas (UZAs) are periodically redefined to capture the boundaries of actual development. From 1950-2010, there are seven decennial observations.  How do the top-ten population rankings change over this period?  Without looking, everyone knows that the New York UZA was #1 in each year. So the number of rank changes for #1 was zero.  In the #2 slot, Chicago was #2 in 1950, but LA has been #2 ever since.  That means just one rank change for the title of second biggest UZA.

This is how the top ten rankings changed over the sixty years:

UZA rank    # of rank changes
1                 0
2                 1
3                 1
4                 1
5                 2
6                 2
7                 4
8                 4
9                 6
10               6

The greatest stability is at the top.  (Doing the same exercise for central cities would make no sense because they involve political boundaries that may or may not budge, depending on local laws and conditions.)

There are costs and benefits of UZA size. The trick is to exploit the benefits of size without being overhwelmed by the costs? I have mentioned often that flexible enough land markets are the only explanation. Allow for the propitious location and re-location of land uses. The propitious spatial arrangements are the ones that allow profitable interactions.  These are too complex to be knowable by policy makers.  Experimentation by risk takers is the only option.

Here is the Chatterji, Glaeser, Kerr study of "Clusters of Entrepreneurship and Innovation". Looking across their various cases and examples, the authors report a mixed record of success as well as a mixed set of policies.

LA is no Norway

Ray Fisman and Edward Miguel have garnered well deserved attention for their "Corruption, Norms, and Legal Enforcement: Evidence from Diplomatic Parking Tickets" in the 2007 Journal of Poltical Economy. For those who have not seen or heard of it, here is the abstract:

We study cultural norms and legal enforcement in controlling corruption by analyzing the parking behavior of United Nations officials in Manhattan. Until 2002, diplomatic immunity protected UN diplomats from parking enforcement actions, so diplomats’ actions were constrained by cultural norms alone. We find a strong effect of corruption norms: diplomats from high-corruption countries (on the basis of existing survey-based indices) accumulated significantly more unpaid parking violations. In 2002, enforcement authorities acquired the right to confiscate diplomatic license plates of violators. Unpaid violations dropped sharply in response. Cultural norms and (particularly in this context) legal enforcement are both important determinants of corruption.

The study marries a natural experiment (gold in the social sciences) with a profound question (the link between culture and trust). This matters greatly for private as well as public sector performance -- and economic growth.

I have long suspected that Los Angeles (not a country and not in the study) is no Norway.

The NY Times recently included "For Los Angeles, an End to the ‘Free’ Subway Ride" (H/T Brad Hill).  After our own twenty-year experiment, we see that the honor system has not fared well here. 

Station platforms will look even more lonely once the free riders stay away. But that is not yet certain because it appears that installing and making the turnstiles work is presenting its own challenges.

Transit dreams have long been a fixture among LA elites (most of whom never use transit).  But there are these realities. 

Recent past?

Everyone knows that everything has speeded up. Forget the obligatory "almost".  Here is a great 1993 v 2003 visual of how our personal electronics have changed in twenty years (H/T Craig Newmark). There is nothing like a crisp visual, but even that understates the drama. Prices and quality are not shown and we know that both have improved.

Today's WSJ includes "Poles Apart: Today's Kids Line Up to Learn About Communist Past in Poland ... Best Soviet-Era Shopping Strategy Wins This Board Game ... Shopping in communist Poland was a dreary gantlet of shortages, rationing lines and—if you managed to buy something—Soviet-Bloc dreck. So Karol Madaj has turned it all into a board game called Queue. The challenge: Buy everything on your shopping list. Players wait outside empty government stores, fend off line-jumpers and haggle with black marketeers. The 40-page instruction manual warns the game may inspire 'tears of exasperation' and 'the gnashing of teeth.' Queue, introduced in 2011, paradoxically proved to be so popular that buyers had to stand in line for hours for one and a black market emerged."

This is also about a (near) twenty-year change. Polish young people have no idea of how it used to be and the older generation wants them to know. Games are better than stories from grandpa.

Time marches on and history becomes more extended, but it also becomes more crowded as the pace picks up.

The news story ends with this wonderful irony:  "Unintentionally, the game is a living example of that world because it is produced by the Polish government. The Institute of National Remembrance, a state body created in 1998 to preserve memories of Poles' struggles against Nazism and communism, gets money to produce Queue from the national budget. Overwhelming demand hasn't induced bureaucrats to fund a production increase. 'It's like under socialism,' quips Andrzej Zawistowski, the institute's director of public education, who is pushing for a market-based approach. One queue for Queue formed roughly four days before sales began, he said. The shortage of the game about shortages has even prompted angry letters from consumers for whom it brought back bad memories, says Mr. Madaj. 'Some people didn't appreciate the irony.'"