Many people like to assert "fair" this and that. They usually get away with it in spite of the fact that they do not offer useful definitions. Perhaps there aren't any. So this is a big scam. Politicians and other grand-standers love to align themselves with policies and proposals that are "fair."
The U.S. graduated income tax is a mess. The Economist (May 25, 2013; gated) published these details: Changes to IRS code since 2001 = 4680; number of words in the tax code = 4
million; man-years spent complying each year =
3 million; percent filers paying for help = 89%; money spent on compliance = $168
billion; taxes owed but uncollected each year =
$400 billion. This is a "progressive" tax with strong leavening of (and invitation to) crony-capitalism and lobbying. The various meanings of "progressive" seem to get stranger all the time.
One can say that almost anything other than the status quo would be an improvement. Here is a Hall-Rabushka proposal. In this version, there is a 19% levy on all consumption above $12,600 -- for a family of four. This was suggested some years ago so the numbers would change. Indexing is surely possible. This H-R proposal does build in a high marginal tax rate as soon as spending crosses the $12,600 barrier. Is that "fair?"
How about no exemptions but a guaranteed universal basic income ($50,000 per family per year?). "Universal" as in for everyone. The super-rich would probably use theirs for charitable donations. Is all this "fair?" Think about no welfare administration plus a vastly slimmed down and simplified IRS. The still unfolding Lois Lerner saga (30,000 lost emails found!) adds to the attractiveness of the proposal.
If we could only place (and collect) a tax on use of the f-word.
Monday, November 24, 2014
Friday, November 21, 2014
The big issues
When you think about immigration, the gains from trade argument is fundamental and significant ("Trillion Dollar Bills Left on the Sidewalk"). The humanitarian angle is also profound; the accident of birth arbitrarily leaves many people in hell holes. One has to like liberalized immigration -- by all of the "rich" countries. It would be nice for the U.S. to show the way.
I cannot get Arnold Kling's "three axes" model out of my head. He suggests that different people emphasize one of three "axes". These include freedom vs. coercion, oppressor vs. oppressed, civilization vs. barbarism. He suggests that libertarians focus on the first, progressives on the second and republicans on the third. And the three often talk past each other.
But each of the three views holds a grain of truth. This is why liberalized immigration cannot mean "open borders." The latter would bring in some bad actors. What to do? Pres. Obama as well as his Republican critics talk about "securing the border." This is rhetoric. The U.S. War on Drugs is almost fifty years old, involves billions of dollars, and countless civil liberties abused -- and has failed completely. Borders were not "secured." Anyone who lightly banters this one around owes us an explanation. The "hell" really is in the details.
What markets cannot handle is left to politics. The drafters of the U.S. Constitution knew that politics is a necessary evil and thought hard how to guide and contain it. Change would be subject to checks and balances.
LBJ had very big politics on his hands with civil rights in 1964. He won and settled the controversy by winning in Congress, not by issuing an executive order. I trust that some lawyers will opine that the executive order(s) that Obama described last night have a legal foundation. But that is not the point. The big questions (civil rights as well as immigration) are only settled when the three branches of government find a way to agree. LBJ understood that. I have no idea what Obama is thinking.
I cannot get Arnold Kling's "three axes" model out of my head. He suggests that different people emphasize one of three "axes". These include freedom vs. coercion, oppressor vs. oppressed, civilization vs. barbarism. He suggests that libertarians focus on the first, progressives on the second and republicans on the third. And the three often talk past each other.
But each of the three views holds a grain of truth. This is why liberalized immigration cannot mean "open borders." The latter would bring in some bad actors. What to do? Pres. Obama as well as his Republican critics talk about "securing the border." This is rhetoric. The U.S. War on Drugs is almost fifty years old, involves billions of dollars, and countless civil liberties abused -- and has failed completely. Borders were not "secured." Anyone who lightly banters this one around owes us an explanation. The "hell" really is in the details.
What markets cannot handle is left to politics. The drafters of the U.S. Constitution knew that politics is a necessary evil and thought hard how to guide and contain it. Change would be subject to checks and balances.
LBJ had very big politics on his hands with civil rights in 1964. He won and settled the controversy by winning in Congress, not by issuing an executive order. I trust that some lawyers will opine that the executive order(s) that Obama described last night have a legal foundation. But that is not the point. The big questions (civil rights as well as immigration) are only settled when the three branches of government find a way to agree. LBJ understood that. I have no idea what Obama is thinking.
Thursday, November 13, 2014
Third arrow?
The financial press has accepted the catchy label "Abenomics" re Japan Prime Minister Shinzo Abe's proclaimed three-pronged economic policy. There would be aggressive fiscal and monetary policies as well as "structural reform". The latter is the famous "third arrow" that has not yet been fired. Launching fiscal and monetary largesse is second nature to politicians here and abroad. "Reform" is another matter. But it's absence means the other two legs of the stool will not accomplish much. In fact, that's been the case in Japan, the U.S. and much of Europe.
The three-pronged stool idea suggests an equal distribution of weight. So it's a bad analogy. The part that could make a serious difference is number three, reform. John Taylor explains that (i) post-2008, the policies that came from Washington were erratic and ad hoc; and (ii) "reforms" have been mixed at best, e.g., Dodd-Frank.
And what do we read almost every day? Discussions of whether fiscal and monetary policies been aggressive enough. But it's not just the politicians, it's (most) economists on that same page too.
The three-pronged stool idea suggests an equal distribution of weight. So it's a bad analogy. The part that could make a serious difference is number three, reform. John Taylor explains that (i) post-2008, the policies that came from Washington were erratic and ad hoc; and (ii) "reforms" have been mixed at best, e.g., Dodd-Frank.
And what do we read almost every day? Discussions of whether fiscal and monetary policies been aggressive enough. But it's not just the politicians, it's (most) economists on that same page too.
Sunday, November 09, 2014
Zero-sum and negative-sum
Today's NY Times includes "The LeBron Stimulus ... King James may resurrect a basketball team, but can he save a city too?" To be sure, any shock ("stimulus") redirects expenditures and thereby reallocates resources. But there is less than meets the eye because this does not necessarily amount to new wealth.
Fans and others who choose to redirect their personal spending are by definition better off. But new sports facilities built via edict (city hall crony-boosterism) also redirects spending but increased welfare is by no means assured. Similar misunderstandings surround practically all discussions of government stimulus. Redirection is among sectors as well as places.
The biggest error is the one that sees war (even WW II) as a great economic booster. Does anyone need to be reminded that wars are great destroyers? War efforts can prompt new technological achievements which can add to wealth. But one has to ask: at what cost? It's the old Econ 101 question that must be attached to all "good ideas" and associated policies
This brings us back to Cleveland and LeBron James. Can anyone point to new productivity? Do basketball-energized Clevelanders work smarter and harder? Does capital and labor that may stream towards northeast Ohio work better and smarter in its new setting? The Times piece evokes Keynes' "animal spirits" and suggests that "mood matters." But we do not know. Microsoft in Seattle was a source of great innovation. Would Microsoft in Portland instead have been any less innovative? New ideas are embedded in new capital but to what extent does this apply to re-directed labor and capital? Unless we have strong reason to suppose otherwise, re-direction is zero-sum; politicized re-direction is probably negative-sum.
Fans and others who choose to redirect their personal spending are by definition better off. But new sports facilities built via edict (city hall crony-boosterism) also redirects spending but increased welfare is by no means assured. Similar misunderstandings surround practically all discussions of government stimulus. Redirection is among sectors as well as places.
The biggest error is the one that sees war (even WW II) as a great economic booster. Does anyone need to be reminded that wars are great destroyers? War efforts can prompt new technological achievements which can add to wealth. But one has to ask: at what cost? It's the old Econ 101 question that must be attached to all "good ideas" and associated policies
This brings us back to Cleveland and LeBron James. Can anyone point to new productivity? Do basketball-energized Clevelanders work smarter and harder? Does capital and labor that may stream towards northeast Ohio work better and smarter in its new setting? The Times piece evokes Keynes' "animal spirits" and suggests that "mood matters." But we do not know. Microsoft in Seattle was a source of great innovation. Would Microsoft in Portland instead have been any less innovative? New ideas are embedded in new capital but to what extent does this apply to re-directed labor and capital? Unless we have strong reason to suppose otherwise, re-direction is zero-sum; politicized re-direction is probably negative-sum.
Wednesday, November 05, 2014
Gravity still matters
I used to think that "monopolistic competition" is an oxymoron. (But more than 46,000 cites at Google Scholar.) I was stuck on "mono" meaning "one". It is actually about the impossibility of perfect substitutes and the fact that we each make personal judgements about which are the "good" vs. the "bad" substitutes.
So whether we shop online or the old fashioned way is not a simple choice. They are imperfect substitutes and each occasion involves a peculiar choice for each of us. This is elaborated in David Bell's Location Is (Still) Everything. The gravity law of retail gravitation is still valid -- and cities will not disappear. Coming almost 15 years later, Bell's book is the one to place next to Frances Cairncross' The Death of Distance.
The gravity formulation recognizes the friction(s) of distance as well as the attraction(s) of mass. Again, on a case-by-case basis we have personal subjective valuations of each. This includes whatever affinities or loyalties we may have for "first movers" into any product line. It also includes whatever agglomerations or clusters we choose to live in or visit.
No one ever said that marketing (or Tiebout-sorting) is simple. We form (and manage) networks in the real physical world as well as via the internet. Bell cites many examples where the uses complement each other. We often go online to help us with old fashioned shopping.
My major quibble with Bell's book is that he applies the Zipf rank-size rule to cities -- not the entire metropolitan areas. City boundaries are political and not functional. There is no reason for there to be a good fit.
So whether we shop online or the old fashioned way is not a simple choice. They are imperfect substitutes and each occasion involves a peculiar choice for each of us. This is elaborated in David Bell's Location Is (Still) Everything. The gravity law of retail gravitation is still valid -- and cities will not disappear. Coming almost 15 years later, Bell's book is the one to place next to Frances Cairncross' The Death of Distance.
The gravity formulation recognizes the friction(s) of distance as well as the attraction(s) of mass. Again, on a case-by-case basis we have personal subjective valuations of each. This includes whatever affinities or loyalties we may have for "first movers" into any product line. It also includes whatever agglomerations or clusters we choose to live in or visit.
No one ever said that marketing (or Tiebout-sorting) is simple. We form (and manage) networks in the real physical world as well as via the internet. Bell cites many examples where the uses complement each other. We often go online to help us with old fashioned shopping.
My major quibble with Bell's book is that he applies the Zipf rank-size rule to cities -- not the entire metropolitan areas. City boundaries are political and not functional. There is no reason for there to be a good fit.
Monday, November 03, 2014
Old downtowns and new tech
Manhattan's downtowns are the model that many American city planners dream of. But it is not a plausible model in most auto-oriented cities. You get street life when enough pedestrians use the streets to get around proximate destinations. Today's NY Times includes "Los Angeles, in the Rider's Seat ... The personal car is still king in Southern California, but smartphone apps for ride-sharing services have made the city's night life more like New York's when it comes to accessibility ..."
The promise of the combination of smartphones, broadband, apps and smart tech entrepreneurs is well understood and appreciated. I expect that this is just the start and that the stagnationists are wrong. But the real point here is that we have another case of 50+ years of policies and public monies poured into downtown LA's revitalization with little effect. Then two things happened with which policy makers had little to do. The fall in street crime and now the rise of Uber-type services. In fact, the latter has to fight off the efforts of policy makers in LA whose impulse is to sustain the city-sanctioned taxi monopoly.
Hayek thought that policy successes are hard to achieve because policy makers are inevitably data deficient; they are also hampered by inevitable politicization. But as in my previous post, it is possible to achieve policy goals in spite of the policies enacted.
Matt Kahn sees all of this as pointing to the importance of '"consumer cities." Finally, tech does not give us the "death of distance" or any such thing. Rather, old tech (downtown) and new tech (Uber) can complement each other to achieve something novel. Cities will keep spreading out and old centers will gain in some places.
The promise of the combination of smartphones, broadband, apps and smart tech entrepreneurs is well understood and appreciated. I expect that this is just the start and that the stagnationists are wrong. But the real point here is that we have another case of 50+ years of policies and public monies poured into downtown LA's revitalization with little effect. Then two things happened with which policy makers had little to do. The fall in street crime and now the rise of Uber-type services. In fact, the latter has to fight off the efforts of policy makers in LA whose impulse is to sustain the city-sanctioned taxi monopoly.
Hayek thought that policy successes are hard to achieve because policy makers are inevitably data deficient; they are also hampered by inevitable politicization. But as in my previous post, it is possible to achieve policy goals in spite of the policies enacted.
Matt Kahn sees all of this as pointing to the importance of '"consumer cities." Finally, tech does not give us the "death of distance" or any such thing. Rather, old tech (downtown) and new tech (Uber) can complement each other to achieve something novel. Cities will keep spreading out and old centers will gain in some places.
Friday, October 31, 2014
The real world
Hydraulic fracturing is partly responsible for a positive "oil shock". "How Plunging Oil Scrambles Geopolitics" by Prof. Brenda Shaffer (gated) in today's WSJ looks at discomfort in Russia, Venezuela and Iran. But there are positive effects in all of the oil consuming nations also. Administration policy did not see this one coming; they do what they can to impede fossil fuel production and push hard for "renewables."
We also have new records on Wall Street. High asset prices (that reward "the rich") are another one of those embarrassments because Washington policy (on its face) was to help everyone but "the rich." Policy (here and abroad) that keeps interest rates low do a so-so job providing an economic recovery but they do push up asset prices. Good for asset owners. What about the poor and the middle class? Not so good. Here is a nice NYT summary.
Central planning is hard work. At best, you hit the target you want to hit. At worst, your policies backfire. We have neither. For the case of oil, we get a windfall of good economic outcomes from policies that are the opposite of those executed. For the case of asset prices, there is also a windfall but not the one policy makers had in mind. It could have been much worse. The worldview our policy makers use is seemingly not of the real world.
We also have new records on Wall Street. High asset prices (that reward "the rich") are another one of those embarrassments because Washington policy (on its face) was to help everyone but "the rich." Policy (here and abroad) that keeps interest rates low do a so-so job providing an economic recovery but they do push up asset prices. Good for asset owners. What about the poor and the middle class? Not so good. Here is a nice NYT summary.
Central planning is hard work. At best, you hit the target you want to hit. At worst, your policies backfire. We have neither. For the case of oil, we get a windfall of good economic outcomes from policies that are the opposite of those executed. For the case of asset prices, there is also a windfall but not the one policy makers had in mind. It could have been much worse. The worldview our policy makers use is seemingly not of the real world.
Sunday, October 26, 2014
Mismatch
The Economist of Oct 25 includes "The geography of joblessness." The piece cites new studies, not the same old cross-sectional "spatial mismatch" research of the 1960s and 70s, using newer longitudinal data less likely to confuse cause and effect. Higher unemployment, the cited studies show, can be linked to residential location further removed from areas of high job concentrations.
One of the suggestions made in the piece is to "improve" public transit. As with most discussions of "the need" for more infrastructure, there are many ways to spend more money. Not all of them are beneficial. Transit spending in the U.S. has been rising for decades with almost nothing to show for it.
But been-there-done-that. The original spatial-mismatch work was used to justify transit subsidies back in the day. A significant social and economic problem would be "solved" via policies and politics dear to Bootleggers and Baptists (B & B). But the long-term decline in public transit's share of passenger miles has not been touched by the massive subsidies. Meanwhile, unemployment and underemployment have been rising.
Unemployment and underemployment are difficult and complex problems. They probably have a lot to do with poor public schools, lack of skills, poor of work habits. But these are beyond the realm of B & B policies. The mismatch is between the problems and the policies.
One of the suggestions made in the piece is to "improve" public transit. As with most discussions of "the need" for more infrastructure, there are many ways to spend more money. Not all of them are beneficial. Transit spending in the U.S. has been rising for decades with almost nothing to show for it.
But been-there-done-that. The original spatial-mismatch work was used to justify transit subsidies back in the day. A significant social and economic problem would be "solved" via policies and politics dear to Bootleggers and Baptists (B & B). But the long-term decline in public transit's share of passenger miles has not been touched by the massive subsidies. Meanwhile, unemployment and underemployment have been rising.
Unemployment and underemployment are difficult and complex problems. They probably have a lot to do with poor public schools, lack of skills, poor of work habits. But these are beyond the realm of B & B policies. The mismatch is between the problems and the policies.
Friday, October 24, 2014
"Diversity"
Here is Peter Boettke calling attention to a PBS story with and about Walter Williams. Watch the clip.
I find that Williams is always worth listening to. He explains basic economics as clearly as anyone. This is particularly important because too many college econ courses are obscure and forgettable. Williams also has a personal history that is worth hearing about.
Call your local affiliate for date of showing -- or go to this list. I will not be able to see the program. LA is not on the list, neither is NY, Chicago, San Francisco, Seattle, Portland, etc. I see only two of the large U.S. metros represented: Philadelphia and Washington, DC.
Station managers and/or their audiences in most of the large cities seemingly have a narrow (predictable) view of diversity.
I find that Williams is always worth listening to. He explains basic economics as clearly as anyone. This is particularly important because too many college econ courses are obscure and forgettable. Williams also has a personal history that is worth hearing about.
Call your local affiliate for date of showing -- or go to this list. I will not be able to see the program. LA is not on the list, neither is NY, Chicago, San Francisco, Seattle, Portland, etc. I see only two of the large U.S. metros represented: Philadelphia and Washington, DC.
Station managers and/or their audiences in most of the large cities seemingly have a narrow (predictable) view of diversity.
Wednesday, October 22, 2014
Networked innovation
Many people saw PBS' various installments of Steven Johnson's How We Got to Now. Here is the book which is equally enjoyable. In fact, the book is crammed with great visuals and parallels to the TV presentation (though not in the same order). This may be a new thing: market a book and a TV series that are practically interchangeable; watch the popularity of the one prompt interest in the other.
Economists see a world of supply chains. I like supply chains of ideas; we get smart and we get ideas by interacting with each other. Johnson likes to string inventions together ("networked innovation"). Gutenberg got people to read; many then discovered that their eyes were not so good; the people who had found how to work with glass also found a way to make lenses for seeing-eye glasses; it was not long before we got to microscopes and telescopes and all of the science these brought forth. Johnson evokes chains like these throughout the book.
Once clean water was possible via chlorination, there were public baths. Once we had these, women's bathing suits became skimpier. Historians of ideas are supposed to make connections and some of Johnson's will be challenged. But what fun. "Before the rise of municipal pools, women bathers generally dressed as though they were bundled up for a sleigh ride. By the mid-1920s, women began exposing their legs below the knee; one-piece suits with lower necklines emerged. Open-backed suits followed by two-piece outfits followed quickly in the 1930s. (p. 149). And we know the rest of the story.
Economists see a world of supply chains. I like supply chains of ideas; we get smart and we get ideas by interacting with each other. Johnson likes to string inventions together ("networked innovation"). Gutenberg got people to read; many then discovered that their eyes were not so good; the people who had found how to work with glass also found a way to make lenses for seeing-eye glasses; it was not long before we got to microscopes and telescopes and all of the science these brought forth. Johnson evokes chains like these throughout the book.
Once clean water was possible via chlorination, there were public baths. Once we had these, women's bathing suits became skimpier. Historians of ideas are supposed to make connections and some of Johnson's will be challenged. But what fun. "Before the rise of municipal pools, women bathers generally dressed as though they were bundled up for a sleigh ride. By the mid-1920s, women began exposing their legs below the knee; one-piece suits with lower necklines emerged. Open-backed suits followed by two-piece outfits followed quickly in the 1930s. (p. 149). And we know the rest of the story.
Sunday, October 19, 2014
Just-so stories are just human
We love narratives. We produce and consume just-so stories all the time. In today's NY Times, Konika Banerjee and Paul Bloom ask "Does Everything Happen for a Reason?" They add, "Of course not. But studies suggest we have a natural urge to think so." We are pattern-seeking. This is a very practical tendency acquired via evolution. It has the well known downside that jumping to conclusions entails risks. Nevertheless, Banerjee and Bloom wind up this way:
Just-so storytelling is the way most people discuss the everyday price gyrations on asset markets. Stock markets have had a bad October -- and there is no end of explanations. Also in today's NY Times, Robert Shiller discusses, "When a Market Theory is Contagious ... Is the world suffering 'secular stagnation'? Yes or no, the idea alone keeps hurting stocks." Shiller notes the prominence of "thought viruses."
These viruses and many other just-so stories are always out there. But buy-and-hold investment strategies are too boring for many. They flock to the casino with predictable results.
Some people are more prone to find meaning than others. In large-scale survey studies also reported in the journal Cognition, we found that highly paranoid people (who tend to obsess over other people’s hidden motives and intentions) and highly empathetic people (who think deeply about other people’s goals and emotions) are particularly likely to believe in fate and to believe that there are hidden messages and signs embedded in their own life events. In other words, the more likely people are to think about other people’s purposes and intentions, the more likely they are to also infer purpose and intention in human life itself.
WHATEVER the origin of our belief in life’s meaning, it might seem to be a blessing. Some people find it reassuring to think that there really are no accidents, that what happens to us — including the most terrible of events — reflects an unfolding plan. But the belief also has some ugly consequences. It tilts us toward the view that the world is a fundamentally fair place, where goodness is rewarded and badness punished. It can lead us to blame those who suffer from disease and who are victims of crimes, and it can motivate a reflexive bias in favor of the status quo — seeing poverty, inequality and oppression as reflecting the workings of a deep and meaningful plan.
Not everyone would go as far as the atheist Richard Dawkins, who has written that the universe exhibits “precisely the properties we should expect if there is, at bottom, no design, no purpose, no evil, and no good, nothing but blind, pitiless indifference.” But even those who are devout should agree that, at least here on Earth, things just don’t naturally work out so that people get what they deserve. If there is such a thing as divine justice or karmic retribution, the world we live in is not the place to find it. Instead, the events of human life unfold in a fair and just manner only when individuals and society work hard to make this happen.
We have also developed the scientific method of inquiry whereby we seek to do better than be "just-so" storytellers.We should resist our natural urge to think otherwise.
Just-so storytelling is the way most people discuss the everyday price gyrations on asset markets. Stock markets have had a bad October -- and there is no end of explanations. Also in today's NY Times, Robert Shiller discusses, "When a Market Theory is Contagious ... Is the world suffering 'secular stagnation'? Yes or no, the idea alone keeps hurting stocks." Shiller notes the prominence of "thought viruses."
These viruses and many other just-so stories are always out there. But buy-and-hold investment strategies are too boring for many. They flock to the casino with predictable results.
Thursday, October 16, 2014
Water
The LA papers are full of worries over the local drought but have yet to discover, pricing, incentives, and politicized misallocations. This is why I was happy to find Eduardo Porter's "The Risks of Cheap Water" in the NY Times.
Water can be metered and sold. There is no reason other than politics for nutty politicized allocations. Politicians do like politicized allocations. There is a nice post on all this by Alex Tabarrok at MR. Gary Libecap has been all over California water policy missteps for some time.
Milton Friedman quipped, "If you put the federal government in charge of the Sahara Desert, in five years there'd be a shortage of sand.” People smiled. But in California, we have droughts, popping water mains, water cops to patrol who waters when. Dirty cars are now a local badge of honor. It's funny bit it's not.
Water can be metered and sold. There is no reason other than politics for nutty politicized allocations. Politicians do like politicized allocations. There is a nice post on all this by Alex Tabarrok at MR. Gary Libecap has been all over California water policy missteps for some time.
Milton Friedman quipped, "If you put the federal government in charge of the Sahara Desert, in five years there'd be a shortage of sand.” People smiled. But in California, we have droughts, popping water mains, water cops to patrol who waters when. Dirty cars are now a local badge of honor. It's funny bit it's not.
Wednesday, October 15, 2014
Legacy
Getting my own medical care, I have encountered more than a few medical professionals who are practicing here from abroad and who treated me very well. I was glad they are here and I expect that they are also better off practicing medicine in the U.S. than in their native land. Good old fashioned gains from trade.
This morning's WSJ includes an op-ed by E. Fuller Torrey, "How the U.S. Made the Ebola Crisis Worse ... The total number of Liberian doctors in America is about two-thirds the total now working in their homeland." Torrey wants the U.S. to produce more home-grown health professionals so that this kind of thing cannot go on. Expect others to call for restrictions on how many professionals from abroad are allowed to practice here. Gary Becker advocated auctioning immigrant permits to the highest bidder. That would not address the problem that Torrey writes about.
The very big problem is the one Adam Smith wrote about many years ago. Some nations are rich and some are poor. And whereas some poor places can become rich (as in East Asia), many others are less likely to make the transition. Local tribalisms and civil wars (and their consequences) stand in the way. The way to address the problem that Smith addressed is to allow in more Liberians (and others) rather than fewer.
It is worth repeating that a flailing Pres. Obama, eager to leave some kind of a legacy, can do more for the legacy (and for the world) by moving away from his left-wing-hack platform (minimum wage, high-speed rail, green energy, and all the rest) towards reformed immigration. He even says he wants this but is blinkered by U.S. politics as her perceives them. That is not legacy stuff.
Open borders is the idea but that scares too many Americans. An enlightened president would promote a version that trades all of the nutty restrictions now in place with plausible controls: no lunatics, no psychopaths, no fanatics. The enlightened part and the serious work would be to fashion these. The rest of the job would be to knock enough heads in Congress to get it passed into law. Barack Obama would have left a worthy legacy.
This morning's WSJ includes an op-ed by E. Fuller Torrey, "How the U.S. Made the Ebola Crisis Worse ... The total number of Liberian doctors in America is about two-thirds the total now working in their homeland." Torrey wants the U.S. to produce more home-grown health professionals so that this kind of thing cannot go on. Expect others to call for restrictions on how many professionals from abroad are allowed to practice here. Gary Becker advocated auctioning immigrant permits to the highest bidder. That would not address the problem that Torrey writes about.
The very big problem is the one Adam Smith wrote about many years ago. Some nations are rich and some are poor. And whereas some poor places can become rich (as in East Asia), many others are less likely to make the transition. Local tribalisms and civil wars (and their consequences) stand in the way. The way to address the problem that Smith addressed is to allow in more Liberians (and others) rather than fewer.
It is worth repeating that a flailing Pres. Obama, eager to leave some kind of a legacy, can do more for the legacy (and for the world) by moving away from his left-wing-hack platform (minimum wage, high-speed rail, green energy, and all the rest) towards reformed immigration. He even says he wants this but is blinkered by U.S. politics as her perceives them. That is not legacy stuff.
Open borders is the idea but that scares too many Americans. An enlightened president would promote a version that trades all of the nutty restrictions now in place with plausible controls: no lunatics, no psychopaths, no fanatics. The enlightened part and the serious work would be to fashion these. The rest of the job would be to knock enough heads in Congress to get it passed into law. Barack Obama would have left a worthy legacy.
Tuesday, October 14, 2014
All the way down
Tyler Cowen cites Jean Tirole's Nobel-winning economics as exemplifying elaborations of principal-agent theory (and problems). Who do you trust to carry out an agreement? Which parts of the deal are implicit and which are explicit?
There is the regulator and the regulated. The regulator is beholden to the legislature. The legislature is beholden to the voters, Perhaps. Tirole gets credit for formalizing the story. Here are two equations I remember from way back (undergrad days?): 50% + 1 = 100%; 50% - 1 = 0. This describes voting rules in most democracies. In fact, it is 50% of those bothering to show up and to vote, not 50% of "the electorate" and not 50% of those eligible.
So it is principal-agent problems all the way down. A great achievement of the advanced economies is the widespread extension of trust to strangers. McCloskey cites Bourgeois Virtues. But these can only go so far; where they end is where principal-agent difficulties show up.
There is the regulator and the regulated. The regulator is beholden to the legislature. The legislature is beholden to the voters, Perhaps. Tirole gets credit for formalizing the story. Here are two equations I remember from way back (undergrad days?): 50% + 1 = 100%; 50% - 1 = 0. This describes voting rules in most democracies. In fact, it is 50% of those bothering to show up and to vote, not 50% of "the electorate" and not 50% of those eligible.
So it is principal-agent problems all the way down. A great achievement of the advanced economies is the widespread extension of trust to strangers. McCloskey cites Bourgeois Virtues. But these can only go so far; where they end is where principal-agent difficulties show up.
Thursday, October 09, 2014
Private planning
Pete Boettke points us to the Mercatus 40th anniversary celebration of Hayek's Nobel award. Keynote Israel Kirzner discusses the context and the various advances in Austrian economics in these forty years. Watch the video.
But whereas the idea of centrally planned economies has fallen on hard times these past forty years, the idea of top-down planning of cities and regions remains respectable almost everywhere. In the modern version, the threat of environmental crisis is invoked and conventional city planning is seen as an important antidote. Yet quite a bit of private planning goes on in cities -- and much more could be done. These are the themes of a new anthology, Cities and Private Planning, edited by David Emanuel Andersson and Stefano Moroni that was just published. Included is a chapter by Wendell Cox and myself.
There is a growing library of discussions of private city planning. Look here, here, here, here for starters. There will be more. Most of the authors included in these volumes are on the job.
But whereas the idea of centrally planned economies has fallen on hard times these past forty years, the idea of top-down planning of cities and regions remains respectable almost everywhere. In the modern version, the threat of environmental crisis is invoked and conventional city planning is seen as an important antidote. Yet quite a bit of private planning goes on in cities -- and much more could be done. These are the themes of a new anthology, Cities and Private Planning, edited by David Emanuel Andersson and Stefano Moroni that was just published. Included is a chapter by Wendell Cox and myself.
There is a growing library of discussions of private city planning. Look here, here, here, here for starters. There will be more. Most of the authors included in these volumes are on the job.
Sunday, October 05, 2014
Romance
James Buchanan's famous description of his work "Politics without romance" hit the nail on the head. But most people cannot or will not shed the romance. Here is Martha Nussbaum chatting with Russ Roberts:
I just read Bootleggers and Baptists by Adam Smith and Bruce Yandle. They work to put some flesh on Yandles' original 1983 rendering of the model. They apply it to recent events including Obamacare, Detroit and Wall Street bail-outs, etc.
Everyone knows that politics make strange bedfellows but Yandle's insight was to describe the nature of the bedfellows in the modern U.S. context. The book is remarkably slim (under 200 pages) but it could have been as almost as lengthy as the accumulated Federal Register. But that would be repetitious; the same theme repeats itself daily -- add what goes on in state and local government.
In the "Why Baptists?" chapter, the authors take note of our spiritual side and describe how their model brings that into the analysis of daily politics. The most vocal "Baptists" these days are environmentalists; they provide cover for the many Solyndras.
Smith and Yandle refer to the "Occupation" demonstrations and note that these could have been a Bootleggers and Baptists moment. Prompting relaxed mortgage underwriting standards, politicians were on the side of the housing affordability angels; mortgage originators thrived under the Fannie/Freddie implicit (soon to be explicit) bail-out guarantee. Then after 2008, Wall Streeters craning for bail-out money were allied with those eager to be seen as "doing something" to "save jobs." That theme is still alive. In this morning's NY Times, Neil Irwin rehashes why Lehman Bros. could have/should have been bailed out.
But, like Nussbaum, the "occupy" street people had a much easier time with the old chestnuts. In their case, just good old fashioned (and romantic) anti-capitalism.
Why do I say, 'government represents the people'? Look, you do not need to show that you win to show that government is in some meaningful sense, yours. Of course, if you have a vote, some people will win and some will lose. But having the chance to weigh in on those policies is what I'm talking about. In the era when women couldn't vote, well they might often get what they wanted by wheedling their husbands and getting the husbands to give them what they want. But there's a crucial difference--namely, that they are being dominated. The government is not accountable to them. And in the era where women have the vote, it's different. Women don't always win. No, of course not. But no individual wins all the time. That's what democracy is about. But on the other hand, you are in that process. And it is in that sense, yours. Even the Constitution, which I think does, by the way, command the agreement and assent of a pretty large proportion of Americans at some level of generality, you know, there's an Amendment process. So, you can always work at organized work to amend the Constitution if you don't like it, and see how it goes. You can't expect to win, but you can participate in that process. Now, as far as education goes, I'm back to what I said before. If government wants to experiment with charter schools or with vouchers, fine. Let them experiment with that. But in the end of the day it's a system supported by the people. And the results, we have to look at the results and see what they are. And politicians will be defeated if they don't do well by that.It's that simple. It's just about the will of the people. "The people" can always amend the Constitution; "the people" will prevail.
I just read Bootleggers and Baptists by Adam Smith and Bruce Yandle. They work to put some flesh on Yandles' original 1983 rendering of the model. They apply it to recent events including Obamacare, Detroit and Wall Street bail-outs, etc.
Everyone knows that politics make strange bedfellows but Yandle's insight was to describe the nature of the bedfellows in the modern U.S. context. The book is remarkably slim (under 200 pages) but it could have been as almost as lengthy as the accumulated Federal Register. But that would be repetitious; the same theme repeats itself daily -- add what goes on in state and local government.
In the "Why Baptists?" chapter, the authors take note of our spiritual side and describe how their model brings that into the analysis of daily politics. The most vocal "Baptists" these days are environmentalists; they provide cover for the many Solyndras.
Smith and Yandle refer to the "Occupation" demonstrations and note that these could have been a Bootleggers and Baptists moment. Prompting relaxed mortgage underwriting standards, politicians were on the side of the housing affordability angels; mortgage originators thrived under the Fannie/Freddie implicit (soon to be explicit) bail-out guarantee. Then after 2008, Wall Streeters craning for bail-out money were allied with those eager to be seen as "doing something" to "save jobs." That theme is still alive. In this morning's NY Times, Neil Irwin rehashes why Lehman Bros. could have/should have been bailed out.
But, like Nussbaum, the "occupy" street people had a much easier time with the old chestnuts. In their case, just good old fashioned (and romantic) anti-capitalism.
Wednesday, October 01, 2014
High or low densities?
Urban economists and urban planners love "density". I put it in quotes because the details (How high? Where? At what cost?) are often ignored. The argument is simple. New ideas prompt productivity and growth. We form new ideas when we interact with others. Higher densities prompt higher volumes of encounter and interaction.
But there is also the problem that the dominant trend has been to lower average densities. See, for example, Bruegmann's indispensable book.
“Most American anti-sprawl reformers today believe that sprawl is a recent and peculiarly American phenomenon caused by specific technological innovations like the automobile and by government policies like single-use zoning or the mortgage interest deduction on the federal income tax. It is important for them to believe this because if sprawl turned out to be a long –standing feature of urban development worldwide, it would suggest that stopping it involves something much more fundamental than correcting some poor American land-use policies. In the following chapters I will argue that the characteristics we associate today with sprawl have actually been visible in most prosperous cities throughout history. Sprawl has been as evident in Europe as in America and can now be said to be the preferred settlement pattern everywhere in the world where there is a certain measure of affluence and where citizens have some choice in how they live.” (p. 17)
At the level of the urbanized areas, the U.S. trend has been towards lower average densities. Considerable detail (courtesy of W. Cox) is available here and here.
I have mentioned previously that my fromer student Chen-Yi Lin looked at U.S. talent migration at the sub-metroplitan level (the PUMAs) and found considerable complexity in terms of the many densities that attract smart and credentialed people (Lin, C.Y. (2013). Talent migration: Does urban density matter?, Unpublished doctoral dissertation, Los Angeles: University of Southern California). Collaboration opportunities are available in all sorts of places -- and in many ways.
The American Community Survey data show that "work at home" has risen steadily, from 3.2% of all workers in 2000 to 4.4% in 2013. Still small but the public transit industry commands many billions of dollars of annual subsidies and cannot touch this rate of growth. I would say that the trends we see facilitate collaboration and innovation at many densities -- including low densities.
Saturday, September 27, 2014
To life
Probabilities and distributions are hard to grasp. We usually avoid the problem by settling on mean values and hope they are somehow representative. But every stat textbook warns students that one must at least look at variances also; large variances undermine the usefulness of means and medians.
Longevity and morbidity data are of particular interest for all the obvious reasons. The good news is that the trends are very favorable if you enjoy living. Visit any old cemetery and note the life spans recorded on the old tombstones and markers. And as average life expectancies increase, so must the associated variances.
I mention all this because I had trouble digesting Dr. Ezekiel Emanuel's "Why I Hope to Die at 75." The man is a scientist and an ethicist. He knows that every statement (generalization) in his essay must to be stated in terms of distributions. He even includes one in the essay.
Even the relevant distributions are conditional; the one that applies to any one individual is contingent on the years already reached -- as well as the state of health, etc.
Whether it is Immanuel Kant or Daniel Gilbert, many wise people have had something to say about our ability to know our state of mind in the future. There is not an epidemic of suicides among the old an infirm because most cling to life and hope for another day. I hope that when Dr. Emanuel reaches 75 that he is able to say "not so bad after all."
Longevity and morbidity data are of particular interest for all the obvious reasons. The good news is that the trends are very favorable if you enjoy living. Visit any old cemetery and note the life spans recorded on the old tombstones and markers. And as average life expectancies increase, so must the associated variances.
I mention all this because I had trouble digesting Dr. Ezekiel Emanuel's "Why I Hope to Die at 75." The man is a scientist and an ethicist. He knows that every statement (generalization) in his essay must to be stated in terms of distributions. He even includes one in the essay.
Even the relevant distributions are conditional; the one that applies to any one individual is contingent on the years already reached -- as well as the state of health, etc.
Whether it is Immanuel Kant or Daniel Gilbert, many wise people have had something to say about our ability to know our state of mind in the future. There is not an epidemic of suicides among the old an infirm because most cling to life and hope for another day. I hope that when Dr. Emanuel reaches 75 that he is able to say "not so bad after all."
Monday, September 22, 2014
Shout it
Here is the announcement of David Andersson and Stefano Moroni's edited volume Cities and Private Planning. It includes a chapter by Wendell Cox and myself. Look at the TOC to find many of your other favorites.
There are many types of planning; I often refer to bottom-up and top-down. Both are, of course, always in play. Identifying the proper division of labor is an interesting problem. When it comes to cities, it is a hugely interesting problem. Nevertheless, city planning is widely presumed to be a top-down activity. When I talk to reporters, they usually begin with the cliche that Los Angeles being "unplanned" how can such a thing not spin into a dystopian nightmare. Other think we are already there.
A related problem has to do with the failure of economists to clarify their central theme; markets are important because they coordinate an uncountable number of private plans. This also describes how cities work. Read the book; shout it from the rooftops.
There are many types of planning; I often refer to bottom-up and top-down. Both are, of course, always in play. Identifying the proper division of labor is an interesting problem. When it comes to cities, it is a hugely interesting problem. Nevertheless, city planning is widely presumed to be a top-down activity. When I talk to reporters, they usually begin with the cliche that Los Angeles being "unplanned" how can such a thing not spin into a dystopian nightmare. Other think we are already there.
A related problem has to do with the failure of economists to clarify their central theme; markets are important because they coordinate an uncountable number of private plans. This also describes how cities work. Read the book; shout it from the rooftops.
Thursday, September 18, 2014
Writing about cities
The City by Deborah Stevenson is reviewed here by three not-so-sympathetic reviewers. Perhaps that's for the best and I hope Stevenson agrees.
I am beginning to think that most of us write for (and are only heard by) others in our own bubble. The odds are slim that I would have read the book had there not been the request for a review. Her's to "reaching across the aisle."
What is our biggest economic problem? In my view, it is growth. I am interested in cities insofar as they are an essential part of the growth riddle. In Deborah Stevenson's view, the big problem is class warfare. Her task was to show the role of cities in pitting the haves against the have-nots. Future work will have to get all this under one cover.
I am beginning to think that most of us write for (and are only heard by) others in our own bubble. The odds are slim that I would have read the book had there not been the request for a review. Her's to "reaching across the aisle."
What is our biggest economic problem? In my view, it is growth. I am interested in cities insofar as they are an essential part of the growth riddle. In Deborah Stevenson's view, the big problem is class warfare. Her task was to show the role of cities in pitting the haves against the have-nots. Future work will have to get all this under one cover.
Food nuttiness
Did someone say that the rich are different? Here is Pierre Desrocher's review of "The latest culinary fad: famine food ... Middle-class foodies are paying a fortune to eat what peasants once lived on." I know nothing about psychiatry so I can only chuckle. One of Pierre's interests is food nuttiness; he and his wife wrote about it in The Locavore's Dilemma.
On a related note, here is the PBS NewsHour's coverage of the "GMO debate". In the producers' quest to be even handed, they gave equal time to serious people concerned with the science of health and nutrition and, on the other side, lunatic luddites shown gleefully destroying crop on an experimental farm in the Philippines.
Saturday, September 13, 2014
Too crazy
Today's WSJ includes Peter Thiel's "Competition is for losers ... Only one thing can allow a business to transcend the daily brute struggle for survival: brute profits." He also notes "Economists use two simplified models ... perfect competition and monopoly." Ugh!
Too many economists (and their textbooks and their other writings) are guilty of all this. But are serious people (in our out of the field)? To be sure, some economics texts, beginning with Alchian and Allen to Paul Heyne (later Heyne, Boettke and Prychitko), were much more careful. "Monopoly" (just one seller or source) exists where it is protected by law (public schools for people too poor to send kids to private schools or to home-school). Otherwise any market-power (successful product differentiation) and any profits are fleeting and must be maintained via steady hard work. Surely Thiel knows that this is what business people do all day.
Apple was pressed to introduce new product last week; they could not rest on any "monopoly" advantage -- and they were surely not "perfect competitors." Advertising and clever merchandising are never enough; the buyers are not that stupid. Consumers' tastes are subjective and formed in mysterious ways. They constantly consider possible substitutes; there are no "perfect" substitutes, only good ones and not so good ones. That distinction is again a complex and personal one ("in the eye of the beholder").
Were any of this not so, staying in business would be pretty simple.
Economists and others have been turning people off for much to long by belaboring implausible models and approaches. Economic thinking is actually indispensable; bizarre claims too numerous to count are made all over the place by people who remain innocent of economic thinking. But many remain in this state because the models and textbooks they had been exposed to were too crazy to take seriously.
Too many economists (and their textbooks and their other writings) are guilty of all this. But are serious people (in our out of the field)? To be sure, some economics texts, beginning with Alchian and Allen to Paul Heyne (later Heyne, Boettke and Prychitko), were much more careful. "Monopoly" (just one seller or source) exists where it is protected by law (public schools for people too poor to send kids to private schools or to home-school). Otherwise any market-power (successful product differentiation) and any profits are fleeting and must be maintained via steady hard work. Surely Thiel knows that this is what business people do all day.
Apple was pressed to introduce new product last week; they could not rest on any "monopoly" advantage -- and they were surely not "perfect competitors." Advertising and clever merchandising are never enough; the buyers are not that stupid. Consumers' tastes are subjective and formed in mysterious ways. They constantly consider possible substitutes; there are no "perfect" substitutes, only good ones and not so good ones. That distinction is again a complex and personal one ("in the eye of the beholder").
Were any of this not so, staying in business would be pretty simple.
Economists and others have been turning people off for much to long by belaboring implausible models and approaches. Economic thinking is actually indispensable; bizarre claims too numerous to count are made all over the place by people who remain innocent of economic thinking. But many remain in this state because the models and textbooks they had been exposed to were too crazy to take seriously.
Tuesday, September 09, 2014
Alpha cities
People like to choose and join teams. There are many examples. Nationalisms and regionalisms are just two of many. Among the latter, there are city vs country-cousin rivalries which probably exist in most cultures -- with each side claiming peculiar wisdom by which assert their superiority over their rivals. There are also the peculiar distinctions between any country's "alpha city" vs the rest of that country's folk.
Think New Yorkers vs the rest of America. Each side is pretty sure of its own superiority and the awfulness of the other side. I imagine that the same holds for Londoners vs all other Brits, Parisians vs the rest of France, Shanghaiers vs the rest of China, Muscovites vs all other Russians, etc.
This Alpha list is one man's opinion and is not quite right because he lists more than just one city for some countries. The U.S., for example, has many cities where one can find interesting things to do. But in how many of them can the general tourist spend more than two or three days and nights? Let's be honest, for the U.S., New York (where I do not live and where I was not born) is special. One can spend weeks (or more there) and not be bored. I suppose the same distinction applies to Paris, London, Tokyo, Berlin, etc.
Urban economists celebrate agglomeration economies. Nothing succeeds like success. There are agglomeration economies (net positive externalities realized via proptitious location) in all cities. But the non-linearities are breathtaking. The outsized presence of the arts, intellectual variety, fine food, great architecture, etc. in New York stands out. In other words, the real alpha city in each country outdraws the rest by leaps and bounds.
Think New Yorkers vs the rest of America. Each side is pretty sure of its own superiority and the awfulness of the other side. I imagine that the same holds for Londoners vs all other Brits, Parisians vs the rest of France, Shanghaiers vs the rest of China, Muscovites vs all other Russians, etc.
This Alpha list is one man's opinion and is not quite right because he lists more than just one city for some countries. The U.S., for example, has many cities where one can find interesting things to do. But in how many of them can the general tourist spend more than two or three days and nights? Let's be honest, for the U.S., New York (where I do not live and where I was not born) is special. One can spend weeks (or more there) and not be bored. I suppose the same distinction applies to Paris, London, Tokyo, Berlin, etc.
Urban economists celebrate agglomeration economies. Nothing succeeds like success. There are agglomeration economies (net positive externalities realized via proptitious location) in all cities. But the non-linearities are breathtaking. The outsized presence of the arts, intellectual variety, fine food, great architecture, etc. in New York stands out. In other words, the real alpha city in each country outdraws the rest by leaps and bounds.
Thursday, September 04, 2014
NBTO, nothing but trade-offs
Those who favor higher mandated minimum wages argue that the affected workers "need" and/or "deserve" the extra money. The claims are rhetorical but makes sense when made by those low-wage workers who expect to be covered. But Bastiat's distinction between what is seen and what remains unseen is also relevant. The businesses never started, the jobs never created, the promotions that never come are necessarily unseen -- and harder to measure. We have to rely on the law of demand which does slope downward. In fact, the great man was more specific.
Free lunch. Those who write and who repeat this stuff are likely to have 401k plans and other links to "corporate America." Some may even check their accumulated balances on occasion. They have probably noticed that share prices are volatile and responsive to earnings and earnings prospects. In other words it is not simply about digging into other people's deep pockets.
TANSTAAFL is a mouthful. NBTO, nothing but trade-offs, is much more manageable.
There is only one difference between a bad economist and a good one: the bad economist confines himself to the visible effect; the good economist takes into account both the effect that can be seen and those effects that must be foreseen.
Yet this difference is tremendous; for it almost always happens that when the immediate consequence is favorable, the later consequences are disastrous, and vice versa. Whence it follows that the bad economist pursues a small present good that will be followed by a great evil to come, while the good economist pursues a great good to come, at the risk of a small present evil.Los Angeles Mayor Garcetti wants the L.A. minimum wage to go to $13.75 by 2017. The Great and the Good of L.A. have lined up in support. Here is Eli Broad's op-ed. Broad and others cite a UC Berkeley study which adds that a higher minimum wage is a local economic stimulus; lower income people spend a greater share of their income and multiplier effects kick in.
Free lunch. Those who write and who repeat this stuff are likely to have 401k plans and other links to "corporate America." Some may even check their accumulated balances on occasion. They have probably noticed that share prices are volatile and responsive to earnings and earnings prospects. In other words it is not simply about digging into other people's deep pockets.
TANSTAAFL is a mouthful. NBTO, nothing but trade-offs, is much more manageable.
Sunday, August 31, 2014
Transactions cost
It seems strange but for most of its life, economics was a field of study that did not recognize transaction costs. Look at the 200-year Ngram results, below.
Ronald Coase changed things. Without him, we would be stuck with Nirvana economics, still teaching things that students could easily see are not terribly useful or linked to the world they know.
Today's NY Times includes "Is Owning Overrated? The Rental Economy Rises." The report speculates about cultural shifts in attitudes and the effects of the recession. But it also mentions, "... technology has made borrowing possible on a broader scale, and between strangers. Social networking profiles and rating systems offer a level of trust and verification, and mobile phones equipped with GPS take much of the work out of matching people with nearby services."
It is the money, and the trust, and the attitudes, and the possibilities. Tech is changing the world in profound ways. And in ways that conventional measures, including GDP, cannot be counted on to capture. We get better use of the resources and capacities we have. This can go a long way.
ADDED: Here is the econtalk discussion of AirBnB. Listen to the story -- and hear about the numbers.
ADDED: Here is the econtalk discussion of AirBnB. Listen to the story -- and hear about the numbers.
Monday, August 25, 2014
More cost-benefit? Better cost-benefit?
In this morning's WSJ, Edward Glaeser and Cass Sunstein write on "How to Deregulate Cities and States ... Cost-benefit analysis and 'lookbacks' could lift unnecessary burdens of occupational licensing." You bet. But who will do these studies? I think that's the real challenge.
Some years ago, Robert Hahn and Paul Tetlock published. "Has Economic Analysis Improved Regulatory Decisions?" They found, "... there is not strong support for the view that economic analysis has had a significant general impact." What to do?
Many years ago, Charles Lave suggested that consultants be required to bond their forecasts. If taxpayers are asked to accept huge risks into the indefinite future, why should those who grease the wheels accept none of the risk?
What would the specifics of such a consulting contract look like? This discussion should occur before we simply demand more cost-benefit studies.
Some years ago, Robert Hahn and Paul Tetlock published. "Has Economic Analysis Improved Regulatory Decisions?" They found, "... there is not strong support for the view that economic analysis has had a significant general impact." What to do?
Given these unimpressive results, where should we go from here? Perhaps what is needed is a more disciplined and formal commitment to benefit-cost balancing, led by the president and Congress, along with comparable officials abroad. As noted above, such a commitment could entail mandating benefit-cost analysis of important regulations in statutes. Congress could also codify a version of the current executive order requiring benefit-cost analysis. It may also want to consider subjecting some proposed laws to at least a crude benefit-cost analysis prior to voting on them. Already, Congress often asks for estimates of the budgetary impacts of laws and proposed laws.But Congress' record on this is, to be polite, mixed. Pork first. Even when studies are done, they are all over the place. Here is an apparently serious cost-benefit analysis of California's high-speed rail plan.
Many years ago, Charles Lave suggested that consultants be required to bond their forecasts. If taxpayers are asked to accept huge risks into the indefinite future, why should those who grease the wheels accept none of the risk?
What would the specifics of such a consulting contract look like? This discussion should occur before we simply demand more cost-benefit studies.
Thursday, August 21, 2014
Ferguson
Dan Henninger writes about Ferguson in this morning's WSJ. He cites horrific unemployment rates among young black men. Part of the problem is their lack of education. Here is the punch line.
The decline of inner-city public schools is the greatest, most bitterly ironic social tragedy in the 50 years since passage of the liberating civil-rights acts. But what works here is no longer an unsolvable mystery. It is the alternatives that emerged to the defunct public system—charters schools and voucher-supported parochial schools. Over the past 20 years, these options, born in desperation, have forced their way into the schools mix. Freed of politicized, sludge-like central bureaucracies, they've proven they can teach kids and send them into the workforce.Economic growth is nonpartisan. But inner-city public education is totally partisan. Democratic politicians made a Faustian bargain with the teachers unions, and the souls carried away have been the black children in those doomed schools.
This is the part of the Ferguson problem that can be addressed. It does not come up as the popular tropes and the usual political players (from Holder to Sharpton) are paraded before media. Those from the education status quo establishment are not interviewed. I still wonder how they sleep at night.
Romances
I cannot be certain that this marks the end of Vladimir Putin but the man is apparently closing some of the Moscow McDonald's.
I walk by the local Whole Food's on my daily trek and see how they proudly display their "locally grown" and "from farm to table" credentials. Many other markets and restaurants do the same. From Moscow to LA, the romance is apparently easier to grasp than comparative advantage and gains from trade. But Marco Polo and all those European explorers celebrated in grade school history were paid to find trade routes.
I walk by the local Whole Food's on my daily trek and see how they proudly display their "locally grown" and "from farm to table" credentials. Many other markets and restaurants do the same. From Moscow to LA, the romance is apparently easier to grasp than comparative advantage and gains from trade. But Marco Polo and all those European explorers celebrated in grade school history were paid to find trade routes.
It is more than gains from trade comparative advantage. Economizing on transport and emissions is not enough. All resources are to varying degrees scarce. How do we trade these off against the personal preference orderings that each of us value?
The story of how markets have allocated scarce resource in such a manner that there are more people than ever on Earth and most of them live better and longer than their ancestors sounds pretty romantic too. "In France, at the start of the industrial revolution, one-fifth of the population only had sufficient energy to beg." (Dora Costa, JEL, Dec 2013). Untold classroom hours spent teaching about markets seemingly missed transmitting the big story.
Monday, August 18, 2014
George Hilton
George Hilton has died. Here is the post at the UCLA Economics Department's website.
George contributed "What Did We Give Up With the Big Red Cars?" to a symposium that Ross Eckert and I put together at USC in 1976. LA did not lose its streetcars, he showed, because of a any corporate conspiracy. The conspiracy story, however, survives. It is just too sweet for some people to give up.
Hilton called attention to the fact that Los Angeles and other modern cities are built for auto use. Adding rail lines will not change that. Many years later, we have found out that George was correct. But we did it the hard way -- by wasting billions of dollars on rail projects.
These crony capitalist projects have almost nothing to do with transportation. Tom Rubin recently reported that the Los Angeles MTA provided 497.2 million transit rides in 1985 but remained stuck at 495.3 million rides in 2014. The LA area had grown considerably in the intervening years. Here is one of Tom's recent studies.
Ross Eckert (also deceased) was George Hilton's student at UCLA. Together, they wrote about "The Jitney's" in 1972. Door-to-door service that might compete with the private auto had been regulated out of existence by you-know-who. But it is now 2014 and the cronies in the taxi industry and city hall have finally met their match. Here is the intro to Gordon Crovitz's column on Silicon Valley's interest in a regulated internet, from this morning's WSJ.
George contributed "What Did We Give Up With the Big Red Cars?" to a symposium that Ross Eckert and I put together at USC in 1976. LA did not lose its streetcars, he showed, because of a any corporate conspiracy. The conspiracy story, however, survives. It is just too sweet for some people to give up.
Hilton called attention to the fact that Los Angeles and other modern cities are built for auto use. Adding rail lines will not change that. Many years later, we have found out that George was correct. But we did it the hard way -- by wasting billions of dollars on rail projects.
These crony capitalist projects have almost nothing to do with transportation. Tom Rubin recently reported that the Los Angeles MTA provided 497.2 million transit rides in 1985 but remained stuck at 495.3 million rides in 2014. The LA area had grown considerably in the intervening years. Here is one of Tom's recent studies.
Ross Eckert (also deceased) was George Hilton's student at UCLA. Together, they wrote about "The Jitney's" in 1972. Door-to-door service that might compete with the private auto had been regulated out of existence by you-know-who. But it is now 2014 and the cronies in the taxi industry and city hall have finally met their match. Here is the intro to Gordon Crovitz's column on Silicon Valley's interest in a regulated internet, from this morning's WSJ.
The only thing better for consumers than a disruptive innovator breaking up a monopoly is competition among multiple innovators. The race to upend the taxi industry by providing cheaper, more convenient rides ordered via smartphones is accelerating, leaving regulators in the dust. The challenge led by upstarts Uber and Lyft goes beyond new choices for rides. It's also a reminder that regulators are the enemy of innovation.
The innovators will win but only after much has been lost in time and treasure. Had people only listened to George Hilton in 1976.
Friday, August 15, 2014
Long shot
Those writing about cities focus on overall performance or on urban structure. I claim that these are closely linked. We get growth if urban structure is congenial. But consider the three dominant conversations in the study of urban structure.
The canonical model of urban economics develops the idea that land uses arrange themselves in terms of how users value accessibility -- actually plural; many destinations matter. We get the prediction that ever cheaper access causes ever more city spread. The evolution from pedestrian city to streetcar city to automobile city corroborates this. I suggest that smart-phone city will continue the trend.
There is also the visionary planning approach, based on architecture-high-modernism-urban design traditions. "Garden city" and "smart growth" designs are examples. These approaches are static and popular in many circles -- but have not had any discernible real world impact.
Finally, there is the Jane Jacobs-F.A. Hayek complex self-ordering arrangements view. Locators evaluate complex trade-offs as they seek propitious locations -- to exchange and form new ideas and to produce new things. If enough of them succeed in finding propitious locations, we get city growth.
Here is a passage from The Economist's obit for Peter Hall:
But let locators form connections. Let them locate where they get the connections that work for them. But getting to that state requires flexible land markets and overcoming the efforts of those wedded to the second approach. It means a light touch from planners. Given that the mainline view favors the visionary planning approach, that would be a long shot.
ADDED
There is lots that is easy to find re the first two perspectives. Sandy Ikeda has been most influential describing the less known Jacobs-Hayek view of cities.
The canonical model of urban economics develops the idea that land uses arrange themselves in terms of how users value accessibility -- actually plural; many destinations matter. We get the prediction that ever cheaper access causes ever more city spread. The evolution from pedestrian city to streetcar city to automobile city corroborates this. I suggest that smart-phone city will continue the trend.
There is also the visionary planning approach, based on architecture-high-modernism-urban design traditions. "Garden city" and "smart growth" designs are examples. These approaches are static and popular in many circles -- but have not had any discernible real world impact.
Finally, there is the Jane Jacobs-F.A. Hayek complex self-ordering arrangements view. Locators evaluate complex trade-offs as they seek propitious locations -- to exchange and form new ideas and to produce new things. If enough of them succeed in finding propitious locations, we get city growth.
Here is a passage from The Economist's obit for Peter Hall:
He soon changed his mind. Wherever that [top-down, rational] approach was tried—in Birmingham, or Glasgow, or around the elevated Westway in north-west London—it caused exactly the sort of ugliness and alienation he had hoped to banish. In the 1970s he began arguing that one way to deal with urban decay might be a bonfire of regulations; the idea, he said, was to “recreate the Hong Kong of the 1950s and 1960s inside inner Liverpool or inner Glasgow”. That sort of fertile chaos, he came to believe, was exactly what made cities so important, and such exciting places to live. He was an early advocate of the view—these days the received wisdom—that by allowing people to form connections with like-minded colleagues, cities are the engines of a country’s economic, cultural and artistic life.I am not sure that this is the "received view."
But let locators form connections. Let them locate where they get the connections that work for them. But getting to that state requires flexible land markets and overcoming the efforts of those wedded to the second approach. It means a light touch from planners. Given that the mainline view favors the visionary planning approach, that would be a long shot.
ADDED
There is lots that is easy to find re the first two perspectives. Sandy Ikeda has been most influential describing the less known Jacobs-Hayek view of cities.
Monday, August 11, 2014
Water: markets or cops?
The economics of water has typically been divided into the problem of water quality and the related problem of quantity; once water is of acceptable quality, who gets it and how much and on what terms? In both instances, there is considerable discussion of how (when) to use market mechanisms.
For the water quality problem, Karen Fisher-Vanden and Sheila Olmstead survey the state of water pollution trading in the U.S. The clean water allocation problem -- treating water as the scarce resource that it obviously is and enlisting markets to fulfill the dual functions of rationing demand and eliciting supply -- is treated in just about any principles textbook. But instead many countries' national governments guarantee "The rights to water and sanitation in national law." In most cases, this has amounted to a tragic case of simply posturing. Many millions die every year. The problems of rationing and eliciting are not easily addressed via political and administrative means.
At the same time, the simple economic rationale for market provision has not made a lot of headway either. I recently (July 31) blogged about water policy and waste in my own neighborhood. This morning's LA Times reports on the "water cops" that are now on the case:
For the water quality problem, Karen Fisher-Vanden and Sheila Olmstead survey the state of water pollution trading in the U.S. The clean water allocation problem -- treating water as the scarce resource that it obviously is and enlisting markets to fulfill the dual functions of rationing demand and eliciting supply -- is treated in just about any principles textbook. But instead many countries' national governments guarantee "The rights to water and sanitation in national law." In most cases, this has amounted to a tragic case of simply posturing. Many millions die every year. The problems of rationing and eliciting are not easily addressed via political and administrative means.
At the same time, the simple economic rationale for market provision has not made a lot of headway either. I recently (July 31) blogged about water policy and waste in my own neighborhood. This morning's LA Times reports on the "water cops" that are now on the case:
It's a daunting task — just four people, full time, policing an area of about 460 square miles. For that reason, they mostly respond to calls or emails from people who report their neighbors watering lawns on the wrong days, spraying down sidewalks or allowing street runoff. The agency does not reveal the identity of the tipsters.Laugh or cry? Pricing water and deputizing every consumer as his or her own water cop is beyond the pale. Instead, we get silliness piled on silliness.
Saturday, August 09, 2014
Wrong cure, wrong disease
There will always be business cycles. Even the wisest and best intentioned investors will make mistakes. The open question is whether the know-how and the tools we have to manage macro-economic ups and downs make things better or worse. There is no slam-dunk answer to the question but I lean to the "worse." Would the recent downturn have been less severe without the monetary and fiscal and housing and countless other interest-group inspired policies in place before 2008? The slow recovery is now explained (more macro-economic know-how) by "stagnationist" explanations. We last saw those during another period of abysmal recovery, the New Deal years.
Joel Mokyr's op-ed ("What Today's Economic Gloomsayers Are Missing") in today's WSJ is on point. (1) Our welfare is all about growth, so get the growth right; (2) Its all about the new technologies that prompt growth; (3) We do a poor job measuring and identifying the effects because they are mainly about increased consumer surplus; we cannot accurately measure improved productivity.
Mokyr offers this example: "If telecommuting or driverless cars were to cut the average time Americans spend commuting in half, it would not show up in the national income accounts--but it would make millions of Americans substantially better off." Even worse, some would point to how few jobs will have been created by these innovations.
Finally, there is the big irony: we would probably get more growth if we backed off from the many policies now aimed at dampening business cycles. Growth is natural. Investors and savers seek each other -- and find each other because their plans mesh with the plans of credit market middlemen. But again this is where ham-fisted policy interventions (Dodd-Frank, etc.) can cause real damage.
ADDED
Timothy Taylor and Arnold Kling re Dodd-Frank: it's a work in progress.
Joel Mokyr's op-ed ("What Today's Economic Gloomsayers Are Missing") in today's WSJ is on point. (1) Our welfare is all about growth, so get the growth right; (2) Its all about the new technologies that prompt growth; (3) We do a poor job measuring and identifying the effects because they are mainly about increased consumer surplus; we cannot accurately measure improved productivity.
Mokyr offers this example: "If telecommuting or driverless cars were to cut the average time Americans spend commuting in half, it would not show up in the national income accounts--but it would make millions of Americans substantially better off." Even worse, some would point to how few jobs will have been created by these innovations.
Finally, there is the big irony: we would probably get more growth if we backed off from the many policies now aimed at dampening business cycles. Growth is natural. Investors and savers seek each other -- and find each other because their plans mesh with the plans of credit market middlemen. But again this is where ham-fisted policy interventions (Dodd-Frank, etc.) can cause real damage.
ADDED
Timothy Taylor and Arnold Kling re Dodd-Frank: it's a work in progress.
Tuesday, August 05, 2014
Self control
Given the choice of looking after assets on-hand vs. initiating high-profile flashy new projects, the latter always wins. My previous post noted the 20-million gallon L.A. water pipe break (cited in today's WSJ). But every day there is a new chapter. Today's LA Times cites L.A. street repair shortcomings -- and the bizarre LA City Hall bungling behind it (see the whole story). They seemingly cannot find ways to spend earmarked street repairs money they have. The City Council had cancelled plans for a ballot measure that would have increased the local sales tax for street repairs just in time.
Call it a public choice story (public sector unions first; citizens last); call it a "squeaky wheel" story (public sector unions first; citizens last).
But the inept "leaders" are also the people eager to involve themselves in the cosmic issues -- "sustainability", "climate change", all sorts of private behavior (restaurant menus, e-cigarettes) or private contracts (employer-employee, renter-tenant, etc.). The hidden-true-cost-but-feel-good policies are always high on the agenda. It is beside the point that those who lead the charge have no special expertise in the cosmic issues. Why not show that you have mastered the basics and only then indulge in the fun stuff? The fun-first impulses are what we try to teach the very young ones to control.
Call it a public choice story (public sector unions first; citizens last); call it a "squeaky wheel" story (public sector unions first; citizens last).
But the inept "leaders" are also the people eager to involve themselves in the cosmic issues -- "sustainability", "climate change", all sorts of private behavior (restaurant menus, e-cigarettes) or private contracts (employer-employee, renter-tenant, etc.). The hidden-true-cost-but-feel-good policies are always high on the agenda. It is beside the point that those who lead the charge have no special expertise in the cosmic issues. Why not show that you have mastered the basics and only then indulge in the fun stuff? The fun-first impulses are what we try to teach the very young ones to control.
Thursday, July 31, 2014
Three or four-hundred years?
All government agencies "need" more money. This recent report by the Los Angeles Department of Water and Power's new GM notes that the agency is working with a 300-year pipe replacement cycle. In fact, they had seemingly been planning for a 400-year cycle very recently.
This is not my field but one has to be impressed with the pipe technology of 100 years ago. Perhaps not. This week's big break, the one that cost the region 20-million gallons of water (and counting) happened to pipes that were less than 100 years old. And there is much more rot that we can not see. The LA Daily News reported the following (but read the whole story):
The pipes are not visible to the layman but the roads are. LA's potholed roads are third-world quality. This morning's LA Times includes an op-ed which notes that better use of available funds should come before new funds are sought.
California water policy has always been wrong-headed. Gary Libecap notes that the State has been selling very cheap water to farmers growing crops that get USDA price supports. We now have reports of a "drought" but the policy reasons for it do not make it into polite discussion. Polite discussion, he notes, is informed by the plot of Chinatown.
This is not my field but one has to be impressed with the pipe technology of 100 years ago. Perhaps not. This week's big break, the one that cost the region 20-million gallons of water (and counting) happened to pipes that were less than 100 years old. And there is much more rot that we can not see. The LA Daily News reported the following (but read the whole story):
The story ends with the predictable "give us more money." More money has been going to employee pension funding -- and even then there is a reported unfunded pension fund gap. We get the gap, high prices, floods, and questionable service. There is never enough money when there is a politically influential and unionized workforce.At 93 years old, the pipe that burst in Westwood on Tuesday was younger and in better condition than many of Los Angeles’s brittle, corroding water arteries.More than 1 million feet of the city’s pipes are beyond a century old — past their intended life spans — and this segment was not a high-priority replacement, according to reports reviewed and interviews conducted on Wednesday.While the Los Angeles Department of Water and Power has tried to ramp up water main replacements, it hasn’t met its goals. City officials and observers say the problem is money. Aging infrastructure is the largest problem here and at water utilities around the U.S., but unaware consumers are usually reluctant to pay.
The pipes are not visible to the layman but the roads are. LA's potholed roads are third-world quality. This morning's LA Times includes an op-ed which notes that better use of available funds should come before new funds are sought.
California water policy has always been wrong-headed. Gary Libecap notes that the State has been selling very cheap water to farmers growing crops that get USDA price supports. We now have reports of a "drought" but the policy reasons for it do not make it into polite discussion. Polite discussion, he notes, is informed by the plot of Chinatown.
Tuesday, July 29, 2014
History lesson
You can never know enough history. I have lived most of my life in Los Angeles and most of my professional life has been at USC. But I still know too little about each. I got some help on both fronts reading Towers of Gold: How One Jewish Immigrant Named Isaias Hellman Created California.
On the USC campus, there are occasional markers commemorating the role of a Protestant, a Catholic and a Jew in helping to establish the University. USC's website fills in some of the details. I had always presumed that this was just politically correct and sanitized history. Just how inclusive was 1870s Los Angeles?
More than I thought. On Page 5 author Frances Dinkelspiel (Hellman's great-great-grandaughter) notes ..." from the start, Jews were accepted and integrated into society. They were elected to public office, built homes alongside their Christian neighbors, and became the established mercantile elite ... It was not until the 1890s that intransigent anti-semitism gripped California."
The story of boom and bust, of tolerance and intolerance is carried through the book. There is, of course, much more. So much that this book has landed on my "to re-read" (when?) pile.
But this California history shows once again that in times of boom, people were too busy to fall into the hole of zero-sum hatreds. Its the old story. Prosperous people or people who take seriously the prospect of prosperity are nicer and more tolerant. It's a point documented many times by Benjamin Friedman in The Moral Consequences of Economic Growth.
On the USC campus, there are occasional markers commemorating the role of a Protestant, a Catholic and a Jew in helping to establish the University. USC's website fills in some of the details. I had always presumed that this was just politically correct and sanitized history. Just how inclusive was 1870s Los Angeles?
More than I thought. On Page 5 author Frances Dinkelspiel (Hellman's great-great-grandaughter) notes ..." from the start, Jews were accepted and integrated into society. They were elected to public office, built homes alongside their Christian neighbors, and became the established mercantile elite ... It was not until the 1890s that intransigent anti-semitism gripped California."
The story of boom and bust, of tolerance and intolerance is carried through the book. There is, of course, much more. So much that this book has landed on my "to re-read" (when?) pile.
But this California history shows once again that in times of boom, people were too busy to fall into the hole of zero-sum hatreds. Its the old story. Prosperous people or people who take seriously the prospect of prosperity are nicer and more tolerant. It's a point documented many times by Benjamin Friedman in The Moral Consequences of Economic Growth.
Economic growth--meaning a rising standard of living for the clear majority of its citizens -- more often than not fosters greater opportunity, tolerance of diversity, social mobility, commitment to fairness and dedication to democracy ... Even societies that have already made great advances in these very dimensions, for example today's Western democracies make still further progress when their standards of living rise. But when living standards decline, most societies make little if any progress towards any of these these goals, and in many places plainly retrogress. (p. 4)Very sad that economic growth is suspect or misunderstood by those who talk the most or the loudest about tolerance, diversity, fairness, etc.
Thursday, July 24, 2014
Envy
GDP (in some form such as per capita, real per capita, real per capita change, etc.) is the widely used proxy for an area's well-offness. But standard textbook discussions note all the reasons that it is a poor proxy. There are even experiments with the alternatives such as Bhutan's Gross National Happiness.
Economists have been doing "happiness" research for some years and report (gasp) that (i) more material wealth does not easily map to more happiness; (ii) happiness is elusive; (iii) happiness is hard to measure. A good friend remarked, "don't economists take freshman philosophy"?
Joseph Epstein's Envy is a delightful antidote. In fact, it is better than the philosophy 101 I recall. Open to almost any page and enjoy. "... consider envy as less a sin than as very poor mental hygiene. It blocks out clarity, both about oneself and the people one envies, and it ends by giving one a poor opinion of oneself." (Location 781 on my Kindle download.)
Epstein thinks that envy is the worst of the seven deadly sins. He does not nominate those who stoke envy for political gain as engaging in a worse (and eighth) sin. But he comes close. "... the doctrine of Marxism is many things, but one among them is a plan of revenge for the envious. How else can one view Karl Marx's central idea, the perpetual class struggle ..." Location 470. Stoking envy, then, is the same as stoking fantasies of revenge.
Here is up-to-date revenge: "You didn't build that." So you don't really own it. We all do. So fork over.
Economists have been doing "happiness" research for some years and report (gasp) that (i) more material wealth does not easily map to more happiness; (ii) happiness is elusive; (iii) happiness is hard to measure. A good friend remarked, "don't economists take freshman philosophy"?
Joseph Epstein's Envy is a delightful antidote. In fact, it is better than the philosophy 101 I recall. Open to almost any page and enjoy. "... consider envy as less a sin than as very poor mental hygiene. It blocks out clarity, both about oneself and the people one envies, and it ends by giving one a poor opinion of oneself." (Location 781 on my Kindle download.)
Epstein thinks that envy is the worst of the seven deadly sins. He does not nominate those who stoke envy for political gain as engaging in a worse (and eighth) sin. But he comes close. "... the doctrine of Marxism is many things, but one among them is a plan of revenge for the envious. How else can one view Karl Marx's central idea, the perpetual class struggle ..." Location 470. Stoking envy, then, is the same as stoking fantasies of revenge.
Here is up-to-date revenge: "You didn't build that." So you don't really own it. We all do. So fork over.
Sunday, July 20, 2014
We do not know
What do we know about cities? To simplify shamelessly,
1. The canonical model of urban economics predicts that cities will spread out as communications and transportation costs fall. This has been the experience -- from pedestrian to streetcar to automobile city.
2. But the model leaves out many things. Nate Baum-Snow writes about these and suggests that outward expansion will stop or even reverse. Average densities will rise.
3. But we are now networked as never before, suggesting that the forces cited in #1 will pick up steam.
So which will it be?
Wendell Cox has recently posted results from his work on redefining metropolitan sub-areas. Adapting an approach similar to one developed by David L.A. Gordon and associates at Kingston University in Ontario, (and using zip code data re urban characteristics), Cox moves us beyond the very inadequate use of "central city" vs. "suburbs". These have relied on municipal boundary definitions of the "central city" and defining the rest of the metropolitan area as the "suburbs". But municipal boundaries have no functional usefulness and vary considerably in terms of the extent of their "footprint." There is also room for confusion because some people construe "central city" as the downtown. Note also that any binary classification falls way short.
Using the refined definitions of "urban core," Cox calculates recent U.S. urban core population trends this way:
In this conversation, Russ Roberts and Mike Munger discuss the impacts of Uber, AirBnB, Monkey Parking and similar advances. Listen especially to the last segment. Just as Amazon went from selling books to selling everything, Roberts and Munger say "we ain't seen nothing yet." The three technologies (and others on the way) help us to make much better use of the capacity we have. Add driverless cars, and why own a car? or a garage? or a parking lost? The word "transformative" is used in the conversation.
The years 2000-2010 are very early in the game. What will iPhone City look like? We do not yet know.
1. The canonical model of urban economics predicts that cities will spread out as communications and transportation costs fall. This has been the experience -- from pedestrian to streetcar to automobile city.
2. But the model leaves out many things. Nate Baum-Snow writes about these and suggests that outward expansion will stop or even reverse. Average densities will rise.
3. But we are now networked as never before, suggesting that the forces cited in #1 will pick up steam.
So which will it be?
Wendell Cox has recently posted results from his work on redefining metropolitan sub-areas. Adapting an approach similar to one developed by David L.A. Gordon and associates at Kingston University in Ontario, (and using zip code data re urban characteristics), Cox moves us beyond the very inadequate use of "central city" vs. "suburbs". These have relied on municipal boundary definitions of the "central city" and defining the rest of the metropolitan area as the "suburbs". But municipal boundaries have no functional usefulness and vary considerably in terms of the extent of their "footprint." There is also room for confusion because some people construe "central city" as the downtown. Note also that any binary classification falls way short.
Using the refined definitions of "urban core," Cox calculates recent U.S. urban core population trends this way:
1990-2000 -1.164%We know that the last two decades have seen the revival of many major U.S. downtowns (explained in large part by less crime); the most recent decade includes the extraordinary increase of electronic networking. But the data show no change. Have the two effects cancelled each other? We do not know.
2000-2010 -1.110%
1990-2010 -1.137%
In this conversation, Russ Roberts and Mike Munger discuss the impacts of Uber, AirBnB, Monkey Parking and similar advances. Listen especially to the last segment. Just as Amazon went from selling books to selling everything, Roberts and Munger say "we ain't seen nothing yet." The three technologies (and others on the way) help us to make much better use of the capacity we have. Add driverless cars, and why own a car? or a garage? or a parking lost? The word "transformative" is used in the conversation.
The years 2000-2010 are very early in the game. What will iPhone City look like? We do not yet know.
Friday, July 18, 2014
Pray for "gridlock"
I recently did some teaching in China. What did my students hear from me? Among other things, there is Good Capitalism and Bad Capitalism (to borrow the title of a fine book on the subject). The bad is crony capitalism. What did I learn from my students? China's big problem is corruption which is rooted in what we call crony capitalism. There are huge differences between the two countries (will China ever have a Silicon Valley?) but they share a common plague.
Some years ago, Virginia Postrel (The Future and Its Enemies) suggested that our traditional left-right distinctions in politics ("liberal" vs. "conservative") mean very little. She argued for the more interesting distinction is between those who are comfortable vs uncomfortable with change. Rapid change is here to stay and she makes a good case. She begins the book by citing areas of agreement between "left-wing" Ralph Nader and "right-wing" Pat Buchanan. Both preferred protectionism to free trade.
Today's WSJ includes a review of Nader's Unstoppable (which I have not read) by David Asman. Look at what the reviewer says:
My hotel room television showed well over a hundred government network channels. One channel was all-English language. What did it play? Twenty-four hours continuous episodes of House of Cards. My students reported that people love it.
Some years ago, Virginia Postrel (The Future and Its Enemies) suggested that our traditional left-right distinctions in politics ("liberal" vs. "conservative") mean very little. She argued for the more interesting distinction is between those who are comfortable vs uncomfortable with change. Rapid change is here to stay and she makes a good case. She begins the book by citing areas of agreement between "left-wing" Ralph Nader and "right-wing" Pat Buchanan. Both preferred protectionism to free trade.
Today's WSJ includes a review of Nader's Unstoppable (which I have not read) by David Asman. Look at what the reviewer says:
Mr. Nader, the consumer crusader who ran for president to the left of Al Gore, is perhaps the last person one would expect to admire a libertarian critique of the corporate state. But in "Unstoppable" he respectfully describes the views of Ludwig Von Mises, Friedrich von Hayek, Milton Friedman, George Stigler and other free-market economists. He praises their distrust of politicians, lobbyists and businessmen who seek to put government power in the service of corporate profit.Strange bedfellows again. Both of the major U.S. political parties have become dominant because each have achieved their own crony capitalist coalitions. Each has also created a formidable infrastructure that assures survival. What is to be done? Avoid "feel good" voting for attractive but unelectable candidates, split your votes between the parties, split any financial support, never vote for an incumbent, pray for "gridlock".
My hotel room television showed well over a hundred government network channels. One channel was all-English language. What did it play? Twenty-four hours continuous episodes of House of Cards. My students reported that people love it.
Sunday, July 13, 2014
Clarifications
Neil Irwin (at Economix, July 11) tell us the latest from Uber and Lyft (still unable to link from you-know-where but source is easy to find). Two things bear repeating. First, one cannot recognize enough the simple fact that sellers learn about demand (elasticities) via trial-and-error pricing (as Uber is apparently doing) if we let them -- if prohibitions against "gouging" are relaxed. I have no idea whether the companies hire econometricians to estimate elasticities but I suspect that trial-and-error is better. This type of essential learning is full-time work.
Second, while the old man-vs-machine question has given way to humans-vs-computing, we see that complementarity is more accurate. How do they integrate? Not,how do they compete? It is now hand-held apps plus automobiles.
Along these lines, it is not a question about "the end of cities" (George Gilder, 1995, and many others) or not -- now that we are smart-phone-tethered-communicating-continuously-at-near-zero-marginal-cost. Rather how will cities change? The complements-rather-than-substitutes questions points to complements. Cities will not disappear (no signs of that since 1995) but they will continue to spread out -- as always and perhaps a little more and a little faster.
Thursday, July 10, 2014
Long way around is better
Joseph Epstein wrote a moving tribute to his friend Edward Shils "My Friend Edward" (in his Narcissus Leaves the Pool; unable to link using behind-the-Chinese-Wall connections). Epstein notes, "He [Shils] admired the economists of the University of Chicago, trained under Jacob Viner and Frank Knight; and he spent more than half a century in the company of Milton Friedman and George Stigler and found both to be men of superior intelligence. But he felt the Chicago economists, brilliant though they could be, were insufficiently impressed with the mysteries of life." (p. 309).
But Arnold Kling writes "Neoclassical economics is obsessed with the concept of equilibrium, and in turn it pays little attention to innovation. I believe that one of the biggest lessons of economics is the value of trial-and-error learning through entrepreneurial activity." (askblog post, July 9). Now we're starting to get somewhere.
Equilibrium is just a modeling convenience. But many smart people take it much too seriously. Google Scholar shows 2170 citations for "benevolent social planner." Many modelers rely on this unicorn to make their model work. In his undergrad text, Greg Mankiw properly uses the mythical BSP to demonstrate to students the idea that markets face a huge task. But this is way different from inventing a BSP to satisfy journal editors and referees that they are seeing a real model. Modeling trial-and-error may seem like the long way around.
Sunday, July 06, 2014
Cities and organs
It's a simple but profound point made by Hayek in The Fatal Conceit: there are two ways to get to non-zerosumness, markets and love; do not expect one to do the work of the other; each one has its place; confusing one for the other can be fatal. A simple example is opposition to markets in organs; opponents want all donations to be based on altruism, ignoring the simple fact that altruism alone is never enough; many would-be recipients are left to suffer and die.
What about cities? Many who write (and talk) about cities eschew market mechanisms; they are loathe to price parking and access; they want land uses to be administered -- in response to some "vision" or fad (and the usual cronyism). We get politicized awfulness in many places. Congestion on the roads and expensive housing are two obvious outcomes. The complainers then demand even more of the restrictions and rules and plans that created the mess.
In San Francisco, there is the current Plan Bay Area (unable to link at the moment; but look for "Judge rejects challenge to Bay Area land-use, transit plan" (SFGate, July 3) which is a case in point (f.d., I have been associated with the challenge). The proposed plan is more of the same: more restrictions, more whining about "affordability" (too few free lunches); more proposed mandates, etc.
The current New Yorker, includes Nathan Heller's "California Screaming: The tech industry made the Bay Area rich. Why do so many residents hate it?" (gated). The report includes coverage of Bay Area activists and their rage at the techies. Protests and chants includes "Rents are too damn high, right?" The writer gets on board via a story about the Costanoan tribe's Coyote legend: he professes to nurture but he hoards! Bingo! Not enough nurturing by the area's tech wealthy.
None of the protesters chanted and crowded the Bay Area plan hearings. It's not about markets stymied but too much hoarding and not enough nurturing by successful people -- who create a local industry that many around the world would kill to have nearby.
But this is just one example. Cities (like economies) are vast and complex. Presuming that any good can come from avoiding or suppressing market mechanisms can be fatal. Think about our organ donor laws.
Wednesday, July 02, 2014
A very simple point
I have been resisting any impulse to pick up and get into my copy of Thomas Piketty's Capital. One reason is that it has been reviewed more than any (new) book I know. Having digested many of these reviews, I fear that I have been compromised.
One review that I found exceptionally well done is by Jonah Goldberg in the recent Commentary. Here is a passage that I would have placed at the beginning (but do read the whole thing):
It is also clear that the most mobile are those who cross the border into the U.S. They are necessarily missing from the much of the data and analysis.
Is wealth accumulation mainly via ill-gotten gains? Is this what incites the redistributionists? Inevitably, there is some of that and the place to start is to rein in the crony capitalists (be they in government or in business). But go back to the mobility stats. The new rich are likely to be associated with successful start-ups and innovation. I do not begrudge them anything.
We cannot magically delete all of the "worsening inequality" studies that are not based on mobility data. Pikkety's Fig 1.1 shows the share on U.S. income going to the top decile in each census year 1910-2010. That decile changed membership many times over the last 100 years.
One review that I found exceptionally well done is by Jonah Goldberg in the recent Commentary. Here is a passage that I would have placed at the beginning (but do read the whole thing):
Nor are the poor and the middle class static. As a statistical artifice, there will always be a bottom 1 percent, just as there will always be a top 1 percent. But that doesn’t mean that if you are born in the bottom 1 percent, you will stay there. Some of Piketty’s fans seem confused about this, appearing to believe that economic inequality is synonymous with low economic mobility. There may indeed be a link between inequality and low economic mobility. After all, rich people by definition have advantages poor people do not. But there is no iron law that says any individual person must stay in his narrow economic bracket for life; the Morlocks can become Eloi. Indeed, there remains an enormous amount of churn in our economy; 61 percent of households will find themselves in the top quintile of income for at least two years, according to data compiled by economists Mark Rank and Thomas Hirschl. Just under 40 percent will reach the top 10 percent, and 5 percent will be one-percenters, at least for a while.The point has been made many times but remains an often ignored "inconvenient fact." We are not living in feudal times but in a very dynamic age. There is great flux. There is mobility between strata. Perhaps not enough but not insignificant either. Yet, there are studies and opinion pieces that compare a distribution snapshot in Year A with another distribution snapshot in Year B -- and infer that inequality has worsened. Unless we have a way to track individuals (panel data), this approach is meaningless.
Piketty himself offers an extensive analysis of the Forbes list of the wealthiest people in the world in an attempt to prove that today’s richest people are much richer than they were in 1987 and that the “largest fortunes grew much more rapidly than average wealth.” He says the data show that wealth grew by an inflation-adjusted 7 percent, even higher than the normal 4-to-5 percent return implicit in r > g. In what seems a generous nod, Piketty even concedes that if you jigger the timespan—starting from, say, 1990 instead of 1987—the rate of return might drop a bit. But one problem remains: Piketty leaves out that the people on the list are almost all different people.3 The economist Stan Veuger, writing for U.S. News & World Report, looked at the same list and found that the top 10 individuals collectively earned about 0.5 percent on their capital during the period Piketty says “the rich” got richer. And, Vueger notes: “If it weren’t for Walmart, the wealthiest people in the world would actually have lost about half of their wealth in the last 25 years.”
It is also clear that the most mobile are those who cross the border into the U.S. They are necessarily missing from the much of the data and analysis.
Is wealth accumulation mainly via ill-gotten gains? Is this what incites the redistributionists? Inevitably, there is some of that and the place to start is to rein in the crony capitalists (be they in government or in business). But go back to the mobility stats. The new rich are likely to be associated with successful start-ups and innovation. I do not begrudge them anything.
We cannot magically delete all of the "worsening inequality" studies that are not based on mobility data. Pikkety's Fig 1.1 shows the share on U.S. income going to the top decile in each census year 1910-2010. That decile changed membership many times over the last 100 years.
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