Sausage factory rules

Conor Dougherty writes abut NYC street traffic in today's NY Times. "Self-Driving Cars Can't Cure Traffic but Economics Can."  There is congestion because there is no pricing. Take one rationing method off the table and another becomes the default. This has been the relevant economic insight for as many years as economists have looked at the problem. While textbooks speak of congestion as a "market failure," the failure to price is actually a failing of policy makers and politicians.  Transactions costs have been removed as an obstacle by modern technology and the arrival of easy, fast and cheap scanning and billing.  These have been implemented and tested in various parts of the world, in particular where there are bottlenecks such as at bridges and tunnels.  The remaining objection has been over the regressivity ("fairness") of pricing. But Uber's "surge pricing" has been seen as entirely sensible by most people.  Matinee pricing, early bird specials and similar time-of-day or season-of-the year demand-responsive pricing have been around for a long time. It's when prices emerge via the political sausage factory that the predictable positions are wheeled out.

Sausage factory rules also explain why the regressivity of taxing people (often via sales taxes) to pay for enormously expensive and often underused subways and similar transit is usually ignored.

Game-changers

Here is the L.A. Times noting that LA Metro ridership is still falling -- even though billions have been (mis)spent on extra capacity over the last 30+ years. By my count that's the second time this year that the Times has broached this tender topic. As a member in good standing of the LA "good government" (googoo) establishment, the paper had for many years chosen to tip-toe around the bad news.

Readers of this blog may know that some of us began flogging the dead horse in the mid-1970s. Go to the attached proceedings and read the contribution by the late UCLA Prof. George Hilton. He was among the first to write sensibly and clearly that LA is not NY -- and trying to make it so would be a phenomenal waste. But even LA Times coverage will be for naught. Billions more will be spent. Pouring good money after bad is what the great and the good in city hall do for a living.

We are in the the early years Uber/Lyft and all manner of ICT information sharing.  These are the game-changers. For the past two months, my wife and I have graduated from a two-car household to a one-car-plus-Uber-plus-walkable-neighborhood HH. The game-changers are here. Conventional transit was never a game-changer.

ADDED

Latest from Wendell Cox

Why have economists in the room?

Good politics makes bad economics and vice versa. The Trump administration's ideas on trade prove it. In today's WSJ, we see that "Trump eyes change in counting U.S. exports that could make trade gap look bigger."

Adam Smith pointed out many years ago "Nothing can be more absurd than the balance of trade." This "balance" (current account deficit) is reported and fretted over regularly. But less noticed is the simple fact that the deficit is necessarily mirrored by an equal and opposite surplus on the capital account.

Currency exchange rates reflect the supply and demand for any and all currencies. Supply and demand for any nation's goods and services as well as supply and demand for any nation's capital goods determine supply and demand for any nation's currency.  At the end of the day, currency values price and prompt all of these trades. 

Put it another way: Americans get to consume more than they produce because the world wants to invest in American capital goods. This also means that American taxpayers (and politicians) can consume more than they produce. Sweet deal all around.

What are the lessons? The world wants to invest in the U.S. Good news. The "trade gap" proves it.

It would be even better if the federal government (politicians) did not reap the benefits. These "investment opportunities" though attractive abroad (for the most part) do little good.  Far better if foreigners used their U.S. dollars to make productive U.S. investments.

Gains form trade are fundamental and beneficial.  Double-entry booking is also fundamental and beneficial.  I understand the politics. But why have economists in the room if they simply parrot the politics?

Practicalities, reputations, gossip

Dan Klein has a forthcoming paper (Independent Review) on "The Joys of Yiddish and Economics." Dan looks at the Leo Rosten classic as well as the essentials of Smithian-Hayekian economics and finds various parallel insights. Smith-Hayek famously noted the information content of prices and the useful embellishments of reputations -- whenever we buy or sell.

The characters that Rosten described were practical men and women. Survival was job #1. They could not afford to neglect practicalities. As such gathering information was fundamental. Where and when they could get it at low cost was part of survival. The humor is usually from the joy of recognition.

Thanks to the web, we now live in a sea of information. But we still engage in gossip (in person and on social media) because trust is always being tested. We network electronically as well as the old fashioned way. We seek (and find) the blend of networking opportunities (face-to-face as well as electronic) that works best for us in light of our personal situations.

It's really not so different from Rosten's characters and their situations.

The public (politicized) schools

Here is Eric Hanushek, arguably the most astute scholar on U.S. lower school performance (and what can be done about it), commenting on flat and dismal Pisa scores for U.S. students.  Note that he says U.S. scores have been "stagnant for the last decade". He also addresses and deflects the standard criticisms (excuses) for the status quo that are traditionally offered. Read the whole thing.

Below are data compiled by AEI's Mark Perry on what we pay for this tragedy.  All of this is poignant because the most contentious Trump cabinet appointment to date has been the confirmation of Betsy DeVos. It's telling that her critics charge that she is not from the education establishment. Revealing. They are unaware that they cite her most distinguishing qualification.

Vouchers would not destroy the public schools.  Rather, all schools would be incentivized to earn their public subsidies rather than receive them as an entitlement. There is nothing like competition and innovation. Both have been missing. This is why we have the sorry mess we are in.  Let 100 (actually many more) flowers bloom.

Here is the WSJ's Daniel Henninger explaining how and why those who live and breathe "social justice" are obliged to show their true colors on this issue.

ADDED From a Feb 10 Ed Glaeser WSJ book review: "My preferred course would be a single-minded devotion to skills—learned in charter schools and on the job and at the breakfast table and while sitting patiently in a house of worship ..."  From Edward Conrad's The Upside of Inequality: "Today U.S. growth demands properly trained talent ..." (p. 13). 

As always, how we we get from here to there?

Consequences

Globalization, immigration, and trade hit some Americans hard and many turned to Trumpian populism.

Here Russ Roberts interviews George Borjas to discuss Borjas' We Wanted Workers (which I have not yet read). Early in the conversation, Borjas explains "we wanted workers but we got people" is closer to the real experience and complicates the story way beyond the simple economic models.

The conversation is, as always, useful and enlightening, but the two economists hit what are in my view two dead ends. First, they wonder whether rather than limiting immigration, can native workers be better prepared to compete? Both men favor "better education." But how will that happen?  American kids have been posting lousy Pisa scores for as long as I can remember - no matter what is done or what is spent on the schools. And which Trump cabinet choice is in trouble at this moment? Betsy DeVos who promises to be the first Secretary of Education not in the pocket of the education establishment -- which is why she is in trouble. So much for the education fix.

Elsewhere in the conversation, Borjas and Roberts note that immigrant assimilation was once the choice of most immigrants as well as of most Americans. But no more. "Melting pot" is now a microaggression on some college campuses. Yes! Not a bad joke.

Tribalism around the world accounts for countless deaths and wars.  Coming to America as way out of tribalism was the great American achievement. It never meant that ethnic ties would be lost.

But identity politics and confusion now reign and we have lost something notable and precious.

Those still puzzling over the Trump win might reflect on political correctness jammed down our throats for years. The Ft Hood shootings were simply "workplace violence". Yup, and we're all stupid. And the geniuses who came up with this tactic knew what they were doing. Not really. What we do know is that they will be puzzling over (and writing about) the Trump (who I did not support) phenomenon for many years.

Arrogant cluelessness (just like elections) has consequences.

No escaping Downs' Law

Take pricing off the table and the alternatives are not promising, much worse than tying just one hand behind your back. This is true for almost any public service.

Some years ago, Anthony Downs elaborated and popularized the idea with his "Law of Peak Hour Congestion."  Here is a nice summary. Without pricing, extra road capacity will simply attract traffic from other sources (other modes, other routes, other times of day, new trips, etc.). Congestion will not be "solved." The idea is simple -- and the lesson has been ignored a thousand times. Officials are loathe to price but love building things. This is "bi-partisan". Crony capitalism is non-denominational.

Elon Musk has now made another media splash by promising to "solve" LA's traffic problems (which have eluded all of the previous "solutions" for the same reasons) by promising new capacity via a tunnel under the Hollywood Hills. It's big, it's splashy and it's Elon Musk. What could go wrong?

Subways are thought to "work" in NYC for historic reasons. But even there, the costs (in light of U.S. construction practices) have escalated enough to make the whole idea questionable. Would a Musk super subway be any different. There is nothing there that addresses Downs' Law.

Money

There is cringe-worthy economics coming out of Washington on a regular basis. This morning, one reporter without a hint of irony referred to the Trump trade agenda as an "America-first trade agenda." Trade is not about winning but (once more) good politics is often bad economics.

In my fantasies, the know-nothings would learn from some of my favorite books. When it comes to money, start with Money Changes Everything: How Finance Made Civilization Possible by William Goetzmann.  As the title states, the author tells us about history while he tells us about economics. (Should we ever have one without the other?)

Try to explain money. These days, I try to explain Bitcoin (any crypto-currency) to friends and family. What "backs" these? What backs any fiat money? The trust in and the credibility of the issuer. When I shop with "Peter Gordon IOU's" I don't get very far.

Economic historians like Goetzmann have the real goods. Consider this from page 450:

“Having repudiated its foreign debt and fought off the attempts by the world’s leading investor nations to reverse the October Revolution, Russia still needed to raise money.  In the Yale collection of historical financial documents is a printed bill, about twice the size of a modern dollar. On the front of the bill is a picture of a farmer sowing a field. The inscription on the bill identifies it as a short-term loan from 1923:  an obligation of the government.  Oddly enough it does not promise payment in rubles but instead it can be redeemed for one sack of rye flour.  Karl Marx would have been proud.  The young Soviet government had bravely dispensed with the object of money fetishism – the veil that concealed the true value and encouraged capitalist monetary accumulation.  Instead, the idealistic Bolsheviks introduced a more fundamental source of value as a medium of investment and exchange.  Lest Russians imagine that the grain itself held value, the romantic pastoral image of the farmer sowing the grain pictured the labor theory of value.  The commodity was worth the amount of honest labor used in planting and harvesting it.  What is not clear from the document is whether the bill represented fiat money or whether it was truly redeemable.  If it were actually a short-term note used to redeem a sack of rye, there is missing information.  The bill does not state when and where the sack can be collected.  Perhaps it was really a manifestation of the labor theory of value.  Alternatively, it could have been a manifestation of the weakness of the young Soviet state.  Russia was in the throes of hyperinflation in the early 1920s as the needs of the state outstripped its resources.  Perhaps the rye bond was an inflation-protected currency.  Then again, who knows how many sacks of rye the government had to deliver on such promises – or indeed, whether they ever did.  The fact that you can buy one of these bills today for less than $50 suggests that many of them were left unredeemed.”

 There are many more gems like this one. Enjoy.

Bubbles

Many of us are overwhelmed by reality and retreat to "bubbles".  Charles Murray deserves great credit for popularizing the idea. Most of the people I know who took his "bubble test" did not fare so well. My own favorite bubble is the optimist bubble.

There is so much not to be optimistic about but my comfort zone (an admitted weakness) is the one that sees the glass as half-full.  But there is a case for the optimist view.  I recently read the manuscript of Ake and David Andersson's forthcoming Time, Space and Capital. They reiterate the story of humankind's amazing material progress over the last several hundred years (as do do Deirdre McCloskey and many others) and they make the case that the economic theory we have helps us to understand it.

To their great credit, the Anderssons go further and break new ground on how capital theory can be broadened so that we can gain an even better grasp. They elaborate concepts of capital. “Land may consist of scarce natural resources such as gold or oil, and then it takes on all the characteristics of physical capital. Access to natural resources – including land formations that are valuable because of their beauty – is yet another physical capital attribute. But land is also valuable for the access is provides to other people, in which case land should be conceptualized as a bundle of social capital attributes. Thus, the traditional definition of capital corresponds to a bundle of physical capital attributes, ‘land’ is a bundle of physical and social capital attributes, and labor similarly consists of a bundle of human and social capital attributes.” (p. xx).

Simply referring to “capital” is vague. The same applies to “land”. It’s really all about key attributes. A street address, for example, denotes a substantial set of productive attributes because it says a lot about the plausibility of operating in a variety of networks. Of course. This is how we can better understand cities.

Back to bubbles. Innovation and technology are a great boon to people in some very poor places. Today's WSJ includes "Mobile Banking Gives a Big Boost to Kenya's Poor: Benefits to to women particularly ..." It's not just Bitcoin for billionaires evading capital controls (bless them for that). It's not about Europe's Great Enrichment. It's not about the UN or the IMF or foreign aid. It's better.

No utopians

Experimentation is a wonderful thing -- as long as it is coupled with private risk-taking.  Here is The Economist's report of the state of the Disneys' new urbanist Celebration, Florida. A little too utopian to meet its promises. Read the whole thing.

Here is Wendell Cox's report of urbanization in the U.S. It is mostly suburban and exurban. Within that large swath there is, to be sure, experimentation and variety. None of it is "unplanned." The questions are always: (1) who does the planning?; and (2) is the top-down part light-touch enough to allow bottom-up responses to what consumers want?

Developers (private planners) want to succeed. To do so, they must fathom and decode consumers' wants -- and supply and price the package in ways that attract buyers and satisfy investors. Not simple. Are the people who can do actually this "visionaries"? By definition, yes. But not utopians.

"If you want to make God laugh, tell him about your plans." This is mentioned by a character in Amores Perros. It has also been credited to Woody Allen.

An economist goes to Washington

Here is Trump economist Peter Navarro explaining the benefits of protectionism to Paul Solman and the PBS NewsHour audience. The best (worst) part is where they go to a display board and write down the textbook components of final demand that define GDP.

GDP=C+I+G+(X-M). The "chalk talk" quickly gets pretty awful. Trump wants more "I" but "Keynesians" want more "G". Trump-Navarro want to boost GDP by reducing the "trade deficit" (reduce gap between U.S. imports and exports). There follows a discussion of China's trade abuses, including selling their stuff to us at low cost.

Where to start?
1. Trade is a good thing; specialization and exchange are the fundamental insight of market economics; they explain our prosperity.
2.  The "trade deficit" is a meaningless idea left over from the days when mercantilism was a serious idea, embraced by royals seeking ways to pay for their perennial war making. They were perhaps blind to the idea that currency exchange rates are always in flux, responding to the demand and supply for goods and services as well as the demand and supply for assets.  These flows respond to prices (exchange rates). At the end of the day, there are trade flows and capital flows that exactly balance.
3. The international demand for U.S. assets signals confidence in the U.S. economy -- we are still the "tallest pygmy." I would feel better if the U.S. Treasury borrowed less. Tallest pygmy status feeds a bad habit (addiction) by U.S. taxpayers (and Congress). More capital flows would go into U.S. productive projects were there less competition from U.S. unproductive (government) projects.
4. Going back to the textbook definition of GDP, the items on the right-hand-side are not independent of each other. A trade war, for example, could tank "I" as well as "C".
5. If any government anywhere does "manipulate" anything to make their exports (my imports) cheap, thank you very much.

U.S voters have spoken but the conversation never stops. If economists invoke textbook discussions of GDP, they should at least do so without all of the errors that Navarro promotes.

Out with the old; in with the new

The NY Times notes: "L.A. Drivers on the 405 Ask: Was $1.6 Billion Worth It?"

Good question. Also interesting amid the clamor for a "big infrastructure push". Also interesting after billions have been spent in L.A. and other U.S. cities on rail transit with nothing to show.  Perhaps people who make (and talk about) public policy operate by their own set of rules; losses are not the usual impetus to re-think. Learning from mistakes (the way to progress) are no big deal.

What are the substitute rules? Do more of the same. Stick to your emotionally-based beliefs. Stick with your crony capitalist partners; it's a beautiful friendship (Bootleggers and Baptists). Fudge the numbers when it's convenient.

In the fairy tale version, there would come a point when people get fed up and throw the rascals out. The fairy tale has no room for a populist reaction. Some of the bootleggers get the drift and catch the wave of discontent.

You get a Bernie Sanders and a Donald Trump.  Poor Hillary Clinton and team Podesta. They were busy so prepping for the coronation that they thought the old politics would work just fine.

Trouble is that the new politics may be as awful as the old politics.

ADDED

Learning from our mistakes is our only hope.  Here is more: http://www.nationalaffairs.com/publications/detail/cultural-intelligence

Better way

Recent LA Times coverage of California's "climate fight" has caused a stir because the writer actually mentioned a downside. There will be economic costs. But the legislature was apparently reluctant to even address possible trade-offs involved. ("California's climate fight could be painful -- especially on job and income growth").

But, on the other side, there is similar disdain for serious discussion of costs and benefits. Michael Greenstone and Cass Sunstein, in this NY Times op-ed write about the incoming administration's seeming efforts to dismiss attempts to place a social cost on carbon. 

For some time, skeptics have been tarred as "deniers".  On the other side there are plenty of proud know-nothings.

In all this mess, what do we know?  First, climate models are not gospel. Here is just one credible critique by Charles Hooper and David Henderson. Should not allegations of "settled science" raise alarms?

Second, the climate discussion involves a global commons and, therefore (presumably), the need for policies and, therefore, politics. But politics sends people to the barricades where they take uncompromising positions that deflect trust.

What to do? Marginal Revolution points us to an economic assessment of fracking. The biggest steps towards cheaper and cleaner energy (natural gas) came about via the market and not (actually in spite of) the politics we have. Entrepreneurial risk taking and trial-and-error learning are all we have. Nothing else come close.

We should have far less reason to worry about temperatures 50-100 years from now if we lower our expectations of what the politicians can do and give the entrepreneurs some space to do what they do.

That is the real way to avoid "doomsday". How have we avoided all of the past "doomsdays"?  Not via politics but via the efforts of private investors who discovered better and cheaper ways to house, feed and clothe us -- and much more.

Johan Norberg has an up-to-date summary of views articulated by Julian Simon about 20 years ago,

Game changers?

Wendell Cox points us to this essay by Walter Russell Mead: "The Path to Mt. Rushmore? Trump's Third Ring of Suburbs."

Mead is a smart man and always worth reading. While it's pretty clear that Barack Obama's people like high population densities and public transit while they hate fossil fuels and cars, and that these sentiments are less held by whoever Trump brings to Washington, it is also true that unbundling and local NIMBYism are forces to be reckoned and will go on in spite of what happens in Washington.

Richard Balwin's The Great Convergence tells the unbundling stories. He studies the history of location (his interest is globalization) and cites two great unbundlings. He notes three spatial barriers, high trade costs, high communications costs and high face-to-face costs. His “1^st unbundling” refers to lowered trade costs. Producers did not have to be near consumers. Shipping costs had fallen dramatically. This changed the world in terms of the comparative advantage of world’s various regions. The “2^nd unbundling” lowered communications costs; he cites lower ICT costs. This had an equally profound effect. Much of labor could be offshore. He sees no 3^rd unbundling; face-to-face-costs remain high – and we will still have clusters and cities. Baldwin recognizes the special nature of exchanging tacit information. This is beyond ICT.

Back to Mead, would a bunch of bullet trains have made a any difference in all this? They would have accelerated national debt growth a bit faster but that is the only plausible effect.

Public transit was never the game-changer that advocates had promised. Will Uber-type services be the game-changer? Yes and no. Unlike transit, they will cause some households to forgo one or more cars. Look for cars per household to plateau. But, here is the difference: will these services draw people to a residential location closer to the place of work -- as transit was supposed to? Uber is OK only for commutes over relatively short distances -- where you are already close to the office. It complements walking and biking, depending on the weather.

Here Sam Staley speculates on what a Ben Carson-led HUD will and will not be doing. Interesting but I do not see how any of this weighs for or against Mead's argument. The spreading out of cities is very old and will continue no matter who is elected and who is appointed.

Another one bites the dust

"Industrial policy" is the polite term. Trumpian "bullying" is more accurate. The Carrier deal agreed to last week is a case in point -- and just the beginning. It would be much better to separate politics from economics.  Here are the big four reasons why:

1. No third party is equipped to second-guess any business decision.
2. Third parties are easily involved in political grandstanding. This makes them worse than ill-quipped to intervene.
3. Politicians inevitably over-promise. Delivering is the hard part. The Obama forces may still be puzzling over Democrats' thrashing last week. But it's very simple. "Hope and Change" set expectations much too high.
4. Over-promising also leads to restiveness that invites despotism and repression. Venezuela, Cuba, North Korea and many others are in this state. This is where it gets really ugly.

These are well known non-trivial dangers. The unseen (Bastiat) is always the problem.

Trouble is that both political parties love this stuff. Particularly awful us how the normally sober Peggy Noonan (WSJ) and Mark Shields (PBS NewsHour) also cheer. This is not about elites vs non-elites. One more cliche just died.

ADDED

Dan Griswold reminds us of the danger of "blowback" retaliation from abroad. Yes, the hole being dug can get pretty deep.

Explanations, please

The "fix infrastructure" chorus is bi-partisan. That may be a problem. Here is James Surowiecki's Nov 28 New Yorker column. It mentions that "Debt-fueled extravagance was bad for his [Trump's] companies, but it could be good for America' s economy and infrastructure ... Done right, a big infrastructure spree would boost demand and make travel more efficient."

Done right? Pure win-win? What do we know?

1. There will be pork projects, including bullet trains to nowhere. No one has suggested a vetting procedure that de-politicizes the fest. We have very little history of getting this right.

2.  Those looking for a macro-economic demand boost owe us an explanation of why the Obama stimulus of 2009 fell flat. That one took place when there was significantly more unemployment than now.

3. Stimulus dreams assume that unemployed resources are easily available and easily malleable. Neither is true. We are now told that the U.S. economy is near full employment. (To be sure, Tyler Cowen has suggested that large numbers of undocumented immigrants would like to work on these projects.) 

4. Surowiecki seems to agree with those who want the U.S. to borrow more. But the federal debt (plus unfunded liabilities) is too big and there is no plan to address it.  Servicing the debt will be a bigger problem as interest rates rise.

There are other reasons to be concerned . But start with these four. Infrastructure enthusiasts have some explaining to do.

Negation and skipping classes

I share Arnold Kling's enthusiasm for Martin Gurri's The Revolt of the Public. Here is Kling's review. When you read the book, try to keep in mind that it was published in 2014. I hope the author made many bets on the recent election. I expect he would have bet on a Trump win -- and made a lot of money. That does not mean I see Gurri as a fan of Trump.

There is little I can add to Kling's review. Gurri writes about recent political protest movements in Egypt, Spain, Israel and the U.S.  He notes, "Like their brethren in Spain and Israel, the OWS [Occupy Wall Street] protesters were energized primarily by the force of their repudiations. They made no demands, but felt free to accuse. The objects of their loathing -- a predatory economic system, a corrupted government, a society ruled by money -- united them in a way that common goals did not. They spread the notion that the top 1 percent of Americans tyrannized the bottom 99 -- and that they, a handful of white, middle-class youngsters, represented the vast American public, the people in revolt. OWS injected these once-marginal attitudes into the mainstream, where they became fodder for liberal politicians. The romance of condemnation, in my judgment, has become the most conspicuous feature of Obama's mode of governance ..." (loc 1904 on Kindle).

More negation and protest than demands. Post-election, young people protest Trump by boycotting their college classes. What's to lose? If they still graduate, do most of them care about missing a few lectures?  Any bets that most of them are not from college majors where hard content is taught? Or perhaps they can get academic credit writing papers on what all makes them feel bad. Do not bet against it.

Read Gurri's book.

Emergent

When I write about cities and cite the bottom-up as well as the top-down forces that shape cities, I usually end up with the conclusion that most of urban form is emergent. Journal referees often challenge all this with references to infrastructure which was presumably installed top-down. The favorite story is usually Manhattan's street grid and the Commissioners' Plan of 1811.

But Los Angeles is different. A friend points me to Reyner Banham's Los Angeles; The Architecture of Four Ecologies, particular its Chapter 4, "The Transportation Palimpsest." There were ox cart and horse trails, including the Camino Real, many of which predated the alignments of railroads.  Most of the rails were private,  many installed to guide buyers to outlying real estate developments. Many of LA's freeways, most of which came in the 1960s, followed routes quite similar to or nearby the old train tracks.

Banham's Figure 30, "Route Map of the Pacific Electric, 1923" (p. 62-63) has much in common with an LA freeway map of today.

The major spines of the freeway plan are apparently emergent alignments. I would not be surprised if there are stories like this in other places. You can never know enough history.

Bad news bearers

My favorite theme is human progress.  Many of us are blessed to be living in a time and place where it is so apparent. But this does not mean that it is apparent to all of our friends and neighbors.

There are so many good books on progress that it is hard to say where to start. The names Deaton,    Lomborg, Maddison, McCloskey, Mokyr, Phelps, Radelet, Pinker, Ridley, Simon, and Shermer are good places to start. There are many others.

Among the clearest and most concise is Johan Norberg's Progress: Ten Reasons to Look Forward to the Future.  I am not trained in psychiatry so I can only speculate why young people are taught more about the bad news than about all the good news.

Here is one snippet from Norberg (page 161):  "After winning the Second World War against the Nazis' brutal form of racism, the Allied democracies showed how many problems still remained among themselves. When General de Gaulle wanted French troops to lead the liberation of Paris on 25 August 1944, American and British commanders accepted it on the condition that no black colonial forces were included, even though they made up two thirds of the Free French forces." The author includes other snippets like this, all guaranteed to hit you over the head.

They hit you over the head because they are so crazy from today's vantage point. Like Norberg, some of us celebrate how far we have come in a short space of time. Yes, there is never a time to simply stop and be smug.

I mention all this because, in spite of progress, so many among us prefer to look at the election results as simply the result of racism. No. Barack Obama was elected two times by large margins. And his popularity rating remains amazingly high for an incumbent at the end of his second term.

Those who cannot accept progress, but instead like to dwell on the past, cannot accept the idea that the Obama policies and mode of governance, not to speak of all the Clinton detritus, were the real problems.

I say this as someone whose side (divided government) lost. May our side prevail soon.

For the children

I briefly cited Edmund Phelps' wonderful economic history, Mass Flourishing, in this post a while back. A brief version of his argument is in the NYRB of August 12, 2015.  Here is the link. 

On election day next week, voters across the country will be asked to approve all sorts of new school bonds and taxes, "for the children." But we (should) know from long and sad experience that throwing money at the problem is ineffective. Phelps has a better idea. 

Below is lengthy quote from his NYRB essay. It is quite wonderful but very far afield from the standard election year talk about schools. As always, there is the unaddressed question of how we get from here to there. That would be another essential book.

How might Western nations gain—or regain—widespread prospering and flourishing? Taking concrete actions will not help much without fresh thinking: people must first grasp that standard economics is not a guide to flourishing—it is a tool only for efficiency. Widespread flourishing in a nation requires an economy energized by its own homegrown innovation from the grassroots on up. For such innovation a nation must possess the dynamism to imagine and create the new—economic freedoms are not sufficient. And dynamism needs to be nourished with strong human values.

Of the concrete steps that would help to widen flourishing, a reform of education stands out. The problem here is not a perceived mismatch between skills taught and skills in demand. (Experts have urged greater education in STEM subjects—science, technology, engineering, and mathematics—but when Europe created specialized universities in these subjects, no innovation was observed.) The problem is that young people are not taught to see the economy as a place where participants may imagine new things, where entrepreneurs may want to build them and investors may venture to back some of them. It is essential to educate young people to this image of the economy.

It will also be essential that high schools and colleges expose students to the human values expressed in the masterpieces of Western literature, so that young people will want to seek economies offering imaginative and creative careers. Education systems must put students in touch with the humanities in order to fuel the human desire to conceive the new and perchance to achieve innovations. This reorientation of general education will have to be supported by a similar reorientation of economic education.

We will all have to turn from the classical fixation on wealth accumulation and efficiency to a modern economics that places imagination and creativity at the center of economic life.

The real question

Last January, I was temporarily cheered by the LA Times'  uncharacteristically critical examination of LA's rail transit madness.  The awful record made it to their front page. Check it out.

That was then. Now it's election time and various propositions to vote to throw more good money after bad are on hand. Measure M is on the ballot. It would bump up the county sales tax by anther half penny to fund more transit boondoggles (and various trimmings to make it appear to be "multi-modal").

Yesterday's Times front-page "L.A.'s traffic battle plan: transit, yes, but cars too" cites the MTA chief's goal of converting 20-25% of the county's population to regular transit users. LA transit use has been near 6% of commute trips for some years. Is the chief a betting man -- with his own money?

Re the proposal, the Times' story these days is "yes, but."  If we could allow and prompt more high-density and mixed development near transit stations, then perhaps we have a shot. But what are the odds? And what are the costs? And who pays?

Finally, what are the essential details? Airy statements about density and mixed use miss the point. It is the details of what goes on the ground that matter. What density? What mix? There are thousands of details that only the actual risk taker can be trusted with.

Will developers have the leeway? Probably not in the politicized (cronyist) arena of LA planning. Can the rules be made simple and clear and minimal? These, and not another tax increase, are the essential questions.

Minimum wage

Over at Cafe Hayek, they post these three outstanding videos. Watch and enjoy. Very stiff competition for those of us who try to teach this. Competition is a wonderful thing.

They'll take romance

It may be time to give up on hopes for a Kotlikoff-Leamer or a Johnson-Weld victory -- or even a non-majority in the Electoral College. All of these scenarios presumed that Trump and Clinton would self-destruct at about an even pace. But it's very hard to keep up with Trump in that department.

What is next best?  I saw a post (somewhere) where someone asked what they would miss most about Obama. The answer in this conversation was "Congressional gridlock". My next best hope is divided government.

That is not the view of Alan Blinder, writing in today's WSJ.  He sees Congressional gridlock as the problem.

OK for him if he dreams of a Clinton win and a sympathetic left-leaning Congress. But what would they do? Is a further drift to statism beneficial? Would a further left EPA be helpful? Would a more complicated tax code be useful? Would more Dodd-Frank and more politicized health care do any good? Would more power to the education establishment help anything but strengthen that group?  Would more tightly regulated land use do anything for housing affordability or labor mobility? I could go on.

"Politics without romance" never caught on with most people or with most economists. Blinder and others stick with romance? Do romantic notions have a place in serious discourse?

ADDED

Don Boudreaux notes the "nirvana fallacy."

China stagnation?

Everyone's favorite question about China is: how long can they keep it [amazing growth] up? Performance following the Deng Xiaoping reforms has been unparalleled in world history. The Communist Party is still in charge and the standard view is that the Party and the population have struck a bargain: leave the vast Party apparatus in power and they will deliver ever rising standards of living. Again, for how long can the bargain work?

A good friend reminds me that there is something wrong with the first question. China is not a country but a continent. Many parts (the major cities) do quite well but, please, do not generalize about the whole continent. And generally speaking, cities do better that countries. Some coalitions are just too big.

On top of that, Blumenthal and Scissors think that the "bargain" is unsustainable. The country's debts are too high, official data releases cannot be trusted, the military and security establishment require constant care and feeding and will soon become unaffordable, the Deng-era reforms have stopped.

That's the bad news. The good news is that China's investments in education have been spectacular; education is serious and (from what I could tell) unfettered. Best of all, there are signs of a significant return talent migration.  I have seen this at both ends, talented Chinese leaving the U.S. to return home and (this visit) encountering some now in Shanghai who have returned from their U.S. sojourn and prospered..

Eve of (self-) destruction

There are many things one can say about the two major party candidates for President but no one has suggested that either is Churchillian. Lee Pollock recently posted "What would Churchill think of Trump and Clinton?" in the WSJ (gated by now). The piece includes two of the great man's (attributed to him) most memorable (and relevant to this election year) utterances. “The best argument against democracy is a five-minute conversation with the average voter.” And “Democracy is the worst form of government except all those other forms.” Did he ever attempt to reconcile these two? What flavor of democracy was he thinking about?

Our flavor includes an Electoral College whereby most states award that states' electoral votes on a winner-take-all basis. The Wikipedia post site mentions that there are two exceptions, Maine and Nebraska. The post's authors say this about these two states: 

Except for Maine and Nebraska, all states have chosen electors on a "winner-take-all" basis since the 1880s.^[5] That is, each state has all of its electors pledged to the presidential candidate who wins the most votes in that state. Maine and Nebraska use the "congressional district method", selecting one elector within each congressional district by popular vote and selecting the remaining two electors by a statewide popular vote.

Given all this, can Gary Johnson garner enough electoral votes to put the selection into the House of Representatives?  The House apparently most chose from the top three vote-getters.

By then, two will be seen as exposed and as losers -- and we could get an adult.

My previous posts on this topic presumed that Trump and Clinton would self-destruct at about the same pace so that there would be no clear Electoral College majority by early Nov. Each have tendencies to self-destruct but they do so unevenly and unpredictably.

FiveThirtyEight has a slightly different version.

Policy #12, the cities

Here are eleven policy suggestions to boost the economy for the next president from Brookings researchers. These are all good and we have heard them before. I have two thoughts. First, issue another paper on why these have been unattainable -- and how and why they can become attainable. That would be a longer paper.

My other quibble is that cities ought to be included as policy #12 -- or the existing entry on productivity should include a discussion of cities. Cities are "engines of growth" because the ideas that boost productivity are spawned in cities. Moreover, cities are where supply chains are located and thereby realized. I have mentioned before that Coase's what-to-make vs what-to-buy challenge to entrepreneurs and managers must include what to buy where. The Coase question cannot be fully evaluated unless spatial choices are included.

What, then, is the policy challenge? Brookings and many other have chimed in on the unproductive (anti-productive) land use regulations that have been embraced by greens and others. These have been used by NIMBYs to freeze or slow development and have undermined housing affordability as well as labor mobility.

But at the same time, supply chain formation is stymied.  Cities are the spatial realization of large numbers of (emergent) supply chains. I include supply chains for ideas. Ideas can be exchanged face-to-face or electronically. Following, Mokyr, we can say people are keen to find useful knowledge. To do so, people network (shmooze?) at the mall or on the golf course or you name it. Most (perhaps all) people and firms evaluate and choose locations as well as blend of networks based on the many supply chains they participate in.

The Feds dole out so much money to cities that approvals simplification (how about a one-stop approvals process?) could be a requirement from Washington.

Silly me. I almost forgot who the two major candidates are.

Laugh or cry?

Here are John Cochrane and Russ Roberts talking about economic growth -- and why we have so little of it. Most economists stake out positions on various fiscal or monetary policy stimuli -- and usually argue for their preferred version or mix. But the inability of fiscal and/or monetary policies in the developed countries to have any significant impact these days is ignored. The third option ("third rail"), reform of the bizarre regulations and codes now on the books, is the one Roberts and Cochrane take up.

"Third rail" says it all. Tax code reform has been talked about for years but Congress and President are impotent when it comes to taking on all of the cronies who live off and love our IRS code. Is news of Donald Trump's taxes -- and the very "Trumpian" defense that his clever use of the code is something to behold, a game-changer? Is all this a gift from the heavens, not just to the Clinton camp, but the even usefully to beleaguered tax reform advocates? I keep looking for the good in all the nonsense?