Culture + cheap calories

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

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

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

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

Curse of oil (Venezuela edition)

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

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

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

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

ADDED

Flour

Good guys win one

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

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

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

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

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

ADDED

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

Superb read

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

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

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

So many questions

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

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

Oh, one more question:  Will it last?

Rent control?

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

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

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

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

Sunk

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

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

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

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

No "good" or "bad" densities

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

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

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

Handicapping the voters

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

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

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

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

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

Good times

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

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

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

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

ADDED

Much more here from The Economist. 

Just people

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

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

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

Cities and antifragility

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

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

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

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

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

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

Fatal conceit at LAX

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

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

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

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

Detours and outliers

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

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

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

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

Fickle Facts

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

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

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

Taking on the f-word

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

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

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

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

ADDED

Review by Meghan Clyne.

On the right track

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

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

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

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

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

Those taste buds

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

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

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

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

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

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

Hard work

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

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

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

Long run forecasting is very hard work. 

Cities and dreamers

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

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

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

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

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

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

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

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

ADDED

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