S-words

Greg Mankiw has trouble with President Obama's use of "sustainability" when referring to the federal budget and deficits.  Of course. The s-word has always been a weasel word.  The N-gram plot of the word's appearance only takes us to 2008 but shows the steady climb. (Cue to the old joke about that kind of growth not being "sustainable.")

All the old doomsday stories have been wrong because we are not able to make long run forecasts -- let alone policies based on such.  But that stops no one.  California is only one of many places making dumb "green" energy policies based on feel-good notions about what is "sustainable."

This week's Economist reports that the most recent 15 years of temperature readings cast doubt on the models that the "warming" people had been relying on.  "A sensitive matter ... The climate may be heating up less in response to greenhouse-gas emissions than was once thought. But that does not mean the problem is going away."

Bjorn Lomborg has been imploring us for years to think before we act.  "First, Make Green Energy Cheap."  It will be used widely once we have figured out how to make it cheaply.  There are opportunity costs to mandating its use while it is expensive; we would be doing less trying to figure out how to make it cheap. The other s-word, scarcity, is always in play. 

 

Public transit in LA (again)

I have for many years been pessimistic about rail transit -- especially for LA.  There have been many others.  Baum-Snow and Kahn (Brookings, 2005) studied 1970-2000 public transit trends for major U.S. cities.  They found that the seven U.S. cities with rail in 1970 experienced average transit use decline of 5% (over 30 years); the fourteen U.S. cities that added rail in 1970-2000 experienced average change of zero (30 years); all U.S. MSAs with no rail experienced average decline of 1% (30 years); all U.S. MSAs also experienced average decline of 1% (30 years).

But Paul Kruman blogs that "Subways Pay".  He points readers to a new paper by Michael L. Anderson.  Here is the abstract:

Public transit accounts for only 1% of U.S. passenger miles traveled but nevertheless attracts strong public support. Using a simple choice model, we predict that transit riders are likely to be individuals who commute along routes with the most severe roadway delays. These individuals’ choices thus have very high marginal impacts on congestion. We test this prediction with data from a sudden strike in 2003 by Los Angeles transit workers. Estimating a regression discontinuity design, we find that average highway delay increases 47% when transit service ceases. This effect is consistent with our model’s predictions and many times larger than earlier estimates, which have generally concluded that public transit provides minimal congestion relief. We find that the net benefits of transit systems appear to be much larger than previously believed.

In light of this evidence, LA rail transit, Anderson suggests, is actually cost-effective. The important part of the paper, in my view, is at the end where the author takes a long run view. Reactions to sudden strikes by transit workers are anomalous because people make it their business to find ways to adjust.  To model the longer run, Anderson relies on annual rail transit ridership growth of 0.9 million - 1.7 million.  I doubt it.  As my recent post (above) mentions, we just recently got back to 1985 transit use levels in LA.

ADDED

NHTS 2009 reports that nationally 8.7% of U.S. households did not own a car (Table 17).  But the Los Angeles MTA reports that, of its rail riders, 35.6% came from households with no cars (Fig. 3.5).  That should cause us to wonder whether a transit strike can dump many rail users onto "routes with the most severe roadway delays."

Political economy

There was political economy before the divorce that gave us "economic science" and "political science."  Perhaps we are now getting back to political economy.  Fittingly, yesterday's WSJ included Roger Lowenstein's essay on Albert Hirschman's Exit Voice and Loyalty ("The Choice: To Squawk or to Go ... A refugee economist created an irresistibly useful approach to understanding how dissent shapes organizations.")

Human dignity is enhanced by the range of choices that people have. Choices are complex, as the title of Hirschman's book makes clear. They vary by place (many New Yorkers can shop in NYC or cross the river to New Jersey but many of us have fewer options) and by circumstance. They are relevant in how we evaluate and choose in our "public" as well as our "private" lives. Lowenstein mentions the lower schools. Once a family has the resources, the idea of fighting city hall (the school board) is trumped by enrolling in a private school (or home schooling).  As transactions and mobilization costs fall because of apps and such, voice becomes more plausible in many situations.

It is hard to imagine a more profound contribution to political economy than found in Hirschman's very short (126 pages) volume.

Who plans what?

Re the previous post, Paul Romer and David Miller discuss city layout and growth in this conversation.  They mention the long-term advantages of a laying out plans for a street grid.  For the cases of New York and Toronto, there were advantages such as better bus routing options. But how many central cities of big metros are now being planned -- with the plausible exception of Third World cities?

I alluded to a division of labor whereby land use planning as well as complementary infrastructure planning are private.  Somewhere up the line, the private infrastructure can hook up with a larger, perhaps public, system.

Randy Holcombe has suggested another division of labor whereby public planners take care of infrastructure and private planners take care of the land use plans.

Planning is very hard work and can be overwhelming.  Let's not overburden anyone.  Let's discover divisions of labor that work best.  Let's not simply suppose that it can all be done by the same public agencies. 

Stuck wth two old problems

I often use the following from The Economist (March 1, 1997) as a classroom conversation starter:  “In many economics textbooks, the presence of externalities is invoked as a justification for government intervention in the marketplace. Yet the private sector often finds its own solutions to externality problems. This is the secret of the shopping mall’s success. Because a property developer owns the entire shopping complex, its profits depend on the entire mall, not on any particular shop. By choosing the right mix of tenants and charging rents that reflect each store’s contribution to the mall’s overall revenues – including the business it brings to other stores – the developer can ‘internalize’ the externality and maximize its profits.” 

There are no uncompensated externalities and profit-seeking mall owners will act quickly to rectify mistakes in terms of what is located where. 

The question is: How scalable is this approach?  The development cited here probably provides its own infrastructure but hooks up to traditional infrastructure providers somewhere up-stream.

Today's WSJ includes a description of conventional urban planning in NYC ("Not Visionary Enough").  Whose visions?  The article mentions various stakeholders and interest groups.  Those who object to privatized land use planning are stuck with two old (and daunting) problems. (1) the politics, as noted in the NYC story; and (2) the riddle of how NYC planners and politicians could possibly know enough to somehow discover the best land use arrangements.

Progress

We are supposed to start by identifying the top-ten unsolved problems in our field.  Satisfactorily measuring and using entrpreneurship surely belongs in the top-ten.

William Baumol (among others) has long worked to upgrade the idea of entreneurship in economic analysis.  The fact that entrepreneurs are key players is self-evident.  But we have trouble defining and measuring their essential nature and work.  So most economic models move on, omitting what could be the heart of economic thinking.  In all of the hand-wringing over how most economists did not see the Great Recession coming, overreliance on incomplete models is a good place to start.

I saw Sonia Sousa present her work (published here) on measuring entrepreneurship (and using her derived variable in a regional economics model) at last year's meetings of the Western Regional Science Association.  It takes some cleverness to use the data we have to solve the problem of a key missing variable.  I think that Sousa has moved us forward.  Read the whole thing.

Many networks

Cars connect (almost) every place to (almost) every place and are a universally popular expression of personal freedom.  Private autos are also scorned by many who are uncomfortable with all that freedom -- but who dress up their displeasure with externalities concerns.  Never mind that externalities are a necessary but not a sufficient conditions for tough policies.  And never mind that policy makers who claim to be right-thinking on these matters have been leery of tolling even as it has been getting easier and cheaper.

But the phone also connects every place to every place.  This brings back the question of whether electronic connection is a substitute or a complement to face-to-face interactions.  But most of these discussions have centered on workplace vs telecommuting.  But most of our trips are not worktrips. Today's LA Times includes "Who needs a car? Smartphones are driving teens' social lives ... Fewer 16-year-olds are rushing to get their driver's licenses today than 30 years ago as smartphones and computers keep adolescents connected to one another."

Policy makers have long placed their hopes of "getting people out of their cars" on old-tech public transit.  That has not worked.  But new-tech seemingly has a shot.

As always, people manage many networks.  They constantly adjust the uses of the many networks at their disposal.  It is always bigger than a question of substitutes or complements.    

Policy makers vs real world

Attempts to suppress markets often impose costs but achieve little else. The "War on Drugs" and restrictions on immigration are the two prominent examples these days. But "black markets" are everywhere. Some people still believe that prostitution can be suppressed by making it illegal.

This morning's LA Times reports, "Idea is floated for a start-up colony anchored in the Pacific Ocean ... Two Silicon Valley entrepreneurs, frustrated by the limits on high-tech visas, have hatched a plan to build a start-up colony in the middle of the Pacific Ocean." Actually, the story mentions doing business just beyond the 12-mile limit. Seasteading is an idea promoted by Patri Friedman and his backers and has been around for some years. It is entirely plausible and may be simpler and sooner than many had expected.  Meanwhile "immigration reform" is being debated in Congress.

Globalization is deep and strong.  Here is a recent report that tries to describe the "complexity" (ECI, economic complexity index) of the various nations involved as they are linked by knowledge and goods exchange.  But here are John Deutch and Edward Steinfeld exposing an exactly opposing tack by the President: "Made in America, and Everywhere Else ... Obama's plans to revive U.S. manufacturing run counter to the reality of global supply chains.. ."

From the annals of industrial policy (green ed.)

Today's LA Times reports "Nissan shakes up Leaf division with new electric-vehicle chief".  And so it goes for industrial policy.

Bjorn Lomborg recently wrote that "Green Cars Have a Dirty Little Secret."  Actually, he describes more than one.  They produce a lot of carbon emissions in production.  Their electric power comes from carbon-burning plants.  And any net savings do not accrue until they are driven many miles.  Driving them many miles has its perils.  There will be few payoffs as long as so few Leafs are bought.  Very few are bought (in spite of subsidies) because consumers are rightly wary, etc. Read the whole thing.

Lomborg did not speculate how a new chief at Leaf might help.  

One speech, two results

It appears that Rand Paul's filibuster last week may have been a clarifying moment.  As the loyal opposition, Republicans have to get their act together re post-9/11 defense policy.  Ross Douthat ("What Hath Rand Paul Wrought?") thinks that Paul gave his colleagues a way to move in that direction.

... the lesson of Paul’s ascent is that being a policy entrepreneur carries rewards as well as risks — and that if you know how to speak the language of the party’s base, it’s possible to be a different kind of Republican without forfeiting your conservative bona fides.

Jennifer Rubin has the same idea, writing in today's Washington Post:

The reaction of some hawks on the right to Kentucky Sen. Rand Paul’s filibuster suggests a refusal to recognize why Paul was so successful in garnering praise. They are seemingly unable to recognize the deeply held perception of many, if not most, of the American people that Iraq and Afghanistan were unsuccessful and that enthusiasm for the Arab Spring is misplaced. They have lost credibility with the American people and they need to both acknowledge that and strive to get it back.

And Anthony Gregory reminds us that Paul got the administration to back down and clarify policy on drone use.

It is not often that one Senate speech is as far reaching.   

Two Americas

Yesterday's WSJ included "More Americans Working Remotely ... Some 13.4 million people, or 9.4% of U.S. workers, labored at least one day at home per week in 2010, compared with 9.2 million people, or 7% of U.S. workers in 1997 ..."  But The Economist (and some others) editorialized against Yahoo's CEO, Marissa Mayer, and her policy inisting that employees come to the office ("Corralling The Yahoos").

"Creative destruction" is never simple.  There has to be trial and error and learning.  This is why we have markets and private enterprise.  We lose the learning opportunity when we politicize.  Cutting hundreds of federal programs by 2+% -- from a moving (undefined) "baseline" over many years -- was going to be disaster.

Talk about "Two Americas." The contrasts will only get sharper.  There are now approximately 700,000 smartphone apps and people are just discovering the possibilities. "Apps Are Creating New Jobs ... A year ago, Ashley Diedrich worked 12-hour shifts at a psychiatric hospital near her home in Hot Springs, Ark., making $1,700 to $2,000 a month. Today she makes as much as $3,000 a month peddling women's clothing from home. The career change was spurred by an iPhone app...." (WSJ, March 6).

What direction it will take?  No one knows. This is why shake-out and trial-and-error learning are essential.  This is why the politicized part of the economy should shrink.

Public choice and anti-trust

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

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

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

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

Over the top

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

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

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

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

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

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

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

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

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

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

Food and profit

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

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

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

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

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

ADDED

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

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

Hollywood

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

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

ADDED

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

Telecommuting and networking

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

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

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

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

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

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

Where are the smarts?

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

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

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

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

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

Im Possible

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

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

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

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

Running things

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

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

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

 

Where are the happy and the sad?

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

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

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