Look Like America

Last Monday (10/25), the WSJ carried Harvard Prof. Ruth Wisse's op-ed, "John Kerry U". Here is the jist:

"Last spring, I was surprised by a call from the Harvard Crimson asking me to comment on my contribution to the Bush-Cheney re-election campaign. His inquiry was prompted by the disparity he'd discovered in donations by Harvard faculty of about $150,000 for Kerry to about $8,000 for Bush. (The figures have since chnaged but not the percentages.) I could have filled the whole issue of the paper with reasons for supporting Bush over Kerry, but as we both knew, the real story was the 'herd of independent minds' -- the image is Harold Rosenberg's -- charging through the academy.

"The Federal Elections Committee couild not have foreseen that when it required employment information on political donations over $200, it would expose the scandalous uniformity in a university community that advertises its diversity. The Sacramento Bee reported that the University of California system gave more to the Kerry campaign than any other single employee group, and that Harvard was second with only 15,000 employees to the UC's 160,000. Campus bloggers computed the percentages of Kerry contributions over Bush: Cornell 93%, Dartmouth 97%, Yale 93%, Brown 89%."

Other sources have noted that adding Greens and such to the Democrat total while adding Libertarians to the Republicans leaves the ratios unchanged.

One of the mantras of the left, of course, is that admissions and hiring ought to create groups that "look like America."

When it's convenient.

Save the World

With much of Asia coming out of extreme poverty, many have asked, "what to do about sub-Saharan Africa?"

The Economist ("How to save the world", Oct. 30) cites recent work by Jeffrey Sachs that suggests $75 billion a year of aid.

Yet, Peter Bauer and others have pointed to the obvious fact that government-to-government aid has never paid off. Sachs, of course, knows this but suggests that aid with conditions can work. He even suggests that relatively uncorrupt Ethiopia be used as a trial case.

Africans outside of Africa do relatively well, just as Chinese expatriates and Indian expatriates had done much better than their stay-at-home countrymen. These comparisons are, of course, complicated by powerful emigration selection effects.

Nevertheless, the failed states of Africa beget civil wars and banditry which, in turn, spawn chaos and misery.

Iraq was to be the demonstration of deomocratic institutions -- and development -- imposed via invasion. Demonstrations, perhaps like Ethiopia, where investments and incentives can plausibly beget reform and development might accompany the Iraq mission. It could even involve the high-minded Europeans.

It would be awful if both fail.

Stop Me Before I (Home) Improve Again

Do people make uneconomic home improvements? In this era of booming home improvement, the question is often asked. Real estate columnists often compare the costs of a home improvement (such as adding a bath) to some datum on how the market values such an addition. A hedonic analysis was done in 2003 by G. Stacy Sirmans and David A. Macpherson and received substantial coverage. It seems that home improvers do all sorts of over- (and under) investing.

A recently published paper by Virginia Tech's Robert E. Lang (in Vol 1, No. 1 of Opolis) argues that, "features that add to a property's 'urban intensity' can lower the sales price of single-family detached suburban homes." Lang also notes that homeowners' associations have all sorts of rules to prevent owners from making these sorts of additions.

Interesting. It is quite reasonable that homeowners demand rules that sustain neighborhood quality (as Bill Fishel and Bob Nelson have been arguing for years). Lang adds that they are also buying into rules that (a la Tom Schelling?) help them to protect themselves from themselves.

Oil Flow and Cash Flow

It's easy to become queasy when governments create and manage commodity stockpiles. So it is with the Strategic Petroleum Reserve which has (inevitably) been politicized.

As with all "good ideas", a minute's thought about such reserves suggests they are not. Steve H. Hanke summarizes all of this very nicely in today's WSJ ("Over a Barrel"). He even suggests how to make a good idea out of a bad idea:

" ... why not replace government-mandated release rules with a market-based approach? To do this, the government should sell call options on its oil stockpile. By doing this, it would generate revenue to defray some of its stockpiling costs. More importantly, the market would decide the release rates for the SPR. In consequence, the volatility in the oil markets would be dramatically reduced. In addition, spot prices would fall like a stone and once again be lower than futures prices."

Politicians (and media and other elites) do not easily grasp or accept economic thinking. Yet, Hanke's idea includes a cash flow aimed in their direction.

New and Exciting

In a recent post, I mentioned authors who developed book-length explanations of nearly everything, making use of the interactions of geography and selection -- and time. Jared Diamond's Guns, Germs and Steel is an example, as is Paul H. Rubin's Darwininian Politics.

In "Learning, Institutions and Economic Performance", C. Mantzavinos, Douglass C. North and Syed Shariq go considerably further.

Evolution gave us beings with brains and beings with large brains make choices, some good and some bad. The authors make use of the latest insights from cognitive science and conclude: "The analytical framework presented here provides a first approximation of the role that learning plays in the formation of institutions and in the economic games unfolded within them."

Why didn't anyone teach this stuff when I was learning economics?

Nothing New

This morning's WSJ includes an efficient-markets-vs-behaviorists (Eugene Fama-Richard Thaler) contrast on its front page -- and the suggestion that efficient markets economists are learning from the behaviorists: "Belief in Efficient Valuation Yields Ground to Role Of Irrational Investors ..."

There is, of course, the policy interest in light of social security privatization discussions.

The WSJ piece also notes that both, Fama and Taler, participate in portfolios that are not simply index funds. In other words, both act as though both sides' position is (half) correct. Many people in the market do make money -- and not simply by being lucky or by being wholly invested in index funds. They do so, expecting that there is always some short-term irrationality, to be remedied by long-term rationality -- and being wise enough to get it and taking appropriately timed action.

Put this way, there is absolutely nothing new under the sun; the whole learned debate leaves us where we have always been.

This is why, in a world of pension choice, some will opt in and some will opt out. Of the former, some will do well and some will not. The loosers will, of course, seek (and often get) political remedies. That's also old news.

What has changed? When social security was first hatched, self-directed accounts were not a serious option. Today, they are. The cohort of people who demand to steer their destiny has been growing and will continue to grow.

The New Yorkers' Map of the World

Some years ago, two very smart men, George Dantzig and Tom Saaty, wrote a not-so-smart book, Compact City: A Plan for a Liveable Urban Environment (out of print). By now there are other books and countless essays with similar names and themes.

The latest New Yorker magazine includes David Owen's "Green Manhattan: The environment needs more big cities" (no link to the article available).

The well-known New Yorkers' (Manhattan-centric) Map of the World was amusing self-parody.

Yet, there is also the occasional unintended self-parody. Owens argues that if more of the world were settled at Manhattan densities, and the Manhattanites' greener lifestyles (including the fact that "Eighty-two percent of Manhattan residents travel to work by public transit, by bicycle or on foot.") prevailed, the world would be a better place -- and David Goostein's pronouncement that this time we are (really, really) running out of oil would not be so troubling.

Where to start? I took the easy way and went to Wendell Cox's www.publicpurpose.com. Wendell makes it all simple and clear but high-brow writers for the New Yorker take 5,000 words to erect a structure that the data, so easily accessible thanks to our host, easily undermine.

Owen neglects the fact that 70% of those who work in Manhattan are not Manhattan residents. And many of these folks do not walk or bicycle or take transit to work; large (and growing) numbers of them take very long drives via you-know-whats to get there. If not, they (unlike Owen) use cars to facilitate the non-commuting portion of their lives.

Moreover most of these long-distance commuters and their families could not afford Manhattan prices; they are unlikely to find that their tastes and resources match the options that the Manhattan set-up offers.


Trouble is that Manhattan is an island geographically but it cannot function without the almost 1.5 million who show up each day to help make the place work. In fact, it depends on its sprawling hinterland in more ways than just the daily commuting influx indicates.

Mr. Owen and his fellows can continue to pat themselves on the back only if that New Yorker map of the world is actually their frame of reference.

Rethinking

On Oct 13, the WSJ ran a story titled "In Bhutan, Happiness is King ... Society Values Well-Being Over GDP -- and Economists Take Note" (the link would only be useful to subscribers). An accompanying table,"How You Doing? ... Some Researchers are rethinking the value of measuring material wealth without regard to a broader notion of fulfillment. Below, well-being rankings, based on combined 'happiness' and 'life satisfaction' scores:"

1. Puerto Rico 4.69
2. Mexico 4.38
3. Denmark 4.24
4. Colombia 4.18
5. Ireland 4.16
6. Iceland 4.15
7. N. Ireland 4.01
8. Switzerland 3.88
9. Netherlands 3.86
10. Canada 3.86
15. U.S. 3.50
.
.
.
72. Albania -0.86
73. Bulgaria -0.87
74. Belarus -0.92
75. Georgia -1.11
76. Romania -1.30
77. Moldova -1.63
78. Russia -1.75
79. Armenia -1.80
80. Ukraine -1.81
81. Zimbabwe -1.88

The source given is the World Values Survey but I could not find this list at their website, altough the questionnaire is available.

Those of us afflicted with revealed preference thinking might reflect on the fact that, in just the last few years, 3.5% of Puerto Rico's population decamped from #1 to #15 (refers to net outmigration).

Perhaps the researchers who are busy "rethinking" all the balderdash re national wealth might say that it's always the wiser ones who stay where they are. And they hang on to a good thing, keeping it a secret about how good life is -- except perhaps when the rethinkers come around with their surveys.

Mega-Projects (contd.)

Many Californians (and others) like to think of a Golden Age when "things got done" and eye-catching large-scale public projects were actually built. From today's vantage point, Egypt's pyramids are also attractive but, then, those were the days when costs were not up for discussion. So, 5,000 years later, the Pharos get a pass.

Not so for Robert Moses, whose devices are nicely summarized by Gene Callahan and Sanford Ikeda in the Fall 2004 Independent Review ("The Career of Robert Moses: City Planning as a Microcosm of Socialism"): "The career of Robert Moses, which had a tremendous impact on the day-to-day life of tens of millions of people, presents a paradigmatic example of the fatal conceit of constructivist planners ..." (p. 260; see the article for the wrenching details).

No pass, either, for the planners of Washington DC's Metro. Wendell Cox looks at promise vs performance 25 years later -- and it is not a pretty sight. The ten-billion dollar system did nothing to help the capitol avoid the standard big-city decline in transit use -- and concurrent increase in private vehicle use.

To be fair, neither Moses nor the Metro planners used slave labor to build their projects.

The Cities Are (not) "Bouncing Back"

Since the mid-1990s, there has been steady drumbeat about US cities "bouncing back". This is, of course, unlikely but, nevertheless, provocative because turnarounds are big news.

I now have my 2003 US Statistical Abstract CD ROM (much handier than the hard copy) and here are the population shares since 1990 for New York city, for the top-20 cities and for the top-75:

PLACE(S) 1900 1940 2000

New York city 4.52% 5.65% 2.84%

Top 20 cities 15.73 18.97 10.96

Top 75 cities 22.03 27.42 18.24

Cities as interesting units of analysis have been eclipsed by metro areas and their exurban hinterlands. Nevertheless, Smart-Growthers, big-city politicians and their acolytes have been selling a fable to gullible media.

The cities, as we knew them, peaked near about 1940. There has been no turning back. For many years, national politicians worried over being seen as not having an "urban policy", e.g. pumping enough tax money into declining areas. The welfare policy that seemed to matter was all about places and not people. As people do better, they leave declining places behind. Political representatives, however, represent places, not people.

Mega-Projects

A week or so ago, Patrick Crozier of Transport Blog was kind enough to respond to my post about a proposed maga-dollar extension of LA's underwhelming Red Line.

Pat pointed to an even more expensive extension of London's Jubilee Line which, he reports, is responsible for a development boom valued far in excess of the money spent.

There must be some projects in the world that, well timed and placed, did impact development -- even to the tune of garnering more development benefits (valued in land value increments) than was spent.

Urban economists would probably point to a distributional problem unless the affected landowners were made to shoulder the costs of the windfall that came their way. On top of that, as some neighborhoods boom, others may fade. Here are additional and complex impacts to discern and consider.

Mainly, however, the discussion suggests that there is some objective function that some land use planning group is maximizing -- and that they do so via clever investments in subways, or anything else for that matter.

This is every planner's dream but, largely, a fiction. 1) there is no agreement on what should be maximized; 2) there is no science to help us specify and rank maximands (although substantial regional science literature -- including some that I had a hand in when I was much more optimistic about such things -- suggests there is); and 3) there is no easy way to design the instruments that would do the work of achieving the goals.

OK. So we can, nevertheless, do it via successive approximations and compromises. I am reminded of the lesson that I got from reading Alan Altshuler and David Luberoff's Mega Projects: The Changing Politics of Urban Investment. Namely, it is all about getting something built. Anything. The specifics matter much less than local politicians succeeding in getting their hands on federal dollars to leverage. In fact, that seems to be all that the mega-planners did.

Good News

"The divorce between an interest in the psychological and cultural foundations of economic life and an interest in the consequences of economic interaction has been a peculiar feature of professional economics during the second half of the twentieth century ..." So writes Paul Seabright (p. 100) in The Company of Strangers: A Natural History of Economic Life. Many fine authors, including Seabright and Deepak Lal and Paul Rubin and others, have been working hard to reconcile the fields.

Geography and selection (nothing succeeds like success) can safely be taken as exogenous (Jared Diamond). It then becomes possible to say interesting things about how endogenous genetics, psychology and political economy interact.

Through history, groups coalesce, organize, and hill-climb, often to gain local optima. Local optima may be precarious and eventually give way -- sometimes, at great cost, including wars, revolutions and oppressions.

So, good news and bad news. But perhaps the bottom line is the following: " ... across the world, the average risk of violence faced by the world's citizens is almost as low as it has even been in our history" (p. 246). May it last.

Futures Markets Everywhere

Futurists, soothsayers and plain old forecasters may have finally had it. We can now see the advent and spread of futures markets for almost any event for which enough betters can be found. One firm (www.newsfutures.com) now licenses the software whereby we can each create our own site to mediate bets on almost any forecast.

There will soon be enough such markets that arbitrage between them becomes attractive -- which will, in turn, make each of them a better source of information.

Hitch markets to broadband and good things happen. The more prescient get financial rewards and everyone else, including those on the sidelines, get to see the light sooner rather than later.

The More Things Change ...

Writing on "Our Fractious Foreign Policy Debate" in the Fall, 2004, issue of The Public Interest (no link to the article available), Fred Baumann demonstrates how both sides of the Iraq war debate still operate (and talk) in the shadow of the Vietnam debate -- which he says was never really resolved.

This is why the first Gulf War was approved by only one vote in the U.S. Senate and why intervening in the Balkans (not to speak of Rwanda) was so difficult.

September 11, the author claims, changed things only a little. Our use of force in Tora Bora, Fallujah and other places was constrained.

Reversals in Iraq now bring out the Vietnam-type legacies of isolationism, conspiracy suspicions, and moral condemnation. "This has led conservatives when in power to fight wars on tiptoe. They tend to counter dogmatic pessimism with a forced and precarious optimism. By cutting the margin of error too thin, they end up, paradoxically, strengthening the very fears their policies were meant to avert or placate."

And , " ... it is likely that even if Iraq ends reasonably successfully, the internal debate has already been so debilitating that no American administration will do anything like this for decades ..." In a world with too many failed states, nuclear proliferation and ruthless terrorists, this may be the real price we pay.

Baumann tries to end on a somewhat positive note: "Much depends on whether we look back on the period of 'Bush lied, people died' and Fahrenheit 9/11 as an episode of periodic craziness, like the Palmer raids, or whether, under the pressure of domstic anger and demoralizing foreign threats, it marks the entrenchment of a new style of American politics." Nothing in his fine article suggests that the latter is likely.