Mantras and pieties

Today's LA Times includes an op-ed by Michael Skube, "Duke attempts damage control." The piece notes that,

"... the university has undertaken a 12-city nationwide public relations campaign called 'A Duke Conversation,' involving not only [Duke President] Brodhead but also hundreds of alumni and Duke students. Their messsage: What you read and hear about Duke -- drunken parties, out-of-control athletes, pervasive arrogance and privilege -- is far from the truth."

Huh? One is tempted to say that some liberal academics don't get it.

Duke's problem was better described by Stuart Taylor, Jr. and KC Johnson in last Wednesday's WSJ:

"As for Durham's black leaders, and many in the media, and much of Duke's faculty, history will mark them down as enabler of abusive, dishonest law enforcement tactics. They will share responsibility for the continued use of such tactics, mainly against black people, after the Duke Lacrosse players' innocence has become manifest to all serious people and the spotlight has moved on."

It appears that the "Duke Conversation" will be nothing but a rehash of the mantras and smug pieties that gave rise to the tragedy.

Forecasters and policy makers

Ten-year Treasuries and mortgage rates have not gone through the roof. As a result, housing is going to be OK -- and a thousand doomsday forecasts must be put aside.

Our current account deficit interacts with international savings rates (and many other phenomena) to maintain the demand for Treasuries, putting a damper on interest rates.

Why then the pilgrimages to Beijing to beg (and press) for dollar/yuan devaluation?

The forecasters have had a bad year and the macro policy makers are wandering in the wilderness. We do remarkably well in spite of both groups.

A good year for urban economics

I had earlier blogged (as have many others) about Bob Bruegmann's wonderful Sprawl: A Compact History. Then came Wendell Cox's excellent War on the Dream.

Now we get William Bogart's delightful Don't Call It Sprawl. What a year, to find all of these. Teachers of urban economics and their students are very fortunate.

Here is one of many superb passages from Bogart.

A fundamental misunderstanding of how metropolitan areas work has hampered the current debate on the causes and consequences of urban sprawl. This misunderstanding is analogous to the pre-Copernican fallacy that the earth is the center of the universe, and everything revolves around the earth. In the discussion of urban sprawl, the downtown or central city takes the place of the earth in the Ptolemaic cosmology, and the rest of the metropolitan area is defined only in relation to the downtown.

It is possible for the basic urban structure of a metropolitan area to change over time. Such a change has been occurring in U.S. metropolitan areas for the last 100 years, and the change is coming to fruition at the beginning of the new century. To plan for future urban growth, it is vital to recast our understanding of how urban areas operate. (p. 41)

Perspective

Lawrence Summers, in today's LA Times, writes: "The future's so bright? The markets are pricing in tranquility as far as the eye can see. The commentariat begs to differ. ... The year 2007 will begin with a vast difference between the popular view of global risks as priced in financial markets. While the commentariat has been more alarmed about the state of the world than global markets for some years, the gap increased in 2006 as markets became more serene and everyone else grew more anxious."

Looking at the frequency of financial and terrorist disruptions, Summers concludes, "While each of these events was unique, the record does suggest that crises of some variety occur in about one of every three years. At least as far as the markets are concerned, perhaps the main thing we have to fear is the lack of fear itself."

Who or what predicts best? Is it the markets or the experts? Both have formed subjective distributions of the likelihood of such episodes. Perhaps market participants are also factoring in the amazingly quick recoveries from each of the events Summers mentioned.

The anti-Dobbs

Lou Dobbs (and many others like him) has a large following because economic illiteracy is widespread -- in spite of the best efforts of many of us who have spent a lifetime teaching principles.

Diane Coyle, in Sex Drugs and Economics, has some things to say about all this. But hers is not the only one of a spate of recent books (by Arnold Kling, by Tim Harford, by Tom Sowell, and many others, some listed here) which are absolutely readable, insightful and informative. The writers have done their job; it is the readers who are not doing theirs.

Coyle ends her book with "Ten Rules of Economic Thinking". (Among them is: "3. Metaphorical time bombs don't explode."). Perhaps these should have been labeled "Ten Inconvenient Truths."

But Coyle has done her job, finally linking sex with economics. She has neatly outflanked Lou Dobbs.

Racism

Shelby Steele writes (in today's LA Times):

"Racism -- fact or faith? The truth is, in today's America, intolerance is no longer tolerated. ... we must acknowledge one of the most profound achievements in recent human history: the death of white supremacy. ... The great mistake Americans made after the civil rights victories of the 60's was to allow race to become a government-approved means to power. Here was the incentive to make racism into a faith."

We are now made to wallow in racial politics at every level and in almost every arena. Tribalism is ancient and destructive. When it recedes, when we are willing and able to hire and do business with people outside the clan or the family, we make great strides and reap great benefits all around.

Irving Kristol supposedly remarked, of Jews and gentiles in America, that they [gentiles] no longer want to murder us [Jews] but rather they want to marry us.

Perceptions are, of course, all of the map but I liked starting my day with Steele's column.

Scrooges

In this week's New Yorker, James Surowiecki writes about applications of economic thinking to holiday gifting. You don't have to be an economist to look into other people's shopping carts and roll your eyes at their choices -- or smile at the amazing variety of tastes and preferences.

So the impossibility of efficient giving is clear. (Joel Waldfogel has documented the extent of the inefficiency.) Then why do people exchange gifts and why have they been doing this for so long? There is obviously more going on than differences in the cash-equivalent valuation of the item between giver and receiver.

On the benefits side, many people (I am not one) greatly enjoy shopping, choosing, wrapping, etc. On the cost side, the dollar cost of the gift understates the time and the hassle invested --although internet shopping reduces some of this.

As we cannot measure any of the many intangibles, we have to two choices. Either many people are making dumb choices or the intangibles have it.

Even Daniel Gilbert does not say that we are being dumb. We make do with the equipment that we have -- that we have acquired via evolution over many years.

One-sided argument

Today's NY Times Magazine includes "What Should a Billionaire Give -- and What Should You? (A philosopher's case for donating more than you're comfortable with.)"

It's a worthy topic and an interesting read. But, just as with foreign aid, there are huge agency problems that are never even mentioned. Poor countries are poor because of lousy institutions, including staggering corruption. Pouring extra billions into these settings is likely to incite extra thievery.

This is not to argue against generous giving but, rather, to raise the question that Singer misses. I expect that people at the Gates Foundation and many others grapple with this problem constantly.

Singer's tone is one-sided. He wants us all to be more generous but many would gladly be if they had reason to be optimistic about what happens after the check is put in the mail. Lord Bauer had plenty to say about all of this.

Just say no

The people who run cities are often baffled by them. Serious people in London are now talking about traffic congestion remedies that involve people just staying put. Just say no to travel.

But the Stay-at-Home Society would do away with the reasons for anyone congregating in cities -- and accepting the costs of doing so. The "anti-movement" movement suggests that managing travel is beyond us so let's just not travel. Well then why not leave the city altogether? What would be the point of staying?

Thanks to Gabriel Roth for the pointer.

Worse than a low benefit-cost ratio

Environmental activists want the Supreme Court to rule that the EPA should extend its authority to CO2 emisssions in light of global warming fears. But is CO2 a "pollutant," as understood in the nation's air quality legislation?

Probably not for the simple reason that climate change (for whatever reason) has winners as well as losers.

Myron Ebel argues this in the Dec 25 Forbes ("Love Global Warming ... What's wrong with mild winters, anyway? ... For the elderly and infirm, warmer weather is healthier as well as more pleasant.").

Like the Copenhagen Consensus, this gets us to the economics of the issue. The costs of the Kyoto accord are known to be high and the benefits questionable.

But Ebel's common sense argument suggests that the benefits might be negative.

The spaces we want

Today's LA Times includes several articles on "Mall Talk". The best is by Virginia Postrel, "City lite: Shopping centers are fulfilling their destiny, not as escapes from the city but as places to experience urban pleasures."

She notes that many highbrow critics of the likes of Universal CityWalk (in L.A.) had gotten it all wrong. No surprise there.

An when it comes to catering to people's desires to meet in settings that offer commerce and security (the main reasons they pay to be in cities) private providers do it best. No surprise there either.

Public sector planners go on and on about "the need for open space" -- and about their unique ability to provide it. But they are no match for the private providers.

L.A.'s Rick Caruso and his work are noteworthy examples. (He writes "Listen and they will come" in the same section.)

We somehow get the open spaces we want in spite of, and not because of, the prominent public sector actors.

Neanderthals everywhere

It is lovely when interdisciplinary research really pays off. The Economist cites research (below) that suggests the reasons for modern humans' success over the Neanderthals. Our ancestors (actually our female ancestors) saw the light and had the sexes pursue their comparative advantage in food preparation --while the Neanderthals did not.

I am on solid ground when I refer to protectionists as Neanderthals.


Palaeoeconomics: Mrs Adam Smith

Dec 7th 2006, The Economist

Modern humanity's battle with Neanderthals may have been won by the women who invented the division of labour

NEANDERTHAL man was a strong, large-brained, skilful big-game hunter who had survived for more than 200,000 years in the harsh European climates of the last Ice Age. But within a few thousand years of the arrival of modern humans in the continent, he was extinct. Why that happened is a matter of abiding interest to anthropologically inclined descendants of those interloping moderns. The extinction of Neanderthal man has been attributed variously to his having lower intelligence than modern humans, to worse language skills, to cruder tools, or even to the lack of a propensity for long-distance trade. The latest proposal, though, is that it is not so much Neanderthal man that was to blame, as modern woman.

In existing pre-agricultural societies there is, famously, a division of food-acquiring labour between men, who hunt, and women, who gather. And in a paper just published in Current Anthropology, Steven Kuhn and Mary Stiner of the University of Arizona propose that this division of labour happened early in the species' history, and that it is what enabled modern humans to expand their population at the expense of Neanderthals.

As Adam Smith noted, division of labour leads to greater productivity because it allows people to specialise and become very good at what they do. In the vast majority of cases among historically known and present-day foragers, men specialise in hunting big game, while women hunt smaller animals and collect plant food. In colder climes, where long winters make plant-gathering difficult or impossible for much of the year, women often specialise in making clothing and shelters.

The archaeological record, however, shows few signs of any specialisation among the Neanderthals from their appearance about 250,000 years ago to their disappearance 30,000 years ago. Instead, they did one thing almost to the exclusion of all else: they hunted big game. There are plenty of collections of bones from animals such as reindeer, horses, bison and mammoths that are associated with Neanderthals, but few remains of rabbits or tortoises. There is also little sign of preserved seeds and nuts, or of the specialised grinding stones that would have been needed to process them. And there are no bone awls or needles that would suggest that Neanderthals were skilled leather workers, despite the abundance of animal skins that their hunting would have provided.

Signs of division of labour come only with the arrival of modern humans into Europe around 40,000 years ago. That is when evidence appears of small animals being eaten routinely and plant foods being gathered. It is also when tools designed for sophisticated leather working emerge.

Dr Kuhn and Dr Stiner suggest that division of labour actually originated in a warmer part of the world—Africa seems most likely—where plant foods could be gathered profitably all year round. But as humans brought the idea of division of labour north, the female side of the bargain gave the species a significant advantage by providing fallback foods when big game was scarce and allowing more people to inhabit a given piece of land in times of plenty. Modern human populations grew, Neanderthal populations shrank, and the rest is prehistory.

Of course, the archaeological record cannot prove which sex was doing what, or even if specialisation was determined by sex at all. But almost all known groups of foragers divide men's and women's work the same way, which makes it likely that the same rule applied in the past, and for the same reasons—men tend to be stronger and faster, and women are more likely to be occupied with childcare.

That it was division of labour which gave modern humanity its edge over the Neanderthals is not a completely new idea. A study published last year by Jason Shogren of the University of Wyoming used a mathematical model to suggest it would work, particularly if combined with trade. But Dr Shogren's thesis was that wimpy, useless hunters were the ones who stayed at home and crafted objects, while the real men went out and killed things. Dr Kuhn and Dr Stiner, by contrast, assign to women the main role in establishing the antecedents of modern economics, and thus launching the process of growth that continues to this day.

Wire them all

Some of the op-eds that Milton Friedman published in his last years included a remarkable optimism (for him) about central bankers. He wrote on several occasions that they are now more independent than in the past.

In the Fall 2006 Journal of Economic Perspectives, there is Burton A. Abrams' "How Richard Nixon Pressured Arthur Burns: Evidence from the Nixon Tapes." Here is the abstract:

"Evidence from the Nixon tapes, now available to researchers, shows that President Richard Nixon pressured the chairman of the Federal Reserve, Arthur Burns, to engage in expansionary monetary policies in the run-up to the 1972 election. This paper quotes the relevant conversations from the Nixon tapes. Questions remain as to whether Burns followed an expansionary policy in an already-inflationary environment out of conviction or because of political pressure."

There is also an interesting discussion of the inflationary aftermath of the disastrous Nixon-Burns price-wage-controls-and-money-expansion policy. It did not abate until Paul Volcker, ten years later.

The author concludes:

"The episode of Richard Nixon and Arthur Burns in the run-up to the 1972 election illustrates the danger of permitting too much discretion in the implementation of monetary policy. It is time to consider an explicit rule for monetary policy, whether the rule targets only inflation or some mixture of inflation and output or employment. Monetary policy is too important to be left to the discretion of central bankers, who may be subject to errors in economic judgment or to manipulation by politicians."

It's hard to disagree. Another implication (not considered by the author) is to put a wire on all these guys.

Mel Webber

UC Berkeley's Mel Webber died in late November at age 86. Long and productive careers are not easily summarized and they touch many bases.

Webber wrote about "community without propinquity" in 1963, suggesting that old notions of place and proximity had been supplanted by a new ease of communication and transportation. And this was some years before email, the internet and today's teleconferencing and virtual communities. Indeed, Webber wrote about "non-place realms" long before any of this.

This week's Economist evokes the many smiliarities of autos and cel phones ("Phones are the new cars"). Here are just two: Each can connect all places to all places, explaining their popularity; and each is a major fashion statement, being replaced much more often than wear and tear would require.

Oddly Webber also worked to bring 1890s-era transportation to the SF Bay Area in the form of BART -- and a few years after that he showed (and admitted) that this had been all wrong.

Our communities evolve in ways that have little to do with big ideas and big plans. And that's a good thing. The big ideas and big plans, however, do leave a legacy of costs. Sometimes there is also a legacy of lessons learned. Webber was quick to admit that his BART work was a mistake.

Virtual proximity

The economic and social importance of proximity are well known. After all, why are there cities? We also know that the marginal costs of communications are lower than ever -- and falling. Nevertheless, people continue to pay handsomely for Manhattan-type nearness while many seek Silicon Valley-type nearness, which spans several counties.

A new empirical study by E. Han Kim, Adair Morse and Luigi Zingales ("Are Elite Universities Losing Their Competitive Edge"?, NBER WP 12245) reports that the importance of physical proximity is diminishing.

"We study the location-specific component of research productivity of economics and finance faculty who have ever affiliated with the top 25 universities in the past decade. We find that there was a positive effect to being affliated with an elite university in the 1970s; this effect weakened in the 1980s and disappeared in the 1990s. We decompose this university fixed effect and find that its decline is due to the reduce importance of physical access to productive research colleagues."

Virtual proximity, all things considered, wins.

Preferences trump policies

Mention Kansas City, Tokyo, Paris, Brisbane and most people will evoke very different mental images. This is natural but also misleading. What these places have in comon is fast-growing suburbs, ones that look quite similar to each other.

Look at the cover of Wendell Cox's new book (War on the Dream: How Anti-Sprawl Policy Threatens the Quality of Life) and there are four photos of suburban homes in these four cities and it is almost impossible to say which is where. The rest of the book explains why. The narrative is backed up by data of the sort that Wendell has long been making available on his three websites.

The whole story undermines the New Urbanist ideas that cities outside the U.S. are somehow better, that people outside the U.S. make wiser choices and/or that policies in other countries make a substantial difference. None of these are true. Preferences are more universal than most think. Middle class resembles middle class. Any differences between countries are due to time lags (and incomes). And preferences trump polices.

Consistency in L.A.

The city of LA (the place) is home to almost 4 million residents. The City of LA (the government) will spend upwards of $6.7 billion on all sorts of services, some more worthy than others, this year. And this does not count all of the "off-budget" items.

In this morning's NY Times, there is a report that the City wants to save approximately $250,000 per year in tree maintenance costs (0.00373% of its budget) by replacing the city's street palms (non-indigenous), as they age and die, with other trees (also non-indigenous; the only indigenous growth is wild shrub).

Never mind that palms have come to be identified with LA, and vice-versa.

About 3 million overseas tourists visit LA each year. At a plausible average of $1,500 spent locally per visitor (Travel Industry Association of America), if just 166 of them (0.0056%) go elsewhere because they like the palm tree and its associated lore, the policy is a loser.

Our leaders are consistent in their treatment of costs and benefits. The do badly with the big-budget items along with the small ones.

Cross-checks

A feel-good standard in U.S. politics is the idea of an "energy policy." Most people think that there ought to be one, presuming (usually sight unseen) that it would be beneficial. But the resulting political documents are usually all about dispensing favors.

Another problem involves all of the unintended but implicit energy policies. A prime example is discussed in this week's New Yorker by James Surowiecki, who observes that protection of U.S. sugar producers pushes prices up to the extent that domestic ethanol is produced with cheaper corn -- which is heavily subsidized.

It raises the very simple point that policy cross-checks are a pretty good idea. Trade policy, energy policy, and all the rest have cross-cutting implications which can be huge but which get little attention.

The power of ideas

Lawrence Summers writes about Milton Friedman in this morning's NY Times and does a good job of putting Friedman's work into perspective: it changed the world of economics and politics.

Summers notes in passing that Friedman was "too cynical about the capacity of collective action to make people better off." Friedman might have said that Summers is a bit unrealistic in his expectations for politics.

Friday's WSJ included Friedman's "Why Money Matters". There will always be boom-bust cycles, primarily in response to abrupt technological changes. The actions of monetary authorities can make these worse (as in the 1930s) or not (as during the most recent downturn).

And, as Summers writes, most of the world has now gotten the message. It's enough to make one appreciate the power of ideas clearly presented.

Putting us on?

Today's LA Times reports: "Mayor rides the SUV, not the MTA ... Villaraigosa promotes use of public transit, but he doesn't spend much time on the bus and subway system ... From the moment he took office nearly 18 months ago, Mayor Antonio Villaraigosa made traffic gridlock a cause celebre -- exhorting Angelenos to help solve the problem by forsaking their cars whenever possible . ... "

The rest of the story points out that the Mayor takes transit once a month but is otherwise too busy to make it work for him.

I will never know whether these guys (politicians and newspaper reporters) cannot connect the dots or whether they are putting us on. Transit in America is very lightly used because it is just too expensive -- in terms of what counts most, our time.

Happiness

Almost every economics textbook takes students on a tour of the well-known shortcomings of GDP as a measure of well-offness. Along the way, they learn about stocks and flows and pick up other useful tidbits.

There is also a mountain of books and tomes on happiness -- and how and why it has little to do with economic prosperity. Google "Gross National Happiness" and 127,000 entries come up, many of them taking us to Bhutan. Does GNH refer to a stock or a flow? Is it a proposed metric or should it be an optimand?

This morning's LA Times includes Eric Weiner's "Be like Bhutan." No, thank you.

But I have found something that makes me very happy. It is reading Daniel Gilbert's Stumbling on Happiness. The author is very wise about a very difficult and important topic.

For want of a rail ...

Those of us who think that passenger rail is nothing but boondoggle may have to reassess the politics of the issue. Today's WSJ reports that had Virginia U.S. Senate incumbent George Allen gone with the Green Party candidate's pet project, he would easily have garnered the votes to win that tight race.

That would have kept the Senate Republican, might have kept Don Rumsfeld on the job, and changed the course of history.

In Virginia Race, 'Gail for Rail'May Be a Spoiler
Candidate Says She OfferedTo Endorse Webb, Allen;
26,000 Votes Went Green

WSJ, By JUNE KRONHOLZ and AMY SCHATZ November 9, 2006; Page A1

Gail Parker may have helped decide which of two Virginia gentlemen goes to Washington, which goes home and who controls the U.S. Senate.

Two weeks ago, Ms. Parker, a 59-year-old Independent Green Party of Virginia candidate, says she offered to swing her support in the Virginia Senate race to either the Democratic or Republican candidate. In return, she wanted them to back her pet issue: high-speed rail across the traffic-clogged state.

"I was willing to endorse the candidate who would earn it the old-fashioned way," says Ms. Parker.

But neither man was much interested in her offer, she says. Now it looks like her "Gail for Rail" campaign could have been a factor in deciding which party controls the U.S. Senate.
On Tuesday, Ms. Parker collected about 26,000 votes -- which could have given either Republican Sen. George Allen or Democratic challenger Jim Webb a decisive victory.

As it is, Mr. Webb seems set to replace Mr. Allen after taking a lead of just 7,000 or so votes. With most precincts reporting, Mr. Webb led Mr. Allen with a vote of 1,173,805 to 1,166,488, and the Associated Press last night declared Mr. Webb the winner, based on its survey and analysis of votes counted and ballots remaining. A Webb victory would give Democrats control of the Senate.

Mr. Allen refused to concede yesterday and said he would wait for a full review of the vote, but it didn't seem likely that the totals could change significantly. Absentee ballots have already been counted. That leaves in doubt only the provisional ballots -- that is, those cast by voters who, for one reason or another, may not be eligible to vote.

Such votes are collected locally, so there was no way to know yesterday how many are outstanding. In the 2004 presidential election, the Virginia state elections board says, 4,000 provisional ballots were cast, and only 700 accepted -- not enough to overcome Mr. Webb's lead.

Ms. Parker acknowledged from the beginning that her campaign lacked the steam to win, but says she hoped it would work up enough noise about rail travel to prompt the two leading candidates to pledge support.

Transportation is a hot topic in Virginia, where rapid growth has left taxpayers sitting in traffic. The Census Bureau says the typical Northern Virginia commute is at least a half hour. Virginia's budget for rail transport is $23 million a year.

Since January, Ms. Parker, a retired Air Force Reserves major, says she has logged more than 40,000 miles campaigning around the state in her gray Volkswagen Jetta. She had no paid staffers and personally collected 8,000 of the 10,000 signatures that she needed to get on the ballot.

She says she raised just $1,200 in donations and according to a Federal Election Commission report, she financed much of her campaign through an $18,472 personal loan. "Maybe I should have spent more time trying to raise money," she said yesterday.

Ms. Parker, who ran unsuccessfully for the Virginia General Assembly last year, says she ran a few radio ads during her Senate bid, but mostly campaigned by greeting voters personally. She printed her pamphlets at Staples and ran the campaign from her Alexandria condo. Her campaign photo was taken last December at Glamour Shots, a mall photo studio that specializes in soft-focus, windswept portraits. Even before the last votes were counted yesterday, Ms. Parker and her Jetta had left the state to visit her daughter in Oklahoma.

"Our campaign was about faith, about family and about being fiscally conservative. I have faith we can balance the budget and also build high-speed rail in Virginia," she said in an interview, staying on message even after the campaign had ended.

The Webb campaign says it did try negotiating with Ms. Parker but came to the conclusion she wasn't seriously interested in endorsing him. "There never seemed to be any clear intent on her part to endorse," says Webb campaign spokeswoman Kristian Denny Todd. She says that Mr. Webb is in favor of finding ways to improve the state's traffic congestion and "obviously, he respects [Ms. Parker's] opinion on the matter and her passion for the issue."
Calls to Mr. Allen's campaign, press and Senate offices weren't returned.

Ms. Parker attended Mr. Webb's pre-election rally Monday in Roanoke in a subtle show of support, she says, but didn't endorse him. She bristles at suggestions that her quixotic campaign might help decide control of the Senate. "This is politics," she says. "This country is about discussing issues and informing voters."

Ralph Nader, whose own third-party candidacy in 2000 is thought by some commentators to have helped swing that race to President Bush, agrees with her.
"Everyone has an equal right to run," he says. "Obviously, Webb and Allen took a lot more votes from her than she took from them."

Ms. Parker's votes represent 1% of the state's total.

The congressional elections' most successful independent candidates were Connecticut Sen. Joe Lieberman and Vermont's Bernie Sanders. An Illinois Green Party candidate, Rich Whitney, also turned in a respectable performance with 342,000 votes, or 10% of the state's total. Maryland Green Party candidate, Kevin Zeese, director of a national antiwar group, collected 2% of the state's vote.

Mr. Allen's chances of overturning his apparent loss seem unlikely. In Virginia, a recount "is largely about checking the math," says James Alcorn, a lawyer with the Virginia State Board of Elections.

Voters in much of the state used touch-screen voting machines, which record votes on memory cards with a backup count on an internal memory. The state's 2006 election law says that in a recount, the vote totals from the memory cards are to be looked at again to make sure they were read correctly the first time.

The memory cards in each machine record an image or "screen shot" of each ballot. But there's no provision in the law for looking at the image during a recount. And in any event, only the machine makers could do that because they have kept access to their software a trade secret.

Challenges based on the state's voting equipment also seem fairly remote. Mr. Webb's last name didn't appear on the summary page of many voting machines -- a glitch that brought howls from his campaign before the election. But at least initially, Mr. Allen seems to have faced no similar disadvantage that might be the basis for a challenge.

Ms. Parker says she plans to write thank-you notes to supporters when she returns from Oklahoma and will run for office again -- although she's not sure for what job. "Politics in Virginia is a noble pursuit," she says.

Hold your nose and enjoy

The stock market has been downright exhuberant since Monday. On Monday and Tuesday, this was judged to be in anticipation of divided government. Today's rally was in celebration of divided government.

Now we know what the markets mean by divided government.

Gridlock has its attractions and that, apparently, includes the contents of today's on-the-air interviews with the new barons of capitol hill. John Dingell, for example, wants nationalized health care ASAP to save Detroit's auto makers. Many others were equally ambitious.

If you believe that divided government is the closest that we will ever get to no government (which may be true), then hold your nose and enjoy.

Ticket-splitting was never this good.

Oddball theories

Today's LA Times actually includes a piece that cites challenges to the sprawl-and-obesity silliness. "Road to fat city starts at home ... Can a neighborhood make you gain weight? Urban planners think so, but a study questions the link between ZIP Code and waistline." Imagine.

Good news and bad news. The same newspaper includes: "Lower pump prices fuel political conspiracy theories ... Many Americans think that the recent drop is tied to the Bush administration and GOP election hopes." Gallup reports that 42% of those polled believe this.

We keep hearing that more Americans than ever are college educated. Also many more than ever before have finished high school. What have they learned?

Life in the big city

Measure H , on the L.A. City ballot next week, proposes to raise $1 billion for "affordable housing". Linking up big boondoggle with feel-good, it has a very long list of supporters.

Today's L.A. Times also reports "L.A. sues over unaccounted for funds ... The city, alleging misapporpriation of aid to poor, files a civil suit against former Housing Authority Officials."

There is also the minor issue that housing affordability is a problem mainly because of all of the well-meaning controls put in place by the boondoggle-feel-good crowd (see, for example, Glaeser, Gyourko, and Saks).

Not easy being Green

Whenever a wave of new data are released, the "smart" people who (without irony) trumpet "smart growth" take it on the chin.

Alan Pisarski is the leading analyst of census commuting data and his Commting in America series slices and dices these data better than anyone. Ken Orski reports that Commuting in America III, the definitive work on the 2000 census commuting data, is here.

And what do you know? There are more nonwork trips than ever? Solo auto commutes are up. Carpooling is down. Transit use is flat (it has apparently hit bottom and floats there on subsidies). Telecommuting is up and walking-to-work is down.

It's not easy being green -- and even harder being smart.

No golden age

Even the title of the piece is an eye-opener. The May, 2006, QJE includes Xavier Sala-i-Martin's "The World Distribution of Income: Falling Poverty and ... Convergence, Period". It's lovely when the work is solid enough to back the claim that it is shutting the door on an ongoing debate. Einstein did it with mathematical proofs; Sala-i-Martin does it with incredibly clever data analysis.

In today's LA Times, Lawrence Summers writes about "The global middle matters." As some of the poorest start to participate in the world economy, they become better off. The rich also get richer. But, Summers writes,

"[e]veryone else has not fared nearly as well. Low-cost labor -- ordinary, middle-class workers and their employers, whether they live in the American Midwest, Germany's Ruhr Valley, Latin America or Eastern Europe -- are left out. ... Just as the GI Bill and domestic housing programs in the aftermath of WW II were crucial parts of the overall policy approach in the U.S. that permitted the Marshall Plan, GATT and international financial institutions go forward, our success in advancing international integration will again depend on what can be done for the great middle class, at home and abroad."

Summers' call for more "international integration" is promising insofar as it limits the damage that local policy makers can inflict -- and makes possible the outcomes that Sala-i-Martin documents. But Thomas Di Lorenzo questions the wisdom of (and the motivations behind) the GI Bill. If he is right, there goes the last of the plausible policy success stories. Perhaps there never was a Golden Age of inspired policy making.

Urban economics can be fun

The various factors of production are valued at any time according to how productive they happen to be which rests on how efficiently they are combined with the other factors. This applies to land, labor and capital, of course.

But the most highly valued land is in cities. The value of parcels and sites comes from competitive bidding for each location. The bids have a lot to do with what is going on at all of the other proximate locations.

This is complex and requires smoothly functioning land markets to sort out. There are inevitable externalities but their dollar value depends on realization, i.e., location. Does the laundry end up next to the soot-producer? Profit-seeking land users can be expected to locate so that the externalities that are realized end up bestowing the largest possible net effect and benefit.

This is some of the story of how cities come to be the engines of economic growth and the places where human creativity is most likely to flourish.

Matt Kahn's new Green Cities: Urban Growth and the Environment is good background for thinking about cities. It is refreshingly fact-based.

Cities are exciting but most urban economics texts are bone-crunching boring. Matt's book, on the other hand, is fun.

Agglomeration in the news

Agglomeration economies come in many flavors. In Forbes (Oct 30), columnist John W. Rogers Jr. writes about "Home Court Advantage". He cites an academic paper that confirms that investors do best if they invest in companies that are close to home (within 62 miles).

"Since my days as a hot dog vendor at Chicago's Comiskey Park through my years on Princeton's basketball team, I have always been fascinated by the theory of the home team's advantage. Many studies have found that athletic teams tend to win more home games than away games. For the Big Ten Conference in men's basketball last year, home teams won 70% of the games.

"Why? The home team has a certain confidence. It knows the feel of the court and the give of the rims. And, of course, the fans are on its side.

"Similarly, the home court can make a big difference to an investor. Living in Chicago gives me an informational advantage with businesses headquartered here because I encounter them all the time. I buy their products, cross paths with their executives and employees, and talk to their customers and competitors.

"There's academic support for my beliefs about the home advantage. Tobias J. Moskowitz, a finance professor at the University of Chicago's business school, has conducted extensive research on the geography of investing. His conclusion: One way to beat an investment benchmark over the long haul is to buy stocks close by--which he defines as businesses headquartered within 62 miles.

"Managers' home-area portfolio holdings outperform their faraway holdings by 2.7 percentage points per year. Let me explain just what is meant by that. Of course Moskowitz is not claiming that each town's corporations beat the national average. Rather, he's saying that a money manager has a superior ability to sort good companies from bad when the companies in question are nearby. Those stock pickers with strong convictions about neighboring businesses do particularly well. According to Moskowitz's research, which spanned 1975 through 1994, money managers who committed 20% or more of their assets to proximate companies' stocks did four full percentage points a year better with them than with the rest of their portfolios."

Likewise, the NY Times recently ran "It's not the people you know. It's where you are."

"If you have a brilliant idea for the New New Thing and want Sequoia to provide its funds and blessing — using the same golden touch provided not long ago to Google’s founders — you would be much better off in Beijing, where Sequoia has an office, than in Boston, where it does not.

"It’s convenient for venture capitalists to have entrepreneurs close by, but the reverse is true, too, said Allen Morgan, a managing director of the Mayfield Fund, which manages $2.3 billion in venture capital and is also on Sand Hill Road. Mr. Morgan made the case by pointing out that a prospective entrepreneur would, on average, need to have three to eight meetings with a venture fund before he or she was successful, but would have to go through a similar process with 5 to 10 firms before finding the one that approved the funding request.

"Even if the process goes smoothly and requires only 15 meetings — the fewest possible, given the lowest range of possibilities — and even if most of those meetings are set up in advance, the time consumed in getting to Sand Hill Road, even using local highways, can be significant. The problem is that much worse when, as often happens, a meeting is called with just an hour or two of notice. 'If you live in Santa Clara, it’s doable,' Mr. Morgan said. 'If you live in Dubuque, it’s not.'

"Entrepreneurs who live in Silicon Valley also find the technical talent they need faster than they can in any other place; they pay more for that talent, but speed is the sine qua non for success. Seth J. Sternberg, the chief executive of Meebo, an instant-messaging company in Palo Alto that is backed by Sequoia, described Silicon Valley with the fervent appreciation of a recent transplant from New York, where he had suffered three separate bad experiences with start-ups, none of which had attracted venture funding.

"The ecosystem in Silicon Valley, Mr. Sternberg said, includes “incredible techies, who live here because this is the epicenter, where they can find the most interesting projects to work on.” The ecosystem also includes real estate agents, accountants, head hunters and lawyers who understand an entrepreneur’s situation — that is, emptied bank accounts and maxed-out credit cards."

Fat city

Ben Dachis points us to the University of Toronto working paper (by Jean Eid, Henry G. Overman, Diego Puga and Matthew A. Turner) "Fat City: The Relationship Between Sprawl and Obesity. .. Our results indicate that current interest in changing the built envornment to counter the rise in obesity is misguided."

These results should not surprise anyone. Yet, serious people publish papers that link "urban sprawl" with obesity. Google scholar brings up almost one-thousand papers with keywords "sprawl" and "obesity." I sampled and all the ones that I found argued for a positive link.

But I did not find this stuff on the Wikipedia pseudoscience list. Well, the cited paper is a nudge in that direction.

Assimilation on steroids.

In their on-line coverage of their on-air coverage of the 300-million mark reached by the U.S. population last week, the editors of The News Hour did not highlight what may have been the most important point of all.

They did have the good sense to interview Brookings' Bill Frey and he had many interesting things to say. Among them was the thought that when we reach 400-million (in as little as 37 years), inter-ethnic marriage and coupling will likely have become so extensive as to wipe out (not his words) today's obsessions with race. How lovely.

Becker and Posner do the usual fine job of weighing the many sides of population growth. But they too miss Frey's big point. Politics alone creates many problems but it becomes poison when it mixes with race.

Most countries have their own peculiar histories of racial strife and the U.S. is no exception. But assimilation has always been the most promising antidote -- and intermarriage between the races and ethnicities on a scale where the tired old categories fade is assimilation on steroids.

Expanding universe

Brookings demographers have been mining 2000 census data re "exurbia." To paraphrase a former U.S. president, "it depends on what you mean by exurbia."

Dr. Soojung Kim and I have been looking at employment, population and income growth throughout the U.S. counties, using the 35-year REIS file from BEA. Interestingly, the outward trends are dominant but there are cycles.

The "micropolitan" areas can be categorized as adjacent to large or small metros or nonadjacent. Their performances vary from region to region. They do best in the west -- even though counties tend to be larger and this region's micropolitan counties tend to be more remote than those in other regions.

Rural counties (those that do not qualify as core-based [micropolitan or metropolitan]) can also be grouped by whether they are adjacent or nonadjacent to any of the two core-based groups. In years when there is an outward impetus, the latter also do well. The pulses push further than anyone had thought.

Today's WSJ reports this:

"Seeding Sprawl"
October 18, 2006; Page B4

"The American "exurbs" are growing twice as fast as the overall metropolitan areas from which they sprawled, according to a new report by the Brookings Institution.

"These areas, on the far fringes of cities, still house relatively few people -- an average of about 6% of the population of 88 large U.S. metropolitan areas, as of 2000. But the exurbs' rapid growth, about 31% in terms of population during the 1990s, poses a big challenge to developers, regional planners and conservationists.

"'The question for all exurbs is are you going to remain the fringe of a metro area, or in 20 years are you going to be a conventional suburb, which means you will lose more and more rural land and the congestion will be worse,' says Alan Berube, the study's head author.

"The Brookings study defines exurbs as communities with relatively low housing density where at least 20% of workers commute to jobs in urban areas. In cities such as Cleveland and Detroit, the exurbs have become havens for wealthier people escaping more impoverished cities and inner suburbs. In higher-priced Boston, New York, the San Francisco Bay area and Washington, D.C., residents are being forced farther outside cities because they can't afford housing.

"In the long run, Mr. Berube says it will be less expensive to encourage development nearer the center of a metro area because communities won't need to spend money creating infrastructure to support residents on the fringes. But residents' conflicted views complicate matters, he adds. "People want a single-family home and a bunch of bedrooms, but at the same time they want to be able to walk to things and commute less than 45 minutes each way.

Rants

Unlike conservative talk radio, left-wing Air America Radio is in financial trouble. And William Safire's "On Language" in today's NY Times writes about the etymology of rant.

It seems that right-wing rants have an audience and left-wing rants less so. Yet about as many Americans vote for Democrats as Republicans. So what gives?

I am currently enjoying Eric Beinhocker's The Origin of Wealth. Like so many other recent books that feature discussions of economics (David Warsh's Knowledge and the Wealth of Nations, for example), it reminds us that serious people now take property seriously. It was not always so and property is still thought be exotic and/or sinister in many circles (NPR, Dan Rather, Bill Maher, many precincts of U.S. universities, etc.).

Most Americans now own property -- most auspiciously, their own homes as well as 401k's and the like. To most people, the idea of property is coherent while the socialist critique is exotic and/or sinister.

Rants, seemingly, go down better when coherent. What has the left to offer? According to Brad Hill, their remaining trade is critique when the right misfires. It seems that this can win frustrated voters and even elections but it cannot sustain a regular large audience.

Glass half-full

What do we know? In less than a week, there will be 300 million of us (and ever fewer Europeans). The Dow has been hitting record highs. And the housing "bubble" is no longer expaning. In fact, it is slowly deflating.

Economists are still divided on whether the housing contraction means sharp brakes on consumer spending. The pro and con views are nicely summerized in The Economist's Economic focus: Home Truths.

Interestingly, the coverage compares two types of mortgage-equity withdrawals, active and passive. The former includes home-equity loans while the latter includes cashing in equity for retirement. The two do not move in tandem.

As usual, demographic context sheds new light. The article also mentions that home-equity cash is being used by many to pay off credit card debt.

When it comes to the U.S. economy, it is very hard work being a steady gloomster/doomster.

New blog on cities

Fred Siegel usually has interesting things to say. And he has al lot to say about cities. And two of his favorite cities are New York and Los Angeles, about which he knows quite a lot.

Now he has teamed up with his son Harry to maintain a blog, Cities on a Hill, to inform the rest of us re their views.

I learned a lot about New York City from Fred's The Prince of the City. Over the years, he has been prolific and wise. Now we have the good fortune of hearing from the Siegels on a regular basis.

The 0.63 percent solution

Sprawl is wasteful. That's the mantra that has launched a thousand papers, editorials, speeches, conferences, books, etc. Too bad that no one bothers to define sprawl or waste.

Some relief is offered by Marcy Burchfield and her co-authors in the May 2006 Quarterly Journal of Economics, where they write about the "Causes of Sprawl: A Portrait from Space."

From their abstract: "We study the extent to which U.S. urban development is sprawling and what determines the differenecs in sprawl across space. Using remote-sensing data to track the evolution of land use on a grid of 8.7 billion 30x30 meter cells, we measure sprawl as the amount of undeveloped land surrounding an average urban dwelling. The extent of sprawl remained roughly unchanged between 1976 and 1992, although it varied dramatically across metropolitan areas. Ground water availability, temperate climate, rugged terrain, decentralized employment, early public transport infrastructure, uncertainty about metropolitan growth and unincorporated land in the urban fringe all increase sprawl."

If one is going to quibble about endogeneity, then decentralized employment would come first.

That aside, their data show the state-by-state increase in nonurban land urbanized; for all of the U.S., it was 0.63 percent over the period studied.

Another lesson

High gasoline prices boost transit use -- according to transit boosters.

But the Census Bureau has just published results of its 2005 American Comunity Survey -- and transit commuting for the U.S. was 4.7% -- the same as in 2000. Yet, the inflation-adjusted price of gasoline (average U.S.) was about 20 percent higher in 2005 than in 2000. In the period, subsidies per rider had also increased.

It's been the perfect storm for public transit. There must be lesson here.

Winning coalition

Los Angeles' three light rail lines account for 55 miles of bi-directional guideway that get approximately 126,000 boardings per day. Construction has just begun on another 8.5 mile line that planners say will serve 43,000 riders per day. In other words, the new line will have double the per-mile ridership than the three existing lines.

This is an old story and I have been beating this dead horse for many years. Some proponents are liars and others are ignorant. For good measure, some also pose as high-minded environmentalists.

It adds up to a winning coalition.

The power of ideas

Hernando de Soto is quite a guy. He has a good idea, he researches and writes about it compellingly. Then he follows up with all manner of speeches and appearances.

And now he gets Bill Clinton (!) to explain it at tout le monde.

"Helping the Poor Register Land"
WSJ, By SALLY BEATTY, September 29, 2006; Page W2

"Establishing land rights for the poor in developing nations turned into the sleeper issue at the second annual Clinton Global Initiative in Manhattan last week, where celebrities, heads of state and the super-rich gathered to raise funds to help solve the world's problems.

"Former President Bill Clinton secured commitments totaling $7.3 billion at this year's conference, up from $2.5 billion last year. But the buzz in the hallways centered on a topic that until recently most philanthropists all but ignored: registering poor people's property so they could borrow against it to build businesses, pay taxes or for other purposes. Many citizens of developing countries don't formally have title to their land, and many economists -- including Peruvian economist Hernando de Soto, another conference attendee -- see this as a key source of urban poverty. According to Mr. de Soto's research, the value of unregistered land in developing countries totals over $9 trillion. Mr. Clinton told the audience that these assets 'cannot be converted into collateral for loans -- wealth locked-up and locked-down -- keeping people in grinding poverty instead of being an asset that can lift them up.' Up to 85% of urban land parcels in the developing world are unregistered, Mr. Clinton said, citing Mr. de Soto's research.

"But standing in the way of widespread land-ownership records are insufficient legal frameworks, confusing procedures and corrupt property registries. And establishing land ownership is all but impossible in communist and socialist countries, where property usually is owned by the state, said John Bryant, chief executive of Operation Hope, a nonprofit in Los Angeles that provides financial services to the poor.

"Calling land ownership 'the cornerstone of economic stability in any region,' Craig DeRoy, president of First American Corp., a seller of title-insurance and credit information, said his company would commit $1 million in cash and in-kind services to develop a 'template' to give the poor in developing countries a way to establish land titles.

"More foundations are beginning to think about land ownership. Patty Stonesifer, chief executive of the giant Bill & Melinda Gates Foundation and another conference attendee, called the discussion about land registration 'intriguing.' Though her group hasn't announced any involvement in the effort, it said earlier this year it will move into funding financial services for the poor."

Modest proposals

Elite opinion in L.A. (and many other places) cannot let go of the idea of more subways. Writing in today's LA Times, Christopher Hawthorne suggests that, "... it's time to redefine exactly what cost-efficiency means in a city of Los Angeles." Actually, local know-nothings have been doing so for many years.

This is why it is good to have Gabriel Roth's Street Smart in print. Twenty of today's smartest transportation people assemble and survey some of the best thinking around when it comes to urban transportation.

Now if we could only get elite opinion to stop talking and start reading (and thinking).

A little history

Some of us recall the Newsweek cover of the mid-1970s that showed the Earth covered with ice. Global cooling was the fad.

Randall Holcombe poses the question in the Fall 2006 Independent Review, "Should We Have Acted Thirty Years Ago to Prevent Global Climate Change?" To ask the question is to anwer it.

Likewise, Kevin Shapiro asks, in the September Commentary, "Global Warming: Apocalypse Now?"

Patrick J. Michaels in Cato Policy Analysis No. 576 wonders, Is the Sky Really Falling? A Review of Recent Global Warming Scare Stories.

Part of the current discussion is the ineluctable demand for bad-news-coupled-to-feel-good-policy-antidotes. The science is being debated on terms that are beyond many lay people. The policy stuff elicits yawns. Perhaps evoking the global cooling discussion is useful.

Nothing like a little recent history.

Fool's errand

Most people cling to the feel-good view that regulations protect consumers. A few grumpy economists (and some others) point out that most regulations also limit competition and choice -- with the effect that prices are high and quality low.

When it comes to taxicab service, many of us spend more getting to and from airports than flying between them. The airlines compete and the taxis are regulated. Oh yes, the regs are there to protect us.

Todays' LA Times includes "Taxicabs Take L.A. for a Ride ... Sting operation finds that 'scenic routes' and potentially rigged meters inflated costs half the time ..."

Deregulation and more competition, anyone? Government failure, anyone? Naw!

The basics

Supply and demand each matter. "Everybody" knows this. Well, not exactly. Many land use and housing regulators live in their own world, where their actions presumably make little difference. Then on odd days they fret over housing "affordability."

Actually, there are only trade-offs (another headline grabber). To help us make the point, Wendel Cox has just published his second annual housing affordability index. LA (my hometown) is in the worst shape of all.

And, yes, this morning's LA Times includes stories on plans to extend the County's disastrous Red Line subway. The one that costs taxpayers $8.50 for each and every boarding -- and that chalks up social losses of "only" $8.25 for each and every boarding, once we consider all those externalities.

The third shocker is that there is exit and voice. Until we leave, we only have one choice: keep on making the point, repetitious though it may be. The variation is to find new and better ways to make the point.

Hard work being concerned

"Fair" trade is a popular but useless label. So when it pops up at Stabucks, one must be wary (or put hand over wallet). Many economists have noted that it is just an application of price discrimination. The Undercover Economist refers to it as pricey "coffee for the concerned."

This morning's LA Times includes: "Fairtrade Coffee Not Living Up to Label in Peru ... 'Ethical' coffee is being produced in Peru, the world's top exporter of Fairtrade coffee, by laborers paid less than the legal minimum wage."

Win-win

Today's NY Times real estate section features "Apartment Living, Home Schooling"

"By day, Baldwin Village is a pleasant Los Angeles neighborhood of two-story apartment buildings, most of them with metal gates and lushly planted courtyards. By night, residents say, the neighborhood is anything but lovely. When George Pino and Joe Killinger, a pair of real estate investors, began buying buildings in the neighbrohood, eight miles southwest of downtown L.A., in 2003, the police asked them to trim their shribery so that drug deaklers would have fewer places to hide. ... Now, in two of their buildings, the partners operate resource centers where the children play educational games. The centers are operated by teachers who arrive at 3:30 p.m. and stay until 6 p.m. each weekday.

"In an neighborhood where vacancy rates average about 5 percent, the partners said, the vacancy rate in their five buildings, which have a total of 104 units, is about 1 percent."

I have heard of experiments like this before and they make great sense. Renters and landlords (and buyers and sellers) have a common interest. It is old hat -- if the zoners and the educators will just let it be.

"Do you want some health insurance with that hammer?"

Many people have figured out that free exchange is the source of our well being. But at least as auspicious is what markets bring forth in spite of the many roadblocks from the world of politics. (Yes, many ironies in light of the mantra by the regulators and their supporters that they are in the business of "helping people.") The story below cites new ways that people can purchase health care coverage. Yes, it's from entrepreneurs interested in profit -- the real "helping professions."

"Out Front Home Remedy"
by Suzanne Hoppough
Forbes, 09.18.06

"Can't get health insurance? Try shopping at Home Depot."

"To keep customers coming back, retailers try everything from store-issued credit cards to loyalty cards that get punched with every purchase. Now the Home Depot is going one better. It's treating its most faithful shoppers--plumbers, electricians, small-home builders and contractors--almost like employees. These customers can now have their businesses' payroll, credit-card processing and personnel paperwork done through Home Depot. They can get their mobile phones and shipping services through Home Depot. Most notably, they can sign up for health insurance through Home Depot.

"The hardware chain has been rolling out the program since January, doing little to publicize it beyond putting stacks of brochures next to cash registers. Nevertheless, 12,000 customers have signed up. Home Depot plans to announce the program in the media later this month.

"The program, dubbed Home Depot Business ToolBox, could be a boon for small-business owners who can't get health insurance at affordable rates. Members pay for the insurance and other services but take advantage of Home Depot's group rates. In return, they don't need to do anything, not even promise to shop at Home Depot instead of archrival Lowe's.

"It's a bold but risky move, so what's in it for the country's second-largest retailer? Chief Executive Robert Nardelli came up with the idea as a way to keep expanding sales to the professional market, which account for 30% of the chain's $82 billion annual total. The program is also open to other small employers: shops and restaurants, even churches, day care centers and other nonprofits. He figures that the program will instill a deep loyalty to Home Depot. It is not exactly a charitable activity on the company's part, because the company gets fees from the 13 companies--so far--that provide the services; they include Sprint, JPMorgan Chase and DHL. But evidently the bottom-line benefit, if any, is going to come through higher sales of hardware.

"Nardelli certainly needs the boost. The company's share price is down 21% since he took over in December 2000, and investors are in an uproar over everything from his fat paycheck to how he ran the annual meeting.

"So far, his plan has worked for Margaret Lade, owner of Lade Insurance Agency in Burnsville, Minn. She switched to the payroll processor offered by Business ToolBox, PrimePay, and says she's saving 40%. She also might change her credit-card processor to Chase. 'Now I definitely use Home Depot before [Midwest hardware chain] Menards,' she says. 'They're going out of their way for their customers. I do the same thing for mine, trying to get that warm-and-fuzzy feeling.'

"Some 38% of Business ToolBox members tell Home Depot that they plan to sign up for health insurance. Wendy Hendricks, who runs a 15-employee Pittsburgh firm called Warehouses by Design that outfits warehouses, already had insurance when she learned about the program from an insert in her Home Depot credit card bill. But she was paying $800 a month for her family of five, so she called the toll-free number and reached Phoenix broker BenefitProtect. She switched to Assurant Health and now pays $450 a month.

"The retailer put BenefitProtect through lots of hoops before picking it as Business ToolBox's insurance broker. 'Home Depot wanted assurances that we can grow with their plan,' says Kyle Williams, the company's chief executive. He says some applicants have serious conditions and don't qualify for major medical insurance but can get limited coverage.

"Of course, funneling thousands of customers into all sorts of services could prove a huge administrative headache for Home Depot. It has already lost one customer. Celeste Gothorp, owner of a small power-washing company in Graham, N.C., signed up for Business ToolBox online and followed up with an e-mail to no avail. 'I got a prompt e-mail back saying someone would be in touch,' she says. 'That was six months ago.'

"Home Depot brushes off such concerns. James Stoddart, the retailer's senior vice president for growth initiatives, says it's ready for the volume that's expected once the program gets more publicity. In fact, he says, Business ToolBox is adding new services, such as dumpster rentals and help for contractors in maintaining their certifications, while also expanding into Mexico and Canada. Throughout North America, cashiers may soon be saying, 'Do you want some health insurance with that hammer?'"

Keep it handy

Jonathan D. Fisher and David S. Johnson just published "Consumption Mobility in the U.S.: Evidence from Two Panel Sets" Here is their abstract:

"This paper examines inequality and mobility using measures of income and consumption. Consumption is claimed to be a better measure of permanent income and thus well-being, but most studies of inequality and mobility using U.S. data use income.

"This paper uses cohort data from the Consumer Expenditure Surveys on total consumption to impute consumption in the Panel Study of Income Dynamics. Then, we use this imputed consumption and actual income from the PSID to examine changes in inequality and mobility. Similar to earlier findings, we show that there has been a large increase in income inequality but no concurrent increase in consumption inequality in the 1990s. Conversely, income mobility and consumption mobility are similar during this time period.

"Finally, we link the concepts of inequality and mobility using a social welfare function. The results suggest that income mobility and consumption mobility more than offset the increases in inequality."

Straight intertemporal comparisons of groups that do not include the same people -- only to set up great displays of profound concern over the findings -- is one of the most bone-headed plays in our popular discourse.

So, keep Fisher and Johnson's paper nearby.

Fooled by Randomness?

We tell our students: "No theory without numbers and no numbers without theory."

But Forbes (Sep 18) includes: "Economic Dexterity ... Left-handed men with college educations earn 15% more than similarly schooled right-handed men, an academic study says. Using a detailed 1993 government survey of 5,000 persons, Lafayette College's Christopher S. Ruebeck and Johns Hopkins' Joseph E. Harrington, Jr. and Robert Moffitt found no differences for women. Over 33 pages they suggest no firm explanation for their conclusions, writing, 'We do not have a theory that reconciles all of these findings.'"

Worthy re downtowns

Much of "informed opinion" takes it for granted that (i) downtowns (and especially LA's) are "coming back"; and (ii) they ought to be further encouraged to keep it up; and (iii) this effort should be paid for by everyone else.

Randy Crane takes a sober look at all this. His blog on the topic is worth reading.

New and improved housing markets

Yesterday's NY Times included "The Pork-Bellies Approach to Housing" which described the marketing of the Case-Shiller house-price indices as housing market hedges.

The indices are metro-area specific and, therefore, limited. "When pressed on this, Shiller and Masucci observed that metro-level price changes do explain roughly half the variation in price for a typical house. Whether that's good enough for hedging purposes remains to be seen."

As with any hedge and/or insurance, it's not for everyone but the fact that is is now available (and selling) says a lot. There is lots wrong with housing markets and how they are treated by tax and zoning laws. Given all of this, the availability of these new opportunities is good news even if we stay on the sidelines.

We may get fewer interest rate jitters, less bubble talk (and possibly fewer bubbles), as well as thicker and better informed markets.

Terms of trade

Well-offness is hard to measure. Economists and many others have tried but all manageable indices are bound to fall short. Census income comparisons have well known shortcomings and the BLS has recently taken to making consumer expenditure comparisons (tanks, Ted Balaker).

Cox and Alm (1999) provided many illuminating examples of what an average worker could buy per hour of work, now vs. a hundred years ago, etc. And guess what? We are better off now!

Last week, The Economist published the UBS international index of how long an average worker has to toil to buy a Big Mac. This is an elaboration of the magazine's well known Big Mac Index (see chart), which offers a rough measure of international comparative purchasing power. This latest version divides the local price of a Big Mac by the local average hourly wage.

Tokyo workers have the most Big Mac purchasing power in the world, better than their New York counterparts. Terms of trade, indeed!

Hand-wringing

The Census issues periodic reports on income distributions and, like clockwork, stern commentators emerge to comment how much worse-off the median earner is today -- than 5, 10, 20, 30, whatever, years ago.

This is silly for two reasons. One, of course, is that very few of us spend a lifetime as median earners. The median earner today is very likely to move up as he gets older. Second, Don Boudreaux suggests a useful but simple mental experiment: think seriously about life as it was in 1986, 1976, etc., and what it is that you now take for granted that you did not have available to you: ATM's, wi-fi, broadband, Google, cell phones everywhere, almost anything you find at Best Buy, etc.

Not a gadget person? OK, how about today's medical science?

First run at the trough

Three light-rail lines have been added to L.A. county's transit system in the last 20 years. Together, these cost $2.5 billion in capital costs, they serve about 125,000 passengers per day and account for a fiscal loss of approximately $252 million per year -- if one acknowledges that capital costs are real, something that transit operators and boosters often neglect.

If one wants to believe that there are external benefits, a variety of optimistic assumptions on auto trips replaced, cuts the loss to "only" $245 million/year. These are simple spreadsheet calculations that anyone can do. Further, no one alleges that the three lines have had any impact on L.A. area traffic conditions. In fact, complaints about "gridlock" are a staple -- and the pricing cure is still deemed too esoteric and/or sinister. In fact, there are no correlations known to man or woman to show that projects like this relieve traffic.

None of these simple facts made it into today's LA Times coverage, which is reproduced below because it is all so breathtaking. Billions of dollars are at stake and a know-nothing debate is respectfully cited -- when it is simply about which part of town and which politician gets first run at the trough.

"Which Way for the Next Light-Rail Line in L.A. County?
L.A. transit agency weighs competing plans for lines to the Westside and San Gabriel Valley."

By Jean Guccione, Times Staff Writer
September 3, 2006

"As they prepare to set spending priorities for the next quarter-century, Los Angeles County transit officials are bracing for a head-on collision over where to build the next light-rail line.

"Should the Westside's proposed Expo Line be extended all the way from downtown to Santa Monica? Or should Pasadena's Gold Line grow 13 miles east to Montclair?

"Though construction is still years away, long-range planning decisions reached over the next several months will determine the pecking order for major county transit projects through 2030.

"Even if both light-rail proposals are considered worthy, some transit officials doubt that the federal government would spring for two $1-billion transportation projects in the same county at the same time, escalating the competition for federal dollars.

"'There is no question that traffic is getting worse everywhere,' said Los Angeles County Supervisor Zev Yaroslavsky, who wants the Westside's Expo Line extension built next. 'Now the question is, if you have a limited amount of money, where do you spend it?'

"Rep. David Dreier (R-San Dimas) says funds should be allocated to the San Gabriel Valley, where thousands of new, affordable homes are luring workers and increasing freeway congestion.

"Dreier envisions someday extending the line even farther east, to Ontario Airport — a move that he argues also would benefit the Westside by shifting some travelers away from Los Angeles International Airport.

"'We need to build Expo, but the Gold Line is my priority,' Dreier said in an interview Thursday. 'I think we have the potential to do both.'

"The dueling proposals are attracting more attention now as the Metropolitan Transportation Authority moves closer to deciding which of dozens of proposed transit improvements should be funded in coming years.

"Projects must be part of the agency's long-range plan to qualify for federal funds. The plan is scheduled for adoption early next year.

"This year's competition is particularly fierce as officials anticipate how they might spend up to $12 billion on one-time capital projects if voters approve the state transportation bond issue in November. Without voter approval, the agency would allocate an estimated $7 billion in existing funds to new projects.

"Even with the state bond money, transit officials said, they still would have to seek matching federal funds to begin building light-rail extensions within the next few years. The MTA's capital funds cover streets and highways, as well as buses and rail.

"'Money is going to be very tight,' said Carol Inge, chief planning officer. 'We have a longer list of projects than we have money overall.'

"Officials have yet to decide which projects they will request funding for in the long-range plan, Inge said.

"Construction priorities are based on ridership projections and cost effectiveness, measured in costs per mile and costs per passenger, according to MTA board policy.

"In 2001, the last time projects were ranked, the MTA board of directors gave the Expo Line a high priority.

"Construction is scheduled to begin soon on the first part of the line — from downtown Los Angeles to Culver City.

"The next proposed segment, from Culver City to Santa Monica, is in the long-range plan but has not yet been funded. It is expected to cost $750 million to build.

"The Gold Line extension did not make it into the MTA's 2001 long-range plan. A preliminary draft of the agency's 2006 priorities shows other, more costly, projects — such as Los Angeles Mayor Antonio Villaraigosa's proposed subway to the sea — ranking higher.

"Because ridership on the Gold Line's 14-mile route between Union Station near downtown Los Angeles and Pasadena turned out to be lower than expected, a further extension of the line was placed somewhere in the middle of this year's preliminary long-range plan.

"Ridership on the Pasadena line hit a high of 20,000 weekday boardings in July, according to the MTA. Weekend ridership, however, has dropped significantly over the last year.

"Duarte City Councilman John Fasana, who sits on the MTA board, said ridership would increase if the Pasadena-based line were extended farther into the fast-growing San Gabriel Valley.

"The region's three east-west freeways are packed with big trucks serving the ports of Los Angeles and Long Beach, as well as thousands of commuters, many traveling from their homes in the Inland Empire.

"Last year, the counties of Riverside and San Bernardino issued 51,000 residential building permits, and their region ranked seventh in the nation for new-home growth, according to California Department of Transportation statistics. More than 153,000 permits were issued in those two counties in the four previous years.

"Still, Yaroslavsky said the Gold Line ridership numbers, estimated at 6.3 million boardings a year, do not support the proposed extension at this time. Statistics, he said, favor additional mass transit on the burgeoning Westside as a top countywide priority.

"'If you look at this objectively and leave the politics out, it bears no comparison to anything else,' he said of the Westside's need.The Westside has no commuter rail line. Its two freeways, the Santa Monica and San Diego, are "parking lots," he said. And the area's major hubs — Santa Monica, Century City, Westwood and Culver City — are experiencing major residential and commercial growth.

"Duarte's Fasana said he expects that the Gold Line extension would be included in the upcoming long-range plan — and that, if the state bond measure passes, 'I think there is an ability to build both projects.'

"Gold Line proponents aren't taking any chances. They are trying to leap-frog ahead of the proposed Westside line by appealing directly to Congress for funds.

"Habib Balian, chief executive officer of the Gold Line Foothill Extension Construction Authority, is leading the charge. He acknowledges that the strategy is 'totally unconventional.'

"The construction authority was created by the Legislature to oversee construction but not operation of the Gold Line to Pasadena. The MTA runs the line.

"Balian doesn't view his renegade tactics as distracting support for the Expo Line in any way."I believe all meritorious projects will be funded," he said.Balian pointed out that he is not asking the MTA to pay for construction of the extension. The agency simply would have to commit to run the extended Gold Line — at a cost of about $10 million a year — after it is built.

"The MTA needs to promise to pay for operation of the rail line for federal construction funds to be secured, he said.

"While waiting for decisions, both sides are proceeding as if their projects have made the cut.

"Even before ground has been broken on the Expo Line to Culver City, its construction authority is seeking proposals for an environmental study of construction from Culver City to Santa Monica.

"The Gold Line construction authority, meanwhile, is studying the effect of its proposed two-phase extension: 10.5 miles from Pasadena to Azusa, followed by 13.1 miles to Montclair.

"People on both sides acknowledge that the county's need for public transportation is great everywhere.

"Despite his support for the Gold Line project, Dreier said freeway congestion on the Westside and elsewhere affects all Los Angeles County residents, no matter where they live.

"'My constituents want to have the ability to go to the beach, the mountains, the desert or wherever,' he said."

"Imbalances"

A staple of 1980s hand-wringing was "manpower planning". That seems to have waned even though there are still occasional stories from the genre that make the news. This morning's WSJ includes: "Oil-Rich Calgary Finds Boomtimes have a Downside ... A Hot Real Estate Market Suffers Big Labor Shortage; Office Vacancies Near Zero." It makes good copy but most people understand that labor markets, if left alone, funnel labor to its highest and best uses.

Seeming "imbalances" in land use and transportation also get top billing. Yesterday's L.A. Times included: "L.A., O.C. Traffic Patterns to Switch ... Orange County has long had more outgoing commuters. Within 20 years, that's expected to reverse as jobs multiply ..."

The second article cites the concerns of local planners and politicians who have been chasing the "job-housing balance" chimera for years.

No human has an idea of what the proper "balance" would be (at what level of geography, at what skill level, how to balance against non-job draws, etc.); if they somehow did, what would they/could they do with the knowledge?

Our planners and politicians refuse to price road access. As a result there is road traffic ("gridlock") that they want to "solve" by somehow manipulating land and housing markets. It is pure nonsense but, again, no joke because their interventions stymie land and housing markets -- creating another "crisis" to "solve", the "housing affordability" problem.

PBS discovers Roger Rabbit

TV is a wasteland and the sanctimonious pledge breaks that PBS-affiliated stations like to run repeat the point endlessly to push the idea that their product is much better and worthy of support -- with donations as well as tax dollars. Compelling the unwashed to support "good causes" is, of course, the hat trick of the elites.

Tonight, on PBS' "History Detectives," the high-minded reached for Roger Rabbit to evoke the idea the we no longer use streetcars because of corporate conspiracies.

This is dumb (and weird) and has been shot down many times, first by economic historian George Hilton, (in 1976!) and many times since then.

It seems that the high-minded can be astonishingly closed-minded when venting their hatred for the automobile and its many fans. But cars are not just the staple of NASCAR-nation; BMWs and Volvos (and SUVs) and other fine cars can be found in the parking lots of better wine stores and organic food stores everywhere.

Policy trades

Today's WSJ includes, "In Tony Monterey County, Slums and a Land War ... Environmentalists fight to preserve scenic beauty while immigrants cram into housing and garages ... Who will pick the vegetables? ... Monterey County is torn by competing priorities. On one side are farmers, developers and immigrant advocates who want to see more housing built. On the other are environmentalists and residents, including those in the upscale coastal towns who want to preserve open space and their quality of life. As the two camps fail to reach a middle gound, low-income immigrants have borne most of the fallout: limited housing with sky-high prices."

It is the old story. The high-minded hector Wal-Mart and others about low wages but, at the same time, work hard to block development if it threatens to infringe on their own life styles. In the bargain, they also get to feel good about themselves as the protectors of the environment.

At the time of the NAFTA debate, many Americans pressed for assurances that our labor and environmental standards would be extended south of the border. A quid pro quo might have been Mexican insistence that Americans do something about their land use practices.

Gloom fetish

Virginia Postrel writes about "The American Standard of Whining ... Supposedly only the rich are living better, while everybody else stagnates or falls behind. But if so, who is buying all those flat screens at Best Buy?"

She even quotes Adam Smith, who noted back in 1776, "A continued Series of Prosperity would not give us near so much pleasure in the recital as an epic poem or a tragedy which make but one continued Series of Unhappy Events."

At a time when the great middle class encompasses a larger proportion of the population than ever, we still hear all the talk about "the rich" and "the poor". Most of us are neither, but the romance of class struggle is just too good to put aside. Perhaps so many have most of their intellectual capital tied up in such thinking that they would they be muted without it.

Unheard of material wealth and longevity just don't cut it. They do not, after all, contribute to greater happiness.

Small wonder. We cherish our gloom.

Managed business cycles

The Economist of Aug. 19 includes "The uses of adversity: Why some people think that a recession is good for America."

It is the old story. There will be business cycles because investors and others are just human and will, on occasion, plan imperfectly. The good news is that markets correct and life goes on -- mostly to the good. If left alone.

But most economists and many others are so sure that they so thoroughly understand all of the forces involved that they seriously embrace the idea of managing the cycle. But is the cure worse than the disease? When has there ever been an engineered "soft landing?" Or how many have there been? The answers range from very few to none. Yes, Great Depression-type policy debacles have been avoided of late. But why are we so sure that the policy-facilitated business cycles that we now have are better than what we would have without the help?

Perhaps the only answer is that Congress is inevitable and the consequences of its actions can be costly. With luck, central bankers can lean the other way so that policy-induced cycles are not as disastrous as they otherwise might be.