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.