Affluence has its problems

USA Today reports that "Flying round-trip from Miles City to Billings costs $88 ... Why so cheap? Because the government picks up $779 of the tab ..."

Several years ago Bent Flyvbjerg and his co-authors provided the widest compendium of government waste on transportation projects, here and abroad. The record is clear but the election season proves once again that candidates find some advantage in promising new government "solutions".

And as this week's Becker-Posner blog demonstrates, it is the best and the brightest who believe these fairy tales most.

Interestingly, BP suggest that a skewed-left education has no enduring effects; college grads vote the same as the general population. And college costs more than ever. Market failure? Or too rich to care?

Pakistan and the mid-east

It seems that jihadists have had their way in Pakistan. On such occasions, leaders and elites turn to the Arab-Israel conflict with the pathetic response that settling it would rid the world of the jihadist threat.

In this light, here are two items that I recently read. In the Winter 2008 Independent Review, there is The Last Colonialist: Israel in the Occupied Territories since 1967 by Rafael Reuveny. The title is the thesis that the author develops. But to this non-mid-East scholar, the essay seems remarkably one-sided.

The author writes, for example, that in June of 1967, "Israel went to war." Well, yes. But there was the small matter of an existential threat. Ruth R. Wisse in Jews and Power provides some of the background, including a recounting of the many unmistakably threatening actions by Eqypt's Nasser and his allies.

Wisse also writes about the rise of 19th-century European anti-semitism and its usefulness to elites that wanted to rationalize the pressures of rapid modernization. Likewise, in the mid-east in the 20th century, anti-Zionism was as handy to explain the plight of the Arabs. She also notes that the first India-Pakistan war of and the Korean war, which sandwiched the first Arab-Israeli war in time, together, created approxiumately 20-million refugees, most of which have by now been resettled. But there has been no effort to resettle the Palestinian refugees because their plight has become an indispensible political gambit.

If campus audiences could muster enough civility, it would be interesting to see both authors in debate. Until then, anyone who reads Reuveny, should also look at Wisse.

Worthy reading re real estate development

It's been a fantastic years for books. And there is one more week.

I just finished Witold Rybczynski's Last Harvest: How a Cornfield Became New Daleville: Real Estate Development in America from George Washington to the Builders of the Twenty-first Century and Why We Live in Houses Anyway. If there is an index that ranks how much useful information and reflection can be contained in 281 readable pages, then this one would be near the top. Anyone wanting to learn about development, modern cities and modern American life will enjoy this one. It belongs on many syllabi.

On a related theme, The Economist's splendid year-end edition includes "Birth, death and shopping: The rise and fall of the shopping mall."

Happy holidays!

Real "change"

Government programs do not work for well known reasons. Advocates of a strong state role typically favor a welfare state and even welfare programs do not do what they are supposed to do. Charles Murray demonstrated the flaws of welfare as we knew it (and still do) in Losing Ground and now he has a fix, well presented as The Plan in his In Our Hands.

Murray updates and elaborates the 1960s Milton Friedman Negative Income Tax proposal. In the new version, give every American over twenty-one $10,000 a year ($20,000 for a married couple if both are of age) for life and dispose of all the existing welfare programs. The grants are phased down via a surtax when incomes get high enough. Read the book for the details.

Anything has to be better than the existing patchwork of programs. Murray renews his discussion of the link between welfare programs and the underclass. He devotes a good part of his book to describing how The Plan has a better chance of getting some of these people to change their ways for the better. (Talk about externalities (!), the favorite topic of left-leaning economists.)

Murray begins with "Ground Rules" where he writes that he is no fool and has no expectations that The Plan can be adopted. But he ends on an upbeat note: we have the resources to actually end poverty and here is how. This undermines the chorus whose members only see "underfunded" programs and "neglect."

In this very depressing election year, most candidates make the news by coming out for "change." It is obvious that none of them mean it. Murray offers the prospect of promising change but not the sort that anyone can find in the platforms of the two parties.

Besides if there were, say, income tax reform in the form or a flat tax, but with NIT-progresivity of the sort that Murray describes, what would politicians do all day? It's a serious question. Most rent-seeking and rent-extraction opportunities would have been retired.

Where are they?

Sally Satel writes movingly about her own experiences, seeking and finally receiving a donated kidney. ("Desparately Seeking a Kidney: What you learn about people -- and yourself -- when you need them to donate an organ.") The tragic supply-demand imabalance is well known -- as is the simple fix to finally allow markets to operate.

Satel's story goes beyond that, highlighting some of the emotions and heartbreaks that perplex would-be donors and would-be recipients as they court each other. Her story has a happy ending because her acquaintance, Virginia Postrel, came through with an uncomplicated and direct offer to donate one of her kidneys. It all worked out.

But until attitudes (and political leadership) on this important issue change, many of those requiring transplants will be relegated to long waiting lists -- and many will die.

There is some comfort gained when genuine donors step forward and when smart people like Dave Undis take up the cause via his Lifesharers, decribed as a volunteer "preferred organ network." Read about it here.

As Satel writes at the end of her article, "But unless we stop thinking of transplantable kidneys as gifts, we will never have enough of them."

Where are all of the "compassionate" conservatives and liberals on this issue?

Must read

Many smart people take the idea of sustainability seriously. I do not know how they do it. Julian Simon and many others have worked hard to emphasize the obvious, that the "ultimate resource" (human ingenuity) is not scarce. So we simply require institutions that do not frustrate its natural expression. Thomas McCraw (Prophet of Innovation) masterfully reminds us that Joseph Schumpeter had made this point three-quarters of a century ago.

John Bratland ("Resource Exhaustibility: A Myth Refuted by Entrepreneurial Capital Maintenance", Independent Review, Winter, 2008) delivers an elegant statement of economic common sense to show, once again, that economic doomsday makes no sense.

But it is not enough to urge smart people to learn some economics. As Bratland points out, many economists are also wrong on this issue. "The myth of resource exhaustion has persisted from the nineteenth century to the present. It has been discernable in the work of different economists ranging from the neoclassical to the Austrian to the institutionalist." The paper is clear, not long -- and contains no math.

Embarrassed, anyone? anyone?

It has long been clear that Green is the religion of the modern secular world. In the name of religion, many have justified all sorts of behavior and ritual over the years. Some of these are on display today as Al Gore accepts his Nobel in Oslo today. (Here is his speech. Was anyone in the room embarrassed?)

Gregory Rodriguez does a nice job of making the Green-as-religion case in today's LA Times ("Greening of the zeitgeist"). Here is an excerpt.

Is your marriage on the rocks? Are you and the spouse always
fighting? Is the passion gone? A new study published by the National Academy of
Sciences suggests that you should think twice before considering divorce. No,
not because of the negative effects it may have on the children or even on your
pocketbook, but of what it'd do to your poor mother. Mother Earth, that is.

All kidding aside, the study's findings make sense. Because
they share resources, people in married households use energy and water more
efficiently than divorced ones. But the study also indicates how much global
climate change, which -- along with terrorism -- has replaced the Soviet Union
as the Monster Under the Bed in our national consciousness. It has reached the
level of a full-blown zeitgeist social issue, with far-reaching moral and
religious undertones.

Past national threats -- even fear of the atom bomb -- were
largely relegated to the political sphere. Most people may have worried about
nuclear warfare, but it encroached on their private lives only at the margins:
Not very many of us built bomb shelters in the backyard. But the fear of climate
change has invaded our private and everyday lives.

Indeed, because global warming and the efforts to halt it
touch on nearly every realm of policy, the environment has become a moral prism
through which all other issues are being filtered. Whether or not they actually
care about the environment, partisans of all stripes are using the issue to gain
the moral edge. Now, even the anti-divorce "family values" folks have
environmental ammunition.

There are many more examples. In July, an obscure
environmental impact report issued by the U.S. Bureau of Land Management was
quickly embraced by anti-immigration activists because it found that
undocumented migrants were an ecological threat to public lands in southern
Arizona -- when they crossed the desert in numbers, a fragile ecosystem got,
literally, trampled. Opposing advocates argued that the increasing
militarization of the border was an even greater ecological threat than the
migrants themselves.

Climate change has even entered the realm of sexual politics.
Last month, a female Swedish scientist found that "women cause considerably
fewer dioxide emissions than men, and thus considerably less climate change." A
green think tank in London has urged British couples to think of the
environmental consequences of having more than two children. It released a paper
showing that if couples had two children instead of three, "they could cut their
family's carbon dioxide output the equivalent of 620 return flights a year
between London and New York."

Similarly, last month a London tabloid featured a 35-year-old
environmentalist who asked to be sterilized so she could contribute to the
effort "to protect the planet." "Having children is selfish," she insisted.
"It's all about maintaining your genetic line at the expense of the planet."

Surprise!

Anthony Downs has been astute in his analysis of the actions of city governments. Many have pursued polices that make housing less affordable. But Downs (and many others) has also been surprisingly optimistic that another layer of government (regional government) can provide a remedy.

Randal O'Toole shows that the opposite is true. Growth management at any level consistently limits housing supply and pushes up prices. Surprise!

Charisma?

Kerry Howley's "Guests in the Machine" (not yet online) in the January 2008 Reason is a thoughful summary of the immigration debate.

"Guest worker programs mean legal inequality, tight government controls, and sometimes terrible abuses. They are also the best hope many of the world's poorest people have of improving their lot in life. ... The moral calculus, then, is to be weighed between the welfare of potential workers and the preservation of an idealized narrative. Does it reflect better on the American character to lock people out than to permit them entry on limited terms? Guest worker programs do clash with deeply held mythologies about our relationship to the global poor. We live in a state of relative poltical equality nested awkwardly within a deeply unequal world, and it can seem better, kinder, to keep the inequality outside, walling it off and keeping our hands clean. Perhaps American exceptionalism, like a dress too precious to be worn, is a value too dear to expose to the rest of the world."

Heady stuff that contrasts with the presidential candidates' blather. What we hear from them is often depressing. Mike Huckabee has been able to take some high ground, citing religious reasons to not bar children of immigrants from state colleges. Never mind the economic arguments, it may take a credible Christian conservative to resist nativist populism. The left-leaning Barack Obama could (perhaps) separate himself from the pack and get the serious consideration of libertarians of all stripes if he decides to reach for the high ground on this issue. What good is charisma if it is not used?

Genuine article

In my favorite cartoon from this week's New Yorker, two women are having a drink at a bar and chatting. One says to the other: "I hate to admit it, but a man with a big carbon footprint makes me hot."

Along vaguely similar lines, Joel Kotkin and Fred Siegel write about "The gentry liberals ... They're more concerned with global warming and gay rights than with lunch-pail joes."

Today's presidential candidates vying for the mantle of Harry Truman make crafted populist noises but are transparently not the real thing. The real thing apparently lives on the Republican side in the person of Mike Huckabee (who even the New Yorker has noticed).

A gentry liberal (from either party) will have a very tough time against the genuine article.

Kryptonite

The incumbent is not very popular so candidates of neither party can easily say that it is the best of times. And, as always, bad news gets all the press. Talk is cheap and this is why consmer confidence surveys tell us little. Rather, it is the actions of people that matter. Keep your eye on holiday shopping data.

I am always surprised that some candidates will gamble on the class struggle theme. It did not work for Eugene V. Debs. Even FDR waited until after elected (and after things got really bad) to sound like a class warrior. Besides, he was more or less an aristocrat so he had much more leeway that a John Edwards.

Do most Americans aspire or envy? How pessimistic or optimistic are they?

The monthly unemployment level is a misleading number. Look at the distribution of unemployment spells; the median over a period that included a mild recession was 2.4 months. Likewise, the reports of the number below the poverty level are misleading. Half the poverty spells are four months.

The most misleading discussions involve comparing year-to-year proportions of population in any income quintile. In actuality, it is mobility that matters; how likely are people to move out of the lowest quintile? Most people (86%) leave it in ten years. Others join the lowest quintile but most of these are immigrants who are better off than from whence they came.

(And this from a recent WSJ, linked to Cafe Hayek.)

We can always do etter but these are three sets of data that those on the left run away from. In a better world, gasbag news anchors would cite them when forming questions for the TV "debates."

Amazing stuff

Elevating talk of a "creative class" to a matter of public policy always made me queasy. Here Richard Florida explains and expands the idea. We are actually all creative. Who knew?

But how can one really tell? There are these things called labor markets that value our effort. What about cities as the engines of growth? These labor markets and these land markets place all of us creative types in the places where we are the most creative (productive). It's all pretty amazing.

Thanks to an anonymous source for the tip.

Voting with feet, if not with ballots

Writing about cities and human settlement, Joel Kotkin usually gets it right. In today's WSJ, he recalls the beginnings of post-war suburbanization in the U.S.

Elite opinion had completely missed the point. Critics objected how large numbers of people were able to dramatically improve their lives on the wings of entrepreneurial discovery, in this case by the Levitt's and their followers.

Interestingly, little has changed. The pseudo-science of "sustainability planning" is invoked to stymie development, drive up prices and put housing affordability out of reach of most young people. Not to worry, their housing will be provided by new politicized housing initiatives.

In 2004, most eligible voters voted for neither Bush nor Kerry. Bush was actually second and Kerry third. Rational ignorance was first.

Interestingly, a majority do vote with their feet. Most Americans have moved away from central cities where the political corruption (lower-case as well as upper-case) is worst.

Suburban Development
By JOEL KOTKIN

I didn't grow up in Levittown, N.Y., the iconic American
suburb founded 60 years ago. But you could call North Woodmere, the Long Island
town my parents moved to in 1957, a close relation.

In 1963, poet Richard Wilbur wrote "To an American Poet Just
Dead": "In summer sunk and stupefied/ The suburbs deepen in their sleep of
death." Many of us who were raised in these places would have agreed. Some might
even have cheered the news announced a couple of weeks ago that the Levitt Co.
has gone bankrupt.

The streets of our suburbs were often roughly paved at first;
trees were slim sticks that provided little shade. Everyone was similarly aged
and, for the most part, from one of the three major New York social food groups:
Italians, Irish and Jews. Boredom could be relieved only by a train ride to
Manhattan. In our innocence, we did not know why our parents moved to these
pre-packaged wonderlands. The only times we got an inkling was when visiting
relatives still back in Brooklyn. They lived in apartments on blocks with no
yards and often attended dangerous schools.

Our parents, as we understood only when we got older, knew
what they were doing. They were part of a nationwide revolution in expectations
among middle- and working-class city dwellers for whom a move to suburbia meant
the chance to flee the crime, crowding and other ills of urban
America.

What made this revolution possible was in large part what made
cars, refrigerators and TV sets luxury goods no longer: mass production. Like
most geniuses, William Levitt, the founder of Levittown, worked on a simple
premise. If you could build houses on an assembly line and remove cost-creating
encumbrances (most famously, basements), you could make them affordable for
average Americans. "Any damn fool can build homes," Mr. Levitt, who made the
cover of Time in 1950, once noted. "What counts is how many you can sell for how
little."

Previously, homeownership had been a prospect for only the
affluent or people in the hinterlands. But Mr. Levitt, using production
techniques he perfected in the Navy, offered amazingly cheap homes: The first
Cape Cods went for $6,990 in 1947 (when median family income was $3,031). With
the aid of mortgage financing from the GI Bill, buyers could get along with down
payments as low as $100 and monthly installments of as little as
$65.

By the time he was finished, 17,500 homes were completed in
Levittown. This was not a singular achievement but one repeated by Mr. Levitt
himself in Philadelphia's suburbs and by imitators from coast to coast. Indeed,
by the mid-1980s America enjoyed a rate of homeownership -- roughly two-thirds
of all families -- double that of Germany, Switzerland, France and Britain.
Nearly three-quarters of AFL-CIO members and the vast majority of intact
families owned their own homes.

Post-Thanksgiving

This is the best holiday. No gifts or gifting.

But gifting has just gotten a boost. Today's LA Times includes "Want not? Waste not ... Regifting grows more popular as a way to save money and recycle."

This also means that the well known Joel Waldfogel research on the topic (that gifting includes large dead-weight losses) has to be rethought. When you receive a necktie, fuzzy scarf, key chain, bread maker, scented candle, cordless drill, coffee mill, cocktail shaker, stuffed animal, snow globe, oven mitt, placemat, indoor grill, back massager (list from the article), the dollar amount that you would be willing to pay for the item is just a small part. Add to it the pleasure you get from regifting it, the pleasure that the regifter gets from regifting it again, etc., etc.

We are, therefore, post-economist-as-scrooge and that means post-Thanksgiving not be so bad.

Pick up the ball

There's an odd piece by the usually astute James Surowiecki in this week's New Yorker ("Sovereign Wealth World"). The writer looks at standard everyman fears of Chinese government-owned funds investing heavily in U.S. assets, notes that national defense-linked assets will always be off-limits, that owners are unlikely to be suicidal, that the discipline of market competition will overpower any non-market aspirations -- and that, "[t]he prospect of American companies being sold to foreigners is, to be sure, disconcerting. But it's a problem of our own making. The reason that sovereign wealth funds are so flush with cash is all the dollars we spend on oil and Asian consumer goods."

If Lou Dobbs has made it to the New Yorker, how can we complain about the spread of know-nothing protectionism in other venues and precincts?

The power and the attraction of globalization is that it spreads good (market) behavior beyond our shores; it works to blur political boundaries and cultural limits.

The good news must be articulated on the left as well as on the right. When the right drops the ball (as it often does), the left has to pick it up.

Out of the mouths of adults

Russel Roberts writes about Why We Trade in Foreign Policy. It is all common sense but miles from what one hears from the presidential candidates. The politicians may have dumped the rhetoric that romanticizes socialism; they have even moved beyond "liberal" and are now "progressive" but the programs that they prescribe all involve a larger role for the state. Bastiat noted that government is the illusion that all could live at the expense of everyone else. Silly as that sounds, it is at the core of so many current proposals.

Last night's Sixty Minutes included an episode that seemed to take seriously the efforts of the New York City health commissioner to "take on" the fast-food chains, get them to be more up front about caloric content, and strike at widespread obesity.

Actually, undisciplined adults will always find ways to stuff themselves. And there is little that the health commissioner can do about it.

Not smart, not sustainable

I just returned from the fourth of Randal O'Toole's American Dream Coalition meetings. An impressive group of speakers was assembled. We also toured San Jose and this is a must for all "smart growth" and "sustainable planning" advocates. The "revitalized" downtown is dead, the light rail is empty and fully one-third of the city is designated as "blighted" -- so that the SJ revedelopment agency can take even more private property to implement more stupid projects. Many of the "blighted" neighborhoods, by the way, are very attractive.

The tour was led by Lorraine Wallace Rowe (Coalition for Redevelopment Reform) who shared many eminent domain horror stories, some involving her own property near downtown San Jose. She grew up there and wants to stay. We also met some of the victims, "Mom and Pop" business people who are running businesses that real people actually patronize but who are being bullied so that San Jose can get a Neiman-Marcus (!) among other things.

Ms. Rowe's "Not for sale by owner" story was especially jarring. He group had made "for sale"-type signs to stick into their front lawns that read: "Not for sale by owner but call xxx if you think you qualify to take our property." The phone number posted was that of the redevelopment authority and, as expected, their phones rang off the hooks.

The agency wanted the police to remove the signs -- from private property. If you can trample on the Fifth Amendment, why not the First too? The police chief wisely demurred. But the agency sent out city staff to take the signs. Ms. Rowe had expected this and urged her fellow owners to be alert and take descriptions and license plates.

The agency was eventually embarrassed into returning the signs.

Other speakers (including keynote Joel Kotkin) demonstrated the housing affordability problems created in the various smart growth markets had barred many aspiring homeowners from realizing their American dream. "Bubble" aside, many prices are still at historic highs. Limiting supply will do that.

Today's "progressives" who do not miss a chance to bemoan "inequality" have helped to create a group of housing "have-nots," who have no prospect of owning their own home. Unless, as Wendell Cox showed, they leave California, Florida, the northeast for the fly-over cities that are not yet in the sustainability planners' cross-hairs. Many have already left.

Many of the pricey cities are becoming gentrified with just enough run-down areas to house the immigrants who will work for the well-to-do. But many young middle class families have gone missing. The result is neither smart nor sustainable.

Bet on David over Goliath

Will it be A-380-Super-Jumbo-type air travel or will it be private planes and air taxis? Some of each, it is safe to say. But this morning's LA Times includes "Private planes to fly at public prices ... Flying in a private jet has been typicallty reserved for the privileged few who can easily drop $20,000 for a weekend ski trip to Aspen, Colo. But two Santa Monica High School graduates are starting a no-frills 'air taxi' service that could allow more people to join the jet set."

Private cars, once a "play thing of the rich," became inexpensive enough to be the mode of choice for most people. It is hard to resist the analogy of public transit to today's airlines. Most people now travel in large groups and experience all of the associated pain. But they will only do so as long as more personal conveyances are priced out of reach. But that will change. It is already starting to.

Sounds like David vs. Goliath. Personal transportation is best. And smaller groups are better than larger groups -- let alone super-jumbo crowds. So bet on the two guys fron Santa Monica High over the Airbus consortium.

Update

I may have to reconsider Saturday's blog. Seattle's voters have just defeated a 47-billion dollar tax hike, most of which would have gone to build light rail. Recent coverage in the Christian Science Monitor notes that some greens saw light rail as counterproductive. LRT causes highway congestion; ridership is low, diversion from auto use is negligible and funds are diverted from road projects that would speed traffic -- which would make the air cleaner.

Green meets pork -- and blinks.

Less than meets the eye

Wherever there is a "crisis", there is a well entrenched government program responsible for the problem. Thomas Sowell cited just three examples among recent "crises": wildfires, housing affordability, and water shortages.

But it is actually a very long list. Healthcare and education surely belong near the top. Each has been heavily politiczed for many years and each has its problems. The irony that Sowell dwells on involves the widespread impulse to seek "solutions" via more politics. Very few critics consider the possible merits of less politics. Let people choose where they want to spend whatever refund is due them from government.

In light of all the confusion, it is good to have Prof Greg Mankiw's clarifications in this morning's NY Times ("Beyond Those Health Care Numbers"). He notes that better Canadian health readings, 47-millions "uninsured" and ever greater amounts spent on health care by Americans are three factoids that demand examination. Each time, there is less than meets the eye.

Anything goes

It's official. Obesity is caused by too many calories. Here is the NBER study. It's not urban sprawl of global warming.

But dumb ideas do not go away easily. This morning's LA Times includes the latest installment of the "subway to the sea" discussion about extending the Red Line west to the beach (but not yet beyond). The existing Red Line is about 16-miles of guideway that cost $4.7 billion to build, serves just 115,000 riders per day and costs $78 million a year to operate (the last time I looked). I have reported many times that this amounts to a $323 million/year loss -- which shrinks to $286 million/year if the most optimistic non-rider benefit assumptions (reduced auto use) are added.

These details are never addressed in the discussion of whether to spend another $6 billion on the 6-7 mile extension. The Times' coverage does mention that current daily bus boardings along the route are 64,300 (or 34,900, depending on the alignment chosen). It also mentions that costs on the currently-under-construction "Expo" light-rail line are running 23% above budget.

When pork meets green, anything goes.

Space or civility?

This week's New Yorker includes "Digitization and its discontents," which begins with one of those charming and amazing recollections of the good old days at the N.Y. Public Library on Fifth Ave. and Forty-second Street. "In 1938, Alfred Kazin began work on his first book, 'On Native Grounds.' The child of poor Jewish immigrants in Brooklyn, he studied at City College. Somehow, with little money or backing, he managed to write an extroardinary book, setting the great American intellectual and literary movements from the late nineteenth century to his own time in a richly evoked context. One institution made his work possible ... 'Anything I had heard of and wanted to see, the blessed place owned ...'"

The rest of the article goes on to speculate that the digitization of printed matter will soon render the blessed place obsolete. We will have gained something as well as lost something.

But it is mostly lost anway, Google or not. The LA Times describes libraries in L.A. today as places of thuggery and assault where security guards are required to keep the peace ("Refuge for readers can be risky.")

Public spaces in America are not what they once were and do not compare favorably with their European counterparts.

There are always push and pull forces that work together to keep us away.

Planners and others plead for "more open space" but it is not a matter of acreage or square feet. It requires civility which has receded in too many places and which the open-space advocates never mention.

Research agenda

Life is hard and most of us can use all the help we can get. Price signals are a great help. But even then, many of us are intrigued by the charms of cost-shifting. When others can be made to pick up some of the costs, many of us are ready to take on greater risks. Bastiat pointed to government as the illusion that we can all live at the expense of everyone else. Politicians in California and Florida have recently suggested that insuring those who choose to live in flood-prone or fire-prone areas might be a national project.

But it gets worse. Those who are optimistic about the scope for political action have embraced the findings of behavioral economics (e.g., many of us often do stupid things), embellished them as "internalities", and given a boost to nanny-state supporters. Jonathan Gruber wrote: "The weaknesses of the traditional model, and the enormous costs of smoking to individuals, suggest that government should play a larger role in regulating smoking in the U.S. than is suggested by the external costs of smoking alone."

For many of us, if we were to try to list some of the foolish things we have ever done, we would have our hands full. Avoiding making even more mistakes is a daily chore. But what if we were elected to do this for the population at-large?

Perhaps those who study behavioral economics should find the time to look into the self-control challenges encountered by those who seek and gain public office.

Unfair!

Arthur C. Brooks wrote about "Happiness and Inequality ... Americans are pretty darn equal on the important things" in yesterday's WSJ. Brooks' survey results show that the happiness Gini is much lower than the income Gini.

So all of those who worry over money inequality can relax because (i) money does not buy happiness (so stop fussing over money); and (ii) money inequality is made irrlevant because of happiness equality.

What's a redistributionist to do? Those on the left love the money-does-not-buy-happiness research (all you strivers are making a horrible mistake; capitalism that rewards striving is a big mistake, etc.) but they also love redistribution. Brooks' report must be the last straw. Soaking the the rich would just put them out of their misery. Unfair, indeed.

Not dismal

William Baumol, Robert Litan and Carl Schramm have written Good Capitalism, Bad Capitalism. and the Economics of Growth and Prosperity. They enumerate four types of capitalism: state-guided capitalism, oligarchic capitalism, big-firm capitalism and entrepreneurial capitalism. They show that the last is the best but that the modern U.S. has aspects of the last two.

The book has the flavor of a textbook. It contains nothing that is new or original but it packages a lot for the uninitiated. The trouble is that it does not make a compelling read. Perhaps it requires the spark of an exciting professor who assigns the book to students but elaborates to keep them interested.

In the Appendix, the authors acknowledge that their common sense story is largely missing from high-brow economics. They claim that this is because most of what they write about is not easily available in terms of useful data series.

I am note sure that I buy this. The Austrian critique of neo-classical economics comes to mind. Why focus on a world of equilibria when all of the interesting stuff has nothing to do with boring equilibia? Why focus on a world of efficient allocations when the interesting stories are how the many inefficient allocations generate signals and inspire actions that move the system towards better allocations? Nothing dismal about that.

No problem

Have you heard the one about central planning? Many have but most have not. Documenting the failures in California, Randal O'Toole totes up some of the costs in his latest monograph, Do You Know the Way to L.A.?: San Jose Shows How to Turn an Urban Area into Los Angeles in Three Streesful Decades.

When it comes to how we manage cities, nothing has changed. It is as though people believe that the problems of central planning were exposed on another planet. Take away the totalitarian trappings and no problem.

Costly attitudes and policies

In 2001, then-Governor Gray Davis cut the ribbons on the last segment on southern California's I-105 and proudly announced that there would be no more of these. The future lies with buses and trains.

The governor did not realize that transit causes congestion. The funds diverted have badly clogged the state's highways. California has some of the worst roads in the U.S.

The California approach may be "green" but it also kills. A 31-vehicle crash on a tunnel of the I-5 killed two adults and a baby. There may be more victims. Truckers had been complaining about the state of the tunnel for years. The full costs in delays and repairs are still unknown.

It's an old story and it has everything to do with the know-nothing attitudes that get a pass when it comes to environmental policy.

Persisting underclass explained

Students (and many others), when asked whether a hypothetical doubling of all incomes that would practically end poverty but would increase inequality is OK with them, turn thumbs down. This perplexes many professors (like this writer) who apparently don't get it. It turns out that it's in the genes. Most of us are so wired to demand "fairness" that we will let the poverty persist. Robert Lee Hotz summarizes recent neuroeconomic research on the matter in today's WSJ (excerpted below).

Is this how and why we get welfare state policies that sustain an underclass?

Charting the AgonyOf a Brain as It Struggles to Be
Fair

At the Canaan Children's Home in southern Uganda, the orphans
had no idea that a woman inside a brain scanner 9,400 miles away was playing
mind games with their food.

The children were the focus of a brain experiment under way at
the California Institute of Technology to explore the neural anatomy of
indecision. With the push of a button, the woman in the Caltech scanner could
distribute meals at the orphanage more fairly, but only by taking food off the
table, not by serving more portions.

While she pondered, the 12-ton fMRI scanner at the
university's brain-imaging center traced the synaptic patterns of equity,
remorse and reward in her brain. In these riptides of neural currents, the
researchers sought clues to human variables missing from the mathematics of
conventional economics.

The quirky experiment exemplifies the new field of
neuroeconomics. Behavioral economist Ming Hsu and his Caltech colleagues
combined financial-decision theories and medical brain-imaging tools to analyze
the brain as a living engine of economics, one fine-tuned by evolution through
eons of foraging for scarce resources. These scientists studied hard choices,
documenting how competing networks of neurons unconsciously shape the way we
buy, sell, risk and trust.

During this test, the scientists wanted to see how synapses
valued fairness against the desire to avoid harming others. The dilemma can
arise when a limited resource is distributed unequally, and the only way to help
one person comes at another's expense -- whether in profit sharing, setting
affirmative-action policy, or rationing health care.

In the summer of 2006, when they organized the test, Dr. Hsu
and his colleagues could imagine no more agonizing choice, within the
constraints of medical ethics, than to ask people to take food away from orphans
in a war-torn African country.

An online search led them to the Web site for the Canaan
Children's Home, a one-story green building with a clinic next door, set amid
the trees and chicken coops a half hour's drive from Jinja, Uganda. As of April,
100 children were living there, many of them orphaned by AIDS, said Frank P.
Crane in Richmond, Va., chairman of the Uganda Missions Action Committee, which
monitors the home's finances.

It was the winsome faces of those children -- whose
photographs had been posted on the Web site to solicit charitable donations --
that caught Dr. Hsu's science eye. Here was the perfect experimental device for
stirring the turmoil of indecision, the researchers agreed.

The team next contacted Tom Roberts, an attorney in Richmond,
who created the Web site. He gave consent for the photos to be used. Because
there would be no contact with the children and no actual consequences of the
experiment to the orphanage, "I said help yourself," Mr. Roberts
recalled.

Dr. Hsu wanted the pictures to heighten the realism of the
experiment.

In the scanner, each volunteer could equalize how a fixed
amount of donated meals was shared between orphans -- but only by taking away
meals from those who had more than others and thereby reducing the total number
of meals given to the orphanage. The allocation of meals was sometimes fair,
sometimes not. "We manipulated the allocations and how much could be taken
away," Dr. Hsu said.

To trigger the brain behavior, the 26 volunteers had to
believe their decisions really would affect orphans being denied their seat at a
groaning board of plenty where others feasted. So, the experimenters made them
all study a 10-page brochure with pictures of 60 orphans.
In 36 rounds of testing, each subject had 10 seconds to choose the lesser of two evils: Allow some children to keep more than their fair share of meals or take away their
food to eliminate inequity.

It was a measure of the economics of morality. Dr. Hsu made
the inequities more or less severe by changing the number of meals donated to
different groups of children. That provoked patterns of neural activation that
revealed the brain's distaste for injustice and its willingness if the disparity
was wide enough -- in one case, one child receiving five times more than another
-- to punish the rich by putting them on short rations. To redress the extremes,
people were willing to confiscate meals even when it hurt the orphanage as a
whole, ...

Fun read

Attend a lot of seminars in the social sciences and become (rightly) wary of data mining and regressions. One colleague memorably referred to each as "an admission of defeat."

But Ian Ayres' Super Crunchers: Why Thinking-by-Numbers Is the New Way to Be Smart is must-reading for the uninitiated, especially those of the vast innumerate but educated conspiracy.

There is practically something for everyone. I did not know about "Isabel" which helps physcians (who use it) diagnose patients' ailments. This is just one of the areas where Ayers emphasizes the benefits of a new division of labor between man and machine.

Ayers has a strange aversion to super-crunching in the service of price discrimination. But the practice involves transfers that keep many businesses in the game while serving a larger audience.

But above all, the book is fun to read. It should pique interests in many quarters. In a better world, it would be required reading in high schools everywhere -- presented by teachers who can grasp and appreciate the topic. One can dream.

Rhetoric examined

Here is the abstract and the link to an interesting paper that I heard presented last Friday, by Professor Nicole Stelle Garnett of the Notre Dame Law School.

Most urban growth management proposals fail the efficiency test but Professor Stelle Garnett writes that they are also promoted with a "rhetorical flourish" that is suspect. Most suburbanites did not abandon the central city and do not owe it anything. The idea that they have to be rounded up and corralled by a regional government is silly. Most suburbanites came from other suburbs. The escape-and abandonment-version has been out of date for over fifty years.

One can add that that migrants are free to move and do not really owe anyone anything. But political rhetoric is what it is. It is also true that city and suburb are part of a single economy and even if there are political walls, there are also gains from trade.

The recent San Fernando Valley secession move in L.A. was also thwarted with rhetoric to the effect that such things are just not done in polite society. On has to wonder just how polite cartelized government really is.

SUBURBS AS EXIT, SUBURBS AS
ENTRANCE

Most academics assume that suburbanites are “exiters” who have
abandoned central cities. The exit story is a foundational one in the fields
of land-use and local-government law: exiters’ historical, social, and
economic connections with “their” center cities are frequently used to
justify both growth controls and regional government. The exit story,
however, no longer captures the American suburban experience. For a majority
of Americans, suburbs have become points of entrance to, not exit from,
urban life. Most suburbanites are “enterers”—people who were born in,
or migrated directly to, suburbs and who have not spent time living in
any central city. This Essay reexamines current debates about growth
management and regional governance in light of the underappreciated
suburbs-as-entrance story. The exit paradigm provides a
powerful normative justification for policies constraining urban growth. When
it is stripped away, proponents are left with utilitarian arguments.
Economists challenge these arguments by showing that metropolitan
fragmentation actually may be efficiency enhancing—and these arguments may
ring hollow with suburban enterers themselves. This Essay sounds a cautionary
note in the growth management and regional government debates. The exit story
is an outdated rhetorical flourish that tends to oversimplify the case
for—and camouflage the complexities of—policies restricting suburban growth,
especially when it comes to distributional and transitional-fairness
concerns..

http://lawweb.usc.edu/faculty/documents/NGarnett.pdf

Brain cramps

Here are the opening paragraphs of the lead front-page story in today's WSJ. This is old news, of course, because almost all politicians and many others have discovered the cop-out "fair trade" which they can get behind foursquare. (Where would they be without that "f" word?) Media interviewers never probe this. No one asks what the costs would be, here or abroad.

Zero-sum stories still sit best with most people. This in spite of the fact that exchange is spontaneous and universal and always has been -- even with "foreigners". Doing what comes naturally and thinking it through are apparently not the same. Even smart commentators like The New Yorker's James Surowiecki revert to language on American consumers being "hooked on imports."

Republicans Grow Skeptical On Free Trade
By John Harwood

WASHINGTON -- By a nearly two-to-one margin, Republican voters
believe free trade is bad for the U.S. economy, a shift in opinion that mirrors
Democratic views and suggests trade deals could face high hurdles under a new
president.

The sign of broadening resistance to globalization came in a
new Wall Street Journal-NBC News Poll that showed a
fraying of Republican Party orthodoxy on the economy. While 60% of respondents
said they want the next president and Congress to continue cutting taxes, 32%
said it's time for some tax increases on the wealthiest Americans to reduce the
budget deficit and pay for health care.

Six in 10 Republicans in the poll agreed with a statement that
free trade has been bad for the U.S. and said they would agree with a Republican
candidate who favored tougher regulations to limit foreign imports. That
represents a challenge for Republican candidates who generally echo Mr. Bush's
calls for continued trade expansion, and reflects a substantial shift in
sentiment from eight years ago.

"It's a lot harder to sell the free-trade message to
Republicans," said Republican pollster Neil Newhouse, who conducts the
Journal/NBC poll with Democratic counterpart Peter Hart. The poll comes ahead of
the Oct. 9 Republican presidential debate in Michigan sponsored by the Journal
and the CNBC and MSNBC television networks.

The leading Republican candidates are still trying to promote
free trade. "Our philosophy has to be not how many protectionist measures can we
put in place, but how do we invent new things to sell" abroad, former New York
City Mayor Rudy Giuliani said in a recent interview. "That's the view of the
future. What [protectionists] are trying to do is lock in the inadequacies of
the past."

Such a stance is sure to face a challenge in the 2008 general
election. Though President Bill Clinton famously steered the Democratic Party
toward a less-protectionist bent and promoted the North American Free Trade
Agreement, his wife and the current Democratic front-runner, Hillary Rodham
Clinton, has adopted more skeptical rhetoric. Mrs. Clinton has come out against
a U.S. trade deal with South Korea.

Other leading Democrats have been harshly critical of trade
expansion, pleasing their party's labor-union backers. In a March 2007 WSJ/NBC
poll, before recent scandals involving tainted imports, 54% of Democratic voters
said free-trade agreements have hurt the U.S., compared with 21% who said they
have helped.

The dollar value of good institutions

I am still taken by the World Bank's research on intangible wealth (my blog of last Saturday). Their estimate of intangible wealth per U.S. worker was just over $400,000. Congenial institutions, in their view, are part of intangible wealth.

But if I take the NPV of U.S. GDP (all 2006 data here) and subtract the dollar value of the labor force (at $5-million per worker) and also subtract the BEA's estimate of the value of fixed assets (less consumer durables), then the only way that I can get a residual (per worker) that is close to the WB result is to use a discount rate of 1.47%. That's low but not crazy. It assumes a very low-risk asset (the U.S. economy in this case).

This is back-of-the-envelope and does not follow the WB report's approach. But it works. Undermine institutions, add risk and the discount rate goes up bringing the residual down.

Reviewer's revealing remark

I have no plans to read Naomi Klein's The Shock Doctrine: The Rise of Disaster Capitalism but the review in today's NY Times by Joseph Stiglitz and the title of the review ("Bleakonomics: Namoi Klein tracks 50 years of global capitalism, spotting ruthless opportunism at every turn") could not be passed up.

Stiglitz's review offered nothing to get me to order the book but perhaps the review is an artifact all by itself. He suggests that the common ground between himself and Klein is that, "Market fundamentalists never really appreciated the institutions required to make an economy function well, let alone the broader social fabric that civilizations require to prosper and flourish."

I do not know who "market fundamentalists" are but the conclusion suggests a limited perspective. A short list of my favorite recent reads is on the booklist attached to this blog and it includes many books by bright economists who are not as blinkered as Stiglitz suggests. My list is short but over a half-million Google Scholar "hits" come up when the words "economics" and "institituions" are entered together. I did not click through all of them but just the first couple of pages bring up Douglass North, Armen Alchian, Oliver Williamson, Avner Greif, Bruno Frey, Barry Weingast, Dani Rodrik, etc., etc., etc.

Asked and answered once again

In today's WSJ, Ron Bailey writes about a recent World Bank study (Where is the Wealth of Nations?) that also tabulates wealth per capita for various nations ("The Secrets of Intangible Wealth ... For once the World Bank says something smart about the real causes of prosperity" excerpted below). It is not tangible capital or resources but, rather, institutions matter and human capital matters -- and they beget wach other. The authors' choice of title is a propos. The same question was asked and answered by Adam Smith in 1776.

A Mexican migrant to the U.S. is five times more productive
than one who stays home. Why is that?

The answer is not the obvious one: This country has more
machinery or tools or natural resources. Instead, according to some remarkable
but largely ignored research -- by the World Bank, of all places -- it is
because the average American has access to over $418,000 in intangible wealth,
while the stay-at-home Mexican's intangible wealth is just
$34,000.

But what is intangible wealth, and how on earth is it
measured? And what does it mean for the world's people -- poor and rich? That's
where the story gets even more interesting.

Two years ago the World Bank's environmental economics
department set out to assess the relative contributions of various kinds of
capital to economic development. Its study, "Where is the Wealth of Nations?:
Measuring Capital for the 21st Century," began by defining natural capital as
the sum of nonrenewable resources (including oil, natural gas, coal and mineral
resources), cropland, pasture land, forested areas and protected areas.
Produced, or built, capital is what many of us think of when we think of
capital: the sum of machinery, equipment, and structures (including
infrastructure) and urban land.

But once the value of all these are added up, the economists
found something big was still missing: the vast majority of world's wealth! If
one simply adds up the current value of a country's natural resources and
produced, or built, capital, there's no way that can account for that country's
level of income.

The rest is the result of "intangible" factors -- such as the
trust among people in a society, an efficient judicial system, clear property
rights and effective government. All this intangible capital also boosts the
productivity of labor and results in higher total wealth. In fact, the World
Bank finds, "Human capital and the value of institutions (as measured by rule of
law) constitute the largest share of wealth in virtually all countries."
...

Getting closer

We know that "cities are the engines of growth", that entrepreneurial activity is key, that human capital is crucial, that there are resulting spillover opportunities -- and that spatial concentration is the result. Statistical tests are difficult because the web of influences is complex. But this has not stopped researchers and a large amount of published research has recently become available.

Much of this is conveniently surveyed in Entrepreneurship, Geography, and American Economic Growth by Zoltan Acs and Catherine Armington.

The authors also tap into an amazing data set on 14 million firms across the 394 U.S. Labor Market Areas (Longitudinal Establishment and Enterprise Microdata). Their data include new firm formation which is their proxy for entrpreneurship. Adding the regional dimension is very helpful and provides opportunities for testing across a variety of conditions.

What is missing (not the authors' fault) is how this plays out at the spatial micro-level. Why have land markets? So that locational choices that exploit spillover opportunities can be realized. This is why cities are the engines of growth.

We are not yet there but this volume gets us a little closer.

Conversation starters

As the population (here and many places abroad) gets richer and older with many more options, many of them via better technologies, stuff will happen. Seventy-five of the resulting trends are written about by Mark J. Penn and E. Kinney Zalesne in microtrends: the small forces beghind tomorrow's big challenges. The authors rely on survey data and some census data; they are not always careful about how they interpret what they find (their conclusion that, "The bottom 90% of Americans have been taking pay cuts." is ridiculous (p. 132))

But the book is an easy read. Most of the 75 trends that the authors cover are not really that surprising (more inter-racial marriages -- leading the pack are white males and Asian females -- more people using gyms, getting tattoos, enduring plastic surgery, etc).

But I had not known about "Cougars", women openly seeking younger men, with their own dating website. And there are some other surprises. Take this book to the next boring party or retreat and you will have some ready conversation starters.

In good company

If people are kind enough to include this blog in their list of Top 100 Academic Blogs Every Professional Investor Should Read, the least that I can do is call attention to it. It's nice to be in good company.

Pleasurable read

What did I know about IQ and intelligence before reading James R. Flynn's What Is Intelligence? Almost nothing. I had seen the stories about identical twins separated at birth. It's all heredity and nothing can be done. But most parents work hard to provide nurturing environments for offspring. Hope springs eternal.

Everyone knows that athletic records continue to fall. (And most of us have benefitted from some sort of chemical help almost from birth.) Likewise, the "Flynn effect" takes note of significantly rising IQ scores for some years. James Flynn points out that nature and nurture have interacted in beneficial ways. He makes a good case and offers a pleasurable read. What are some of the trends that matter?

Many do well these days because they can, moreso than ever before. "A greater pool of those suited by temperament and therefore inclination to be mathematicians or theoretical scientists or even philosophers, more contact with people who enjoy playing with ideas for its own sake, the enhancement of leisure, these things are not to be despised. And all of this has come about without an upgrading of the human brain through better genes or environmental factors that have a direct impact on brain physiology." (p. 174)

The ears have walls

We remind students that there is a natural human tendency to "truck and barter" and that buyers and sellers are happy to see each other (this is not, unfortunately, obvious to everyone). And absent force or fraud, there are very few caveats. Externalities not easily subject to exchange usually come up.

But there is more. Prof. Alvin Roth writes about "Repugnance as a Constraint on Markets" in the Summer 2007 Journal of Economic Perspectives. The other two papers in the JEP Symposium on organ transplant bans document the staggering human costs in markets for organs.

Here is the abstract of Roth's paper:

This essay examines how repugnance sometimes constrains what
transactions and markets we see. When my colleagues and I have helped design
markets and allocation procedures, we have often found that distaste for certain
kinds of transactions is a real constraint, every bit as real as the constraints
imposed by technology or by the requirements of incentives and efficiency. I'll
first consider a range of examples, from slavery and indentured servitude (which
are much more repugnant now than they once were) to lending money for interest
(which used to be widely repugnant but no longer is), and from bans on eating
horse meat in California to bans on dwarf tossing in France. An example of
special interest will be the widespread laws against the buying and selling of
organs for transplantation. The historical record suggests that while repugnance
can change over time, it can persist for a very long time, although changes in
institutions that reflect repugnance can occur relatively quickly when the
underlying repugnance changes.

This is all interesting stuff. Some people are actually uncomfortable with any and all trade. But many of them routinely wear their "compassion" on their sleeves. They are complicit in unnecessary death and suffering.

It is thought that it takes gruesome photots to get some people to connect the dots. Illustrations of diseased organs will soon have to appear on cigarette packages in various countries. Animal-rights activists routinely post photos of abused animals. Conditions in poor third-world places are also used to elicit donations.

I have no idea whether dramatic photos of the near-dead on organ transplant waiting lists would have an impact among elites who high-mindedly support bans on organ transplants. Their aversion to (and ignorance of) exchange is so powerful that they would have thousands die each year.

Photos may be the way to go as long as the ears have walls.

Live closer to work ...

This morning's LA Times includes "To go green, live closer to work ... New study says planning compact mixed-use communities instead of suburbs would help save the planet from the effects of greenhouse gases." The full study can be found at the Urban Land Institute website.

Socialism collapsed but climate change arrived just in time to save social engineering. So there are now many suggestions on how to redesign our cities and our lives.

My student Bumsoo Lee has taken the most comprehensive look at the 2000 commuting data (some of it published in the Journal of Regional Science 47:3) and found that for the largest metro areas the longest commutes were for downtown workers. Specifically, 7% worked downtown and had 37-minute average commutes (one-way, autos only), 15% worked in sub-centers and experienced 28.5-minute commutes, while 78% worked in dispersed locations and experienced the shortest commutes, 27.2 minutes.

The social engineering is obvious: Move jobs out of the downtowns and into the suburbs.

Not actually. We live in a world of trade-offs and must think about the costs. Social engineers cannot do this very well and this is why socialism collapsed and why we look to markets to do what commitees of wise men and women cannot.

No-brainer

Once each year, the Texas Transportation Institute (TTI) releases its Urban Mobility Report and the same old dance begins. Media, politicians and many others fret over the news ("Drivers waste 72 hours a year in their cars ..." from this morning's LA Times), and quickly wheel out favorite "solutions" (usually politicized pork projects, including rail transit and carpool lanes).

But what do we know? 1. Traffic congestion is a no-brainer; it is the default rationing mechanism because politicians are reluctant to price access. 2. It is remarkable how good traffic conditions are in spite of the policy failures; average journey-to-work times in the largest U.S. metros were less than 28 minutes at last census count (for solo auto trips). 3. These good news are explained by flexible land markets; most employers and employees find ways to locate within reasonable distances of each other. 4. The TTI index misses this phenomenon because it is constructed from metro area-wide average conditions; most traffic relief is found by relocations away from the metro area's most congested parts. 5. Planners want to shut down this safety valve by increasing land use controls, making land markets less flexible. 6. New transit projects cause increased highway congestion because they take money away from road construction. California has pioneered this approach.

Now loop back to #2 on this list.

Happy to be happy

Just when I was reluctantly ready to accept the class warriors' idea that the prosperity-and-happiness link has less to do with how good I have it but, rather, where I place myself on the pecking order, along comes new NBER research wherein the investigators probe the links between nationality, age, happiness and hypertension.

They look for national differences in happiness and use blood pressure readings as objective measures of hypertension when making the inter-country comparisons. I have not read the study, only the abstract (parts below), but I measure my BP often and low readings make me very happy.

I also know that readings can be all over the place. And I seldom take a reading when I am busy enjoying work or play. Relative blood pressure readings, anyone?

In Hypertension and Happiness across Nations (NBER Working
Paper No. 12934), co-authors David Blanchflower and Andrew
Oswald draw upon data on 15,000 randomly sampled individuals from 16 countries,
and on other larger samples, to develop a measure of well-being related to the
incidence of high blood pressure. They find evidence to suggest that happier
nations report fewer blood-pressure problems. And, this seems to be true
regardless of the dataset used in the analysis. Nor do the results seem to be
caused by differing numbers of physicians across countries.

The authors' findings in this study rest on three assumptions:
first, that it is reasonable to treat their survey evidence on
high-blood-pressure problems as a proxy for true measures of hypertension.
Second, that people report high blood pressure in a more objective way than they
report levels of happiness. Third, that the patterns they find are not merely
the product of something special for this particular sample of
nations.

Bubbles

I still do not know what asset price "bubbles" are. If I did, then I would also know what the "correct" prices are.

There is plenty of talk about prices that cannot be justified by "fundamentals" but most of that is in hindsight. The latest of many such discussions from The Economist clarifies nothing.

The current credit problems are prompted by house price declines that, in turn, further crimp liquidity. But this is not the implosion of the "house price bubble" that was the talk for so long.

This evening's 60-Minutes interview with Alan Greenspan shows him saying that he had no idea that there would be a sub-prime credit contraction -- or that there would be a serious problem.

Good for his candor and good for his helping to unravel the current problem from all of the media herd housing bubble chorus.

Political economy

In today's NY Times, Greg Mankiw writes about "One Answer to Global Warming: A New Tax ... The case for using a carbon tax to reduce emissions of greenhouse gases."

Comparing it to cap-and-trade proposals, he suggests that the tax is superior because cap-and-trade is likely to be politicized and abused.

And the carbon tax will not be?

He adds that the, "... natural aversion to carbon taxes can be overcome if the revenue from the tax is used to reduce other taxes."

Yes, it can but how likely is that? This raises the question whether policy advice or policy analysis with a political tin ear is at all useful. Mankiw is a smart and well meaning analyst and so are many others. But if we are serious about the idea of political economy, how can anyone turn a blind eye to the political half?

Themed monorails

Today's LA Times reports that "Vegas monorail finds it difficult to get on track ... High fares and long walks to stations have combined to hold down ridership ..."

They could cut the $5 fare and get ridership up a small bit -- from the dismal 50% of forecast. But that would increase the red ink. And it would still leave those long walks to stations.

How about no fares but slot machines on the trains? Each rider might deposit more than $5 and/or there might be more riders? Craps tables? Keno?

The article mentions that it's a $650-million private rail line run by a non-profit group. A for profit group might find better uses for this turkey.

Open source and closed source

There are about 2.2 million Google links re the Wikipedia accuracy question. While I have not yet read all 2.2 million entries, I get the picture. Open source is not perfect but it is not bad either. Today's WSJ includes:

Most Science Studies Appear to Be TaintedBy Sloppy
Analysis

We all make mistakes and, if you believe medical scholar
John Ioannidis, scientists make more than their fair share. By his calculations,
most published research findings are wrong.

Dr. Ioannidis is an epidemiologist who studies research
methods at the University of Ioannina School of Medicine in Greece and Tufts
University in Medford, Mass. In a series of influential analytical reports, he
has documented how, in thousands of peer-reviewed research papers published
every year, there may be so much less than meets the eye.

These flawed findings, for the most part, stem not from fraud
or formal misconduct, but from more mundane misbehavior: miscalculation, poor
study design or self-serving data analysis. "There is an increasing concern that
in modern research, false findings may be the majority or even the vast majority
of published research claims," Dr. Ioannidis said. "A new claim about a research
finding is more likely to be false than true."

The hotter the field of research the more likely its published
findings should be viewed skeptically, he determined.

Take the discovery that the risk of disease may vary between
men and women, depending on their genes. Studies have prominently reported such
sex differences for hypertension, schizophrenia and multiple sclerosis, as well
as lung cancer and heart attacks. In research published last month in the
Journal of the American Medical Association, Dr. Ioannidis and his colleagues
analyzed 432 published research claims concerning gender and
genes. ...

It seems that closed source also has its problems. And it is painfully slow.

The wonderful possibility of open-source journal refereeing is that there are many smart people with time on their hands and/or the desire to be involved in the discussion. And good-bye to time lags that have no place in the modern world.

Have you heard the one about top-down planning?

I admit to being too weak to pass this one up. The LA City Council has discovered fast-food zoning. From this morning's LA Times:

Limits proposed on fast-food restaurants ... Health concerns
are cited for a proposed moratorium on such eateries in South L.A., which has
the city's highest concentration of them.

As America gets fatter, policymakers are seeking creative
approaches to legislating health. They may have entered the school cafeteria --
and now they're eyeing your neighborhood.

Amid worries of an obesity epidemic and its related illnesses,
including high blood pressure, diabetes and heart disease, Los Angeles
officials, among others around the country, are proposing to limit new fast-food
restaurants -- a tactic that could be called health zoning.

The City Council will be asked this fall to consider an up to
two-year moratorium on new fast-food restaurants in South L.A., a part of the
city where fast food is at least as much a practicality as a
preference.

"The people don't want them, but when they don't have any
other options, they may gravitate to what's there," said Councilwoman Jan Perry,
who proposed the ordinance in June, and whose district includes portions of
South L.A. that would be affected by the plan.

In just one-quarter of a mile near USC on Figueroa Street,
from Adams Boulevard south, there are about 20 fast-food outlets."To be honest,
it's all we eat," Rey Merlan said one recent lunch hour at a Kentucky Fried
Chicken. "Everywhere, it's fast food everywhere."Merlan said it wasn't likely
that a limit on new restaurants would change peoples' habits, even though he
thinks it's a good idea.

A Times analysis of the city's roughly 8,200 restaurants found
that South Los Angeles has the highest concentration of fast-food eateries. Per
capita, the area has fewer eating establishments of any kind than the Westside,
downtown or Hollywood, and about the same as the Valley. But a much higher
percentage of those are fast-food chains. South L.A. also has far fewer grocery
stores. ...

... While limiting fast-food restaurants isn't a solution in
itself, it's an important piece of the puzzle," said Mark Vallianatos, director
of the Center for Food and Justice at Occidental College.

This is "bringing health policy and environmental policy
together with land use planning," he said. I think that's smart and it's
the wave of the future."

Nothing about the fact that sellers bet their livelihoods on providing what customers might want.

And who knew that the USC students are among the victims? Who new that Occidental College has a Center for Food and Justice? And nothing compares to the quote by Professor Vallianatos.

In the goofiness sweepstakes, the professors and the politcians continue to battle it out.

Sometimes, a cigar is just a cigar

In today's NY Times, Tyler Cowen writes "It's Monetary Policy, Not a Morality Play ... Cheer for the heroes and boo the villains (but only if there are any)."

That's always a worthy idea and I am trying to tie it to yesterday's blog re the Cato Journal's interesting symposium about monetary policy. It cites various policy errors made over the last half century. I am not sure that they rise to the level of villainy.

Jagdeesh Gokhale asks "Is the Fed Facilitating an Unpleasant Fiscal Arithmetic? ... Is the U.S. headed for an unprecedented economic disaster?" The worst numbers in the story come from unfunded Medicare liabilities.

Only last week, Hillary Clinton told an AARP audience that benefit cuts are off the table. The same piece cited Barack Obama countering that nothing should be off the table -- except privatization. At least Bush-Cheney-Rove (alias Simon Legree) once floated the privatization option.

I hope that I did not get carried away by Gokhale's piece. But I did read it just one day after finding the report Clinton-Obama position on the problem. Nevertheless, Tyler's advice is called for and his piece is now on my refrigerator door.

Read this first

Is the international monetary system viable? Are America's twin deficits a problem? Is Fed policy responsible for more harm than good. Is inflation targeting a good idea? Will our unfunded social security liabilities wreak havoc? What are the economic risks as we asses the future?

And is the glass half-full or half-empty?

The Spring/Summer issue of The Cato Journal features a symposium on "Federal Reserve Policy in the Face of Crises". Reading the 16 papers was so informative and so enjoyable that I plan to go back to reread them in about a week.

Land use reforms

Ed Mills is always a joy to read because he is smart and clear and also blunt. His "The Attrition of Urban Real-Property Rights" in the Fall 2007 issue of The Independent Review is must reading.

He ends with "What to Do?"

"The first step in remedying the situation should be to cease
making the controls more stringent: place a moratorium on further
controls. Second, many minor controls can and should be abolished
immdeiately with a few strokes of a few pnes. Third, the city [most of the
piece is about Chicago] should undertake a citizens' education program to confirm the
errors of its ways and to promise reform. Fourth, the city should begin to
relax density controls selectively. Permission might be granted for
immediate high-desnity development near highway interchanges, public transit
stops and commercial land uses. The result would be not only to intorduce
obviously desriable reforms, but also to make possible reductions in
commuting. Fifth, the city should abolish the requirements that a
residential building be brought to full compliance with current controls if the
owner modifies it significantly in any way. Finally and most important,
the city should commit itself to a series of five-year reforms to abolish almost
all land use controls."

Mills admits that these are "pipe dreams". I would add that, rather than criticizing planners' bias in favor of low densities, which does exist in many places, it is more generally the case that planners think they know where there should be high and where there should be low densities. And they are usually wrong on both counts because, absent markets, this is all too complex -- and just plain unknowable.

Perfect storm

The climate change scarce makes it possible for politicians at all levels of government to grab for the worst policies. In California, state politicos (the governor, the legislature and the irrepressible AG Jerry Brown) have found a new way to involve themselves in local land use planning.

The Sacramento Bee's Dan Walters (thanks to Brad Hill for the tip) writes about how high-density development and increased transit use have now risen to the top of California lawmakers' agenda.

Where to start? Most people do not want high-density living and avoid public transit. Years of policies that favor both have had no appreciable effect except to waste tons of money. (They also helped drive up home prices.) Further politicizing local land use and planning decisions is poison. California can do nothing to appreciably affect climate change.

Reason (Oct 2007, not yet online) includes Bryan Caplan on "The 4 Boneheaded Biases of Stupid Voters ..." They are anti-market bias, anti-foreign bias, make-work bias and pessimistic bias. These ideas are further developed in his wonderful book, The Myth of the Rational Voter.

The perfect storm, of course is when one policy embraces all four of these at once. That is apparently the genius of California's leaders.

Not an urban legend

We may never know why the chicken crossed the road. But we now know why the traffic cop gave the ticket: because the city "needs" the money.

Judith Chevalier (in today's NY Times) cites the econometric work that identifies the link. "... money matters, even in traffic violations. They found a statistical link between a town's finances and the likelihood that its police officers would issue a speeding ticket."

Memes or genes?

This has been a good reading year. Many of my recent blogs have mentioned new books that have been particularly enjoyable and worthy.

Many bloggers and reviewers have recently commented on Gregory Clark's A Farewell to Alms. I find it provocative, original (as far as I can tell) and masterfully argued.

"... since the Industrial Revolution we have entered a strange new
world in which the rococo embellishments of economic theory help little in
understanding the pressing questions that the ordinary person asks of economics:
Why are some rich and some poor? In the future will we be among the lucky? In
this book I have suggested ways in which the Malthusian era, through
differential survival of individuals, can predict success or failure for modern
societies, and also predicts a continuing future of economic growth." (p. 372)

Is it genes or memes? Is it culture or institutions? The now famous comparisons between (formerly) East and West Germany, North and South Korea, Taiwan and (formerly) Communist China were convenient and clear ways to cut through the culture vs. institutions riddle. But Clark argues for cultural differences as well as how and why they matter to the economic growth puzzle.

The book should launch a bundle of dissertations. One can only hope that the market for academic economists will not divert bright young scholars away from the project.

Top 100 econ blogs

It's great to be included in this list. Even if in the miscellaneous group. I'll interpret that as "complex and beyond easy pidgeonholing."

It's not easy being Green (again)

It was about 20 years ago that it first dawned on me that it was very cool to drink bottled water and that tap water was uncool and/or suspect. Fads are fickle, of course, and of late it has become uncool (un-Green) to consume the bottled stuff and tap water has been making a comeback. You can now proudly tell the waiter that you just want tap water.

When I last checked, the local Whole Foods was still stacking the bottled stuff, in many assorted bottle colors at fairly high prices and from exotic places. I counted roughly 20 brands but many bottlers have gotten the drift and have added food colors, vitamins, minerals -- not to mention very unusual bottle shapes.

Last Sunday's LA Times included an op-ed that implored us to get over the "yuck factor" and embrace recycled "indirect potable reuse". Trouble is that local DWP officials have switched to the much clearer "toilet-to-tap" label. Alliteration has its uses.

It's not easy being Green and it's confusing. Wind power is good but not when the windmills are placed anywhere near Nantucket. Drinking water is acceptable from the toilet or bottled from Northern Italy, Iceland, Hawaii, France, Poland. Lugging millons of glass bottles thousands of miles leaves one hell of a carbon footprint, etc.

No one knows where this will end. Are the Perrier people thinking about the export potential right under their noses in French toilets? (I didn't start this!)

Horse manure

Eric Morris writes about "From Horse Power to Horsepower" in the Spring 2007 issue of Access. The story has been around for some time but it is much too good not to revive.

In 1898, delegates from across the globe gathered in New York
City for the world's first international urban planning conference. One topic
dominated the discussion. It was not housing, land use, economic development, or
infrastructure. The delegates were driven to desperation by horse
manure.

The horse was no newcomer on the urban scene. But by the late
1800s, the problem of horse pollution had reached unprecedented heights. The
growth in the horse population was outstripping even the rapid rise in the
number of human city dwellers. American cities were drowning in horse manure and
well as other unpleasant biproducts of the era's predominant mode of
transportation: urine, flies, congestion, carcasses, and traffic accidents.
Widespread cruelty to horses was a form of environmental degradation as well.

The situation seemed dire. In 1894, the Times of
London estimated that by 1950 every street in the city would be buried nine feet
deep in horse manure. One New York prognosticator of the 1890s concluded
that by 1930 the horse droppings would rise to Manhattan's third-story
windows. A public health and sanitation crisis of almost unimaginable
dimensions loomed.

And no possible solution could be devised. After all,
the horse had been the dominant mode of transportation for thousands of
years. Horses were absolutely essential for the functioning of the 19th
century city - for personal transportation, freight haulage and even mechanical
power. Without horses, cities would quite literally starve.

All efforts to mitigate the problem were proving woefully
inadequate. Stumped by the crisis, the urban planning conference declared
its work fruitless and broke up in three days instead of the scheduled
ten.

The rest, as they say, is history. Does the episode suggest that we should remain sketpical over the modern doomsday forecasts? To ask the question is practically to answer it.

Simple extrapolations of known ways of doing things have always been pointless.

National debt

For those who do not stop there regularly, The Skeptical Optimist offers must-reading on the national debt and who owns it. It is not an outlandish share of GDP; it is not overhwelmingly in Chinese hands; Chinese investors are not crazy enough to dump it.

Political candidates, media hand-wringers and other know-nothings, take note.

Oops!

Today's NY Times includes "Quarter-Degree Fix Fuels Climate Fight". The piece recounts the running argument between Stephen McIntyre (climateaudit.org) and NASA's James Hansen. McIntyre cites room for doubt and disagreement while Hansen reportedly claims that, "the evidence for human-driven warming remains robust."

The article includes a chart. "This month, scientists at NASA adjusted their annual estimates of average air temperature in the lower 48 states, a change that shifted the ranking of the warmest years since 1895." It appears that 1934 is actually the warmest of the warmest and 2001 is the coolest of the warmest. Oops!

Nothing like the real thing?

Business use of teleconferencing surged after September 11, 2001. The trend will surely continue, boosted by continuing technological improvements and refinements. The Economist of August 25, 2007, includes "Behold, telepresence ... Far away yet strangely personal ..." The link includes a photo of the very cool "telepresence" technology. At first glance, you cannot tell that all the players are not in the room.

How good a substitute is it for the real thing? The market (and time) will tell. My guess is that this is not promising for airline, hotel or car rental company stocks. Telecom will innovate faster than air travel. The latter is more beholden to politicians and regulators.

The result is something called “telepresence”, which HP and
other technology firms are just beginning to sell. It is basically a spruced-up
version of videoconferencing, but its creators insist that the technology is so
improved as to be unrecognisable. Users still communicate via live audio and
video feeds, but the speed and quality of transmission have increased, and the
screens have grown and multiplied, in order to create the illusion that the two
parties to a conversation are not continents apart but at opposite ends of the
same table (as in the picture above). The aim, telepresence's boosters say, is
to get participants in such meetings to forget, or at least stop caring, that
they are not in the same room.

Videoconferencing was supposed to put an end to corporate
travel. But positioning people in front of a camera, fiddling endlessly with
controls and then either giving up or proceeding to stare at a tiny picture of a
blurry face often seems less satisfactory than the humble telephone. Such
“conversations” are often a sequence of time-delayed interruptions and missed
social signals. Just as the technologies that were supposed to deliver “the
paperless office” actually deluged it in print-outs, videoconferencing sometimes
works so badly that it leaves users feeling alienated, and so keener to meet
face-to-face than they had been in the first place, say Andrew Davis and Ira
Weinstein at Wainhouse Research, a consultancy.

Correcting these flaws has been difficult. Designers want
people in telepresence meetings to appear life-sized, and the tables and rooms
at the two ends to blend together seamlessly. (Rooms, furniture and even
wallpaper are often identical, to aid the illusion.) People must also feel that
they are making eye contact, which involves multiple cameras and enormous
computing power. The delays in sight and sound must be negligible (ie, below 250
milliseconds, the threshold at which the human brain starts to notice), so that
people can interrupt each other naturally. Sound must be perceived to come from
the direction of the person speaking. And getting things started must be
simple—ideally involving a single button or none at all.
Several firms have
started selling such systems over the past 18 months. HP was the first big
vendor, followed by Cisco, which makes many of the innards of the internet. The
two leaders in old-fashioned videoconferencing, Polycom and Tandberg, are
switching to telepresence. Smaller firms, such as Teliris and Telanetix, are
also getting in on the act.

HP charges $350,000 for every room it kits out for
telepresence and, in America, a further $18,000 a month for service. Cisco
charges up to $299,000 per room. Dominic Dodd, of Frost & Sullivan, a
research firm, says that buyers of such systems find that despite their high
cost they quickly pay for themselves by keeping travel bills down. Cisco claims
that it has cut its own spending on travel by a fifth this year, and that the
100-odd telepresence rooms at its own offices around the world are almost
constantly in use.

In addition to saving money, Cisco argues that telepresence
saves time. The firm recently completed a takeover in eight days (as opposed to
the usual weeks or months) by putting the lawyers in telepresence rooms instead
of on aeroplanes. Lee Scott, the boss of Wal-Mart, the world's biggest retailer,
is said to see great scope for improving his supply chain.
DreamWorks,