Bad news bears get their inning

From this morning's FT by Abby Cohen (www.ft.com/cohen):

"A well-anticipated correction to a bull run usually doesn't last long as many portfolio managers use it as an entry point into the market. We believe that US shares are currently undervalued and that this will also offer some buffer against disappointing news. Of course, the catalyst of the correction is critical in the analysis."

This caught my eye but too late. Of course I wouldn't know a pesky catalyst if I fell over one. Mostly, I hate it when the bad news bears have their inning.

Al Gore's Oscar

I thought I knew what charisma was -- although I could never define it. It describes a quality that people have who we want to be around. And it probably has media-specific realizations. One might be attracted to someone via one particular medium (print, sound, video-film, stage, stadium, even internet) but think otherwise on meeting them in person -- or via some other medium.

Then there is politics which is all about maintaining coalitions. There are some characters who can tell one group one thing and another group something very different -- using crafted ambiguous language -- and get away with it. They maintain coalitions; they get re-elected. Many of the rest of us fail badly when resorting to rhetoric, pieties, ambiguous messages, etc. But some do get away with it. I have always concluded that they possessed the charismatic qualities to do so.

Now comes Philip Rieffs' Charisma: The Gift of Grace, and How It Has Been Taken Away from Us. It begins with some promise (the New Yorker cartoon that shows a hopeless fellow attempting to use spray-on charisma) but quickly becomes an idiosynchratic-psychonalatic argument with Max Weber. The ground covered includes Old and New Testaments, both of which rely on presentations of various charismatic characters.

And why scorn Weber? "Weber did not invent charisma, and I doubt that he has the soul-raking power that would accompany its destruction. I cite Weber ... for his detructive neutral uses of the concept ... His formulae of ligitimation translate too easily into professional sales techniques, with leadership as the product." (p. 244) The great man apparently defined things in a way that suggested publicity and celebrity.

Now I was ready for the Oscars. Watch reruns of your TIVO-ed Academy Awards, see Melissa Etheridge sing then-nominated (and eventually winning) "I've need to wake up" and catch the the messages flashed in the background, including "light-rail". How many of the guests in the Kodak Theatre have ever used light rail? (I could not resist.)

In fact, watch the works and tell me that Al Gore is charismatic in any medium. In fact, Dr. Henry Miller diagnoses narcissistic personality disorder. Turn-off, rather than turn-on and not charisma.

Imagine

Our first MBA president is also the first to take congestion pricing seriously (see WSJ report, excerpted below). I guess that it's safe to say that this stuff is not taught in most of our law schools. In polite company, any talk of trade-offs and pricing is still deemed to be exotic and sinister. But of all the tough problems that confront any president, this one is the true no-brainer.

Imagine if all the candidates for high office ...
.... internalized economic thinking and could, thereby, devote more time and effort to all the other really difficult stuff (war, peace, clash of civilizations, etc.).

John Lennon might even set it to song if he were still around.


Bush Plays Traffic Cop in Budget Request
President Suggests 'Congestion' Tolls To Ease Rush Hour

WSJ, By JOHN D. MCKINNON
Feb. 5, 2007

WASHINGTON -- With much of his domestic agenda stalled by Congress, President Bush is embracing a new cause he is hoping will cross party lines and leave him with an end-of-term accomplishment: easing rush-hour traffic.

In his annual budget blueprint to be unveiled today, Mr. Bush intends to showcase a highway "congestion initiative," according to White House documents, with grants for state and local governments to experiment with anti-jam strategies.

In a surprise that could foreshadow how Mr. Bush might reach out to Democrats -- and disappoint conservatives -- for the rest of his term, the centerpiece of the traffic plan involves an initiative that some critics say amounts to a tax, a plan depicted by administration officials as "congestion pricing." The administration will award $130 million in grants starting this spring to help cities and states build electronic toll systems that would charge drivers fees for traveling in and out of big cities during peak traffic times. The money also could go to other congestion strategies such as expanded telecommuting, but administration officials make it clear they think congestion pricing is the most powerful tool they have. The White House will seek an additional $175 million for congestion initiatives in next year's budget.

Beyond automobile traffic, the administration will also introduce legislation soon that could seek to impose a form of "congestion pricing" on airline travel, likely through user fees on airlines. The idea is to spread flights more evenly.

A whimper, not a bang

The paperless world never arrived in spite of modern electronics. But The Economist ("A cash call" Feb 17) speculates that "Smart cards and mobile phones are quickly emerging as ways to pay with electronic cash."

Email did not end the postal service; it simply made it obsolete. (FedEx and UPS and many others helped, of course.) Might smart cards and mobile phones do the same for central banks? Define M1.

What makes it all so tantalizing is that the email revolution did not require an act of Congress to shut down the USPS. Likewise no act of Congress will shut down the federal banking system. But that is entirely unnecessary. All of my monthly credits and debits could easily be handled by PayPal (and their like) and the various credit card companies. We simply require enough of these so that competition is maintained.

No one knows quite how it will all come to pass but I suspect that it will be with a whimper and not a bang. Just like USPS and email.

Game theory for primitives

Tom Schelling has more than once (see interview on page A9 of today's WSJ) written that nuclear proliferation is inevitable so we must somehow press for increased sophistication by those who obtain them. Of course. The fear has always been that nutcases get their hands on them and there is an abundance of these. I am not sure that epiphanies automatically accompany gaining the weapons.

Jeffrey Sachs suggests game theory teaches us to practice "generous tit-for-tat".

"Today’s game theorists would describe [Pres. John F.] Kennedy’s strategy as “generous tit-for-tat” (GTFT). A player adopts a position of cooperation as long as the other side does, too. If the second player begins to cheat, the first player stops cooperating as well, to show the cheater that there are adverse consequences... The door remains forgivingly open to future cooperation, however, if the cheater reverts... And generously, the first player might initiate renewed cooperation, with a view to enticing the former cheater to reciprocate. GTFT is so successful and robust that many evolutionary biologists suppose that the basic strategy is somewhat hardwired in human attitudes...."

I have no idea how relevant any of this is for the primitives who I see spreading mayhem on the nightly news.

Giveaway in LA

This is not a bad movie but business as usual in the big city -- where left-wing politicos collect money from taxpayers so that they can give it to wealthy developers who then support their political campaigns.

And its all wrapped in the worst silliness about how this is a beneficial project for everyone and anyone. And we've heard it all many times before, and that does not matter.

Here are excerpts from the headline story from today's LA Times:

"Grand Avenue project passes go ...
City and county OK the $2.05-billion plan to reshape downtown L.A. ...

Despite criticism about tax breaks and land giveaways, the Los Angeles County Board of Supervisors and the Los Angeles City Council gave final approvals Tuesday to a sprawling mini-city atop Bunker Hill that will alter L.A.'s skyline and set a course for future development in downtown.

Elected officials and other backers of the Grand Avenue project described the vote as a turning point for Los Angeles, whose civic leaders have tried for decades without success to establish a central cultural hub downtown that would draw people from throughout the region."This is a historic day for Los Angeles. It changes the entire complexion of the center of our city," said civic booster Eli Broad, who is spearheading the development.

The $2.05-billion Grand Avenue project would be the largest single development in downtown history, and would be built almost entirely on public land that would be leased for 99 years to mega-developer the Related Cos. It has few if any equals in the region, in part because of the complexity and scope of the private-public partnership.The project also has emerged as Los Angeles' most ambitious effort to create dense, high-rise residential developments next to rail lines, offices, cultural attractions and shopping.

Though some consider the project a model for "smart growth" aimed at encouraging people to walk and use mass transit rather than drive, others see it as a tax giveaway that is not in the interests of local government. Critics complain that Related is essentially getting a double subsidy: The city and county are leasing the developer public land for a profit-making business at the same time that the city is granting breaks on future hotel and parking taxes.They also question whether the project would be the regional magnet its backers hope.

Both the council and board voted Tuesday, in part to demonstrate their lock-step support for the project. The City Council approved the deal 13 to 0, with Councilman Ed Reyes absent. The supervisors approved the project 4 to 1, with Mike Antonovich voting against it. By approving the deal, the governmental bodies agreed to transfer the land for the first phase of the project — a county-owned parcel — to the Grand Avenue Authority, a joint city-county agency that will in turn lease it to Related. (Later phases include land owned by the city's redevelopment agency.)The votes green-light all three phases of Grand Avenue, which calls for at least five new high-rise buildings and 3.6 million square feet of development.

The first phase would include two translucent glass residential towers to be designed by Frank Gehry, one 49 stories and the other 24.One tower would include a five-star Mandarin Oriental hotel. Two hundred of the 1,000 housing units included in the first phase would be reserved for low-income residents.

The municipal bodies also approved the development of a 16-acre park between the Music Center and City Hall as part of the project's first phase — one of the civic benefits that backers said was vital to the project's success.The development marks the furthest-reaching effort by local leaders to turn downtown into a 24-hour district on par with areas of New York, Chicago, London and Paris. ..."

Not yet "Sex In The City"

Will most of us agglomerate in and around just a few "superstar cities"? Joe Gyourko and his colleagues suggest that this may be our future. They like New York, Boston, San Francisco and points nearby. Joel Kotkin disagrees (in this morning's WSJ, partially reproduced below).

But it is not about cities. Rather, it is about cities and their suburbs and exurbs, e.g., the "urbanized areas" that make up the whole. The cities and their hinterlands are mutually dependent and it makes little sense to talk about the one and not the other. Consider the Miami, Los Angeles, Dallas, Phoenix, Houston and Atlanta urbanized areas. Not quite (as Pierre Desrochers might say) Sex-In-The-City chic, but these six were all in the top 13 in 2000 population and in the top 12 in terms of 50-year growth and in the top eight in terms of 50-year absolute population growth. So it is not simply the case of small-fry playing catch-up.

Vitality is a many-splendored thing and can be found in quite a few places.

The Myth of 'Superstar Cities'
by Joel Kotkin

These seem the best of times for America's elite cities. Wall Street's 2006 megabonuses created thousands of instant millionaires, and, with their venture-fund soulmates in places like San Francisco, Boston and Greenwich, the best people are prowling for Ferraris, planes, multimillion-dollar condos, the newest $200 lunch place and the latest in high fashion. In some markets, office prices and rents are breaking all-time records.

The bluest of the blue cities can also celebrate their rise to the top of the congressional pole. Speaker Nancy Pelosi of San Francisco, Finance Chairman Barney Frank of suburban Boston and Ways and Means Chairman Charles Rangel of Manhattan all represent something of an economic coup for the "good rich" such as dot-com billionaires, subsidized downtown real-estate developers and "enlightened" investment bankers. The new notables most likely won't find fault with their constituents' windfalls as they have with those of the oil companies, the pharmaceutical firms or Wal-Mart.

Yet these triumphs obscure the longer-term developments that continue to reshape metropolitan America. Economic and demographic trends suggest that the future of American urbanism lies not in the elite cities but in younger, more affordable and less self-regarding places.

Over the past 15 years, it has been opportunistic newcomers -- Houston, Charlotte, Las Vegas, Phoenix, Dallas, Riverside -- that have created the most new jobs and gained the most net domestic migration. In contrast there has been virtually negligible long-term net growth in jobs or positive domestic migration to places like New York, Los Angeles, Boston or the San Francisco Bay Area.

What as much as anything distinguishes elite places -- what Wharton real-estate professor Joe Gyourko calls "the superstar cities" -- are their absurdly high real-estate prices. New York, Boston, San Francisco and Los Angeles have long been more expensive than, say, Dallas, Houston or Phoenix -- but in recent years the difference in price, he calculates, has increased beyond all reason. San Francisco prices since 1950, for example, have grown at twice the national rate for the 50 largest metropolitan areas.

This is good news for those who hold property, but has been less than a blessing for those middle-class families who might want to enter these markets. In some superstar cities less than 10% of households can afford a median-priced home. Nationally the average is about 50%.

Mr. Gyourko traces these surging prices to two basic causes. First, there remains in superstar cities a remarkable concentration of very high-earning families who can bid up real estate. The second factor lies with the regulatory and tax regimes, which greatly limit the production of housing and job opportunities, particularly for middle-income families, not only in the city cores but in surrounding areas.

Of course high productivity from educated workers and companies resident in these cities also contributes to the superstar phenomena. But Mr. Gyourko asserts these earning are not nearly high enough to explain the massive real-estate price differential. "You don't have to be productive to live in these places, you just have to have money," Mr. Gyourko suggests.

What drives the process is a simple combination of limited middle-class housing options combined with strong demand among the wealthy. Given the economic centrality and cultural vitality of a place like New York, there remains a sizeable top echelon, many in business, that can and does consume the [NYC Mayor] Bloombergian "luxury product" as their primary or secondary residence.

Geography and selection

Jared Diamond (in Guns, Germs and Steel) derives amazing explanatory mileage fom linking geographical variation with natural selection. Both are as exogenous as we can hope for.

Sunday's NY Times included a piece on innovation and geography as destiny. This is all about agglomeration economies -- which also link to selection.

Cities (places) compete and the winners are those that manage spatial arrangements so that potential positive externalities are exploited while the negative ones are muted -- other things equal. This is very tricky and requires flexible land markets.

Wonkery

No proper economist wants to be left out of the Pigou Club.

Today's WSJ reports: "Economists Back Fossil-Fuel Tax To Spur Alternative Energies ... most of them say that the best way to do so is one Mr. Bush isn't proposing: putting a tax on fossil fuels. Forty of 47 economists who answered the question in the monthly survey said that the government should help champion alternative fuels."

It's a trifecta. Market signals are enhanced. Sinners are punished. Politicians get more money.

The first appears in every textbook. The second is the part most students (and some others) like best. The third gets much too little attention.

But I just noticed that the Marginal Revolution folks had already suggested the Pigou-Brennan-Buchanan Club. In a nutshell, drug legalization proponents claim that it would deliver more open, responsible and supervised use. So no more heroin (no new tax revenues) for the junkies (politicians) until there are rules on supervised use (spending).

Planning is hard work

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Vision thing

In the New Yorker of Feb 5, Paul Goldberger writes in praise of Robert Moses ("The Skyline: Eminent Dominion"). I suppose that there are some positives no matter where one looks, that designers like Goldberger naturally believe that cities require a top-down master plan, that every maligned historical figure gets a second look and that a golden age hew can be attached to almost anything more that a quarter-century old.

Moses was good at what he did and, thereby, exposed the folly of his enterprise. But critics as well as fans draw all the wrong conclusions. Goldberger writes: ".... he would charter small planes and fly back and forth across the metropolitan area to get a better sense of regional patterns. His vision of New York was of an integrated system with an urban center, a suburban ring, and a series of huge public recreational areas, all connceted by parkways."

This is how designers talk but it is patent nonsense. The region is in reality infinitely complex. It can succeed only insofar as millions of locators evaluate the many complex trade-offs that various available sites (in the city, the region and beyond) offer. The best that we can hope for is that the Moses-Goldberger-type visions do not make this too terribly difficult.

The "vision" that planners should clarify, instead, is that clear and credible property rights are required for locators to make good choices and for cities to function (to be the "engines of growth"). As they advise policy makers, planners should point out the instances where well meaning policies cause fundamental problems. That would be valuable work and that activity is miles away from Moses-Golberger.

Hide your wallet

I am writing this in my Jerusalem hotel room, watching Jacques Chirac on TV as he scrambles for the high ground on climate change. What is one to do when almost all of the political hacks from the U.S. and abroad do the same? Hide your wallet.

One does not have to go back very far in time to find a majority of elite opinion convinced that socialism (or worse) was humanity's future -- no matter the cost. (The sound bites from Davos were as nuanced and diverse.)

Ronald Bailey has abandoned his skepticism on climate change. But is the proposed cure worse than the disease? Do we expect the political-and-media crowd to consider cost-effectiveness?

Beyond all that Art DeVany reminds us that the models that scientists rely on cannot plausibly be extrapolated to the extent that they now are. DeVany recalls how large-scale econometric models failed when pushed to perform beyond their capabilities. He also knows that scientists do not easily agree ("consensus science is not science") -- but that they do know from where the money flows.

More to life than footprints

Matt Kahn and Ed Glaeser love NYC because they like its environmental footprint. But what are they maximizing? Not many new New Yorks are coming along these days. Newer forms are outcompeting the NYC form almost everywhere. This is no riddle.

Cities exist because they facilitate economic development. Market forces typically trump urban policies and we get the cities that work best. Even Manhattan's density keeps falling.

Few serious people will admit to loving Las Vegas or Houston or Phoenix. But their likes are the future. Even with European urban policies, the continent's cities are "sprawling."