"Trickle up"?

I have never liked label "trickle down" for two reasons. It suggests that policy must take sides in class warfare skirmishes -- that should not even be. In a second-best world, is overlooks the idea that some are more promising than others in terms of their entreperenurial discovery contributions.

This morning's WSJ labels the Obama budget proposal as "trickle up". If such a label were ever to be warranted, the budget and the policy would come down forcefully on the idea that it is immoral and counter-productive to force the poorest among us to attend the worst schools from monopoly school districts.

How can the smart people that are all about "change" and "equity" sleep at night as long as they maintain this status quo? How can they moan about increasing inequality when they are foursquare aligned with a policy that denies the worst off a chance to learn?

These are old stories, but they bear repeating every time that we repeat this charade.

My favorite policy

Because doing nothing is not an option, my favorite policy idea for our economic troubles is "buy a house, get a visa" which has been touted at marginal revolution (read the comments too) and other places.

The Economist (Feb 14) has just noted that there are "Two billion more bourgeois" in the world. The Financial Times' David Pilling (Feb 19), writing about India, reports "The concept of social mobility is starting to challenge a previously fatalistic attitude to class and cast."

We see again the upside of growth. And some of us see (more) open borders as good for growth. Our H1B visa policy is a disaster. Housing is you-know-where. And the stream of policy ideas that we see on a daily basis is all about replacing one industrial policy with another.

It would be lovely to have more discussion of buy-a-house-get-a-visa. It would be even better if that policy could replace (or at least ratchet down) the long-standing politicization of housing.

Half full?

I am late to the party, just having greatly enjoyed Dan Ariely's Predictably Irrational. Behavioural economics is not new anymore. And the examples and experiments that Ariely writes about are familiar and/or easily recognizable from personal experiences and foibles.

It's all news to those who were weaned on equilibrium/rationality economics. Relax! It's only a model!

Disequilibrium is where people real people get a life -- and make a contribution and make some money.

I had never seen this closing quote from Murray Gell-Mann. "Think how hard physics would be if particles could think." Ariely does not come out and say it, but he does a lot more than hint that physics is an impossible model for the thinking particles.

Humans have done some awful things and some great things. The fact that The Economist can write about the growth of the world's middle classes in terms analogous to Moore's Law, says something profound about what beings with limited intelligence, limited rationality and plenty of failings can do.

UPDATE

I found this in an old exam question -- which I based on an old Jonathan Clements WSJ column which started like this: "Your neighbors save pathetically little, trade stocks like crazy, dabble in overpriced initial public stock offerings and dump hard-hit mutual funds that are ripe for rebound. And you, of course, should cheer them on. Your neighbors may not realize it, but they are performing an enormously valuable service. Without their fear and greed, it would be extraordinarily difficult for the rest of us to make a good deal of money. So go ahead: Give your neighbors a little encouragement."

But what would a 2009 politician do with this insight?

Census politics

Most social scientists depend on data from government agencies. That requires some suspension of disbelief; we want to believe that the reports are not politicized. But Wendell Cox has just posted this chilling discussion of the drift at the Census Bureau and how recent moves by the Obama administration suggest more politicization.

The second (and related) problem that many of us are stuck with is that there are fewer data as one moves down along the geographic aggregation scale. The best data are for the nation, less for the states, less for counties and metros and cities, and much less for sub-city spatial units. Data for census tracts and census blocks are useful, but we only get these reports every ten years.

And cities are the "engines of growth" if and only if they achieve spatial arrangements that allow many potential positive externalities (including information spillovers) to be realized while leaving a bunch of potential negative externalities unrealized. So what happens at the sub-city level is critical, but we have a tough time understanding it. Dearth of data is a big problem.

Adding to the cloud of uncertainty over the precious decennial disaggregated data is among the last things we want. All politics may be local. And much of the important economic questions are also local.

I used to wonder why pollsters are always identified by their political affiliation. Until I thought about it. Do we now have to consider the political affiliation of census takers?

I keep telling students that no one looks for national mean weather report. Why then be satisfied with national economy readings?

UPDATE

Here is an interesting piece by Richard Florida on cities and the economic crisis. Note his reliance on "density". But the average population or employment density of a large metropolitan area tells us nothing. The nature of spatial arrangements is much more complex and requires sub-metro area measures.

Stimulate what?

In the March 2009, Reason, Sam Staley and Adrian Moore write about "A Better New New Deal ... How can we get the most bang for our transportation buck? Here are six ideas for the new president and cash-strapped governors." (not yet online). The six ideas include congestion pricing and are all perfectly reasonable.

But there is now a stimulus. Who says that governors or mayors want the most bang for the buck? This is not an idle question.

In today's LA Times, columnist Patrick Goldstein writes: "It's no secret that the L.A. public school system is pretty much a disaster -- mismanaged, overcrowded, underfunded, crippled by a bloated bureaucracy ..."

Huh? There are many at the LA Times and beyond who do not see a contradiction. And that says something about government stimulus and where it will go and what it will do.

In today's WSJ, Robert Barro does note that "This is probably the worst bill that has been put forward since the 1930s ..."

Fat chance

From Kindelberger and Alber's Manias, Panics and Crashes: "The monetary history of the last 400 years has been replete with financial crises. The pattern was that investor optimism increased as economies expanded, the rate of growth of credit increased and economic growth accelerated, and an increasing number of individuals began to invest in short-term capital gains rather than for returns associated with the productivity of the assets thet were acquiring." (p. 275).

Four-hundred years of this. This morning's WSJ includes John Taylor's "How Government Created the Financial Crisis." Nothing has changed since the K and A history was last published (in 2005).

Money and credit, you can't live with it and you cannot live without it. Or so it seems. Great Moderation optimism is gone. What's left? I particularly liked K and A's description of the "neo-Austrian" idea of de-control and private money. "Any bank, company, or person would be allowed to issue 'money' ... market forces will determine which firms issue good money. The different firms that issue money will compete to ensure that their own good money is accepted, and so good money will drive out the bad." (p. 86).

I know. Fat chance of that. I do read the newspapers.

UPDATE

I just caught this podcast with Daron Acemoglu. It includes a wonderful summary of why the Great Moderation turned so unexpectedly.

Ponzi

Of all the things written I have seen on the current economic panic-meltdown, I especially enjoyed George Packer's "The Ponzi State: Florida's foreclosure disaster" in the Feb 9 and 16 New Yorker. If Packer extends his material to a book, I want to read it.

But why does he have to give credence to Tampa Mayor Pam Iorio's plea for a Tampa light-rail? "We'd have our own long-term economic-stimulus package right here, right now, if we had this in place."

Not really. I was involved in one of many attempts to stop this silliness about ten years ago. Talk about low residential densities, some of the proposed routes were through cow pastures. I am not kidding. The Mayor gives economic-stimulus a bad name. Call it Ponzi.

Roundup

Today's WSJ includes Alan Blinder's "My Economic Wish List". The Journal also has about a dozen pieces that argue against any optimism that polticians can do more good than harm -- notably "Stimulus Brings Out City Wish Lists: Neon for Vegas, Harleys for Shreveport". Yet many smart people continue to to be optimistic about this hash. Go figure.

I have just read Orlando Figes' The Whisperers: Private Life in Stalin's Russia. Just when we think that we have grasped at least the idea of the horrors of the totalitarians in the 20th century, another book or film or revelation comes along to bowl us over. Figes has assembled previously concealed correspondences and diaries from Stalin's USSR. These personal accounts of how people's lives were destroyed are stunning, to say the least. And these are the recollections of those who were not (yet) abducted and shot.

It was not simply the guns and the corruption that put a huge population into the penitentiary society, it also required the power of crackpot utopian ideas. Timur Kuran has described the phenomenon of Preference Falsficiation, and so it was. But getting up close as via Figes' chronicles (as close as I ever care to get) reminds us that evil, political power and utopian ideas have a way of coalescing and bonding.

How do you keep the daily news from becoming a depressant? Read all about other people's problems and tragedies. Works every time. I think.