Nostalgianomics

I am a great fan of Brink Lindsey's work (I had previously blogged on his recent book, which is discussed in a new podcast), but I had not seen his essay, Nostalgianomics.

Lindsey has, in my view, a much better understanding of recent economic and cultural history than those he takes on (Paul Krugman and soul mates). Nostalgia is a human weakness, but the 1950s? Think Joe McCarthy. Think polio. Think Jim Crow. For starters.

Depicting changing inequality by comparing distribution snapshots is disingenuous. But would those in the lowest decile today prefer to be in the lowest decile of 50-60years ago? Never mind. Listen to or read Lindsey.

Visions

In today's NY Times, Nicolai Ourousoff writes "Reinventing America's Cities: the Time is Now". One can only say: Baptists and bootleggers, anyone? With so much stimulus money around, visionaries feel inspired. God help us.

Writing about Los Angeles, Ourousoff notes:

Wilshire Boulevard is another favorite cause for the architects and city planners of Los Angeles. In the early 1990s Frank Gehry and I took a drive down the city’s once-great commercial spine, which stretches 16 miles from downtown Los Angeles to Santa Monica.

Mr. Gehry guided me through the range of communities that the boulevard intersects, from the Latino neighborhoods near MacArthur Park to Koreatown to the many cultural institutions that include the Wiltern Theater, the Los Angeles County Museum of Art and the Hammer Museum. The philanthropist Eli Broad is currently planning yet another museum at the corner of Wilshire and Santa Monica Boulevards in Beverly Hills.

Mr. Gehry suggested that by concentrating more public transportation and cultural institutions along this thoroughfare, Los Angeles might finally find its center, both geographically and socially.

He is not alone in this fantasy. Los Angeles has the most talented cluster of architects practicing anywhere in the United States, and at one point or another most of them have invested significant brain power in figuring out how to remake Wilshire Boulevard. Michael Maltzan has looked at how new public school construction could be connected to the public transportation network along Wilshire, a plan that not only would be cost effective but also could begin healing some of the city’s deep class divisions.

There was an ideal moment, about a decade ago, when this vision might have taken hold; the county’s Metropolitan Transit Authority was just then in the midst of constructing a federally financed multibillion-dollar metro system, including a line that would have run the length of Wilshire Boulevard. The Los Angeles Unified School District was building scores of new schools. And the city’s rapid growth had led to a boom in new development.

Work on the metro ground to a halt several years ago after costs spiraled out of control, and when it was discovered that the district’s flagship school had been built on a toxic waste site, the agency quickly scaled back its goals.

Now a new mayor, Antonio Villaraigosa, is trying to revive the idea of expanding the metro. Without an overhaul of the city’s transportation network it is only a matter of time before the city breaks down, a victim of pollution and overcongestion. A citywide plan that anchored Los Angeles along two major axes — the green river and the asphalt boulevard — could save it from becoming a third world city.

Our problem is not too little funding for transit, but too much (see my blog of two weeks ago). And architects' and urban designers' fretting about where Los Angeles' real "center" can or should be is positively weird. The area has many "centers" that were not put in place by any committee of wise men and women. There is no such thing as a vision or a science that can make such choices. But those architects who decide to think outside the box (in this case, beyond designing a building) have the mistaken idea that they can design whole cities. Politicians with a spending agenda can see these guys coming from a mile away.

Voting with feet

Yesterday's WSJ included A Radical Takes the Stand, about the pathetic Ward Churchill. Much more pathetic is the fact that people like this have standing (and tenure) in otherwise respectable universities.

This week's Economist includes a graphic that summarizes where the world's asylum seekers want to go. The U.S. is tops, followed by Canada, France, Italy, Britain, Sweden, Germany, etc. Poland and the Czech Republic are on the list, having graduated from places that people want to leave to places that people want to enter.

Comparing countries and cultures is difficult but we keep trying, with GDP/capita and Human Development Index and happiness and other rankings. But the one to pay the most attention to is the one that involves looking at how people vote with their feet.

This is all simple stuff, but we have all encountered people as confused as Prof. Churchill -- as well as the students that have passed through their classrooms.

Be careful

Aggregation causes huge problems of analysis and interpretation. The few and the proud who try to work with spatial data are routinely vexed by the problem. We all know that there are huge differences often just a city block or two away from where we live and work, but we are all the time generalizing about whole metro areas. Urban economists are fond of touting the benefits of "density" when they compare, say, New York to Kansas. But density variations within these places are huge.

Wendell Cox reports recent settlement trends using the Census' latest county and metro data. Notice that he adds his definitions of "historic core counties" because the census bureau's designations of central cities are ideosynchratic.

Look at his Table 4. The suburban counties have been growing steadily at the expense of these historic core areas. Yawn? The conventional wisdom (including from some editors and referees who return my papers) is that long-term suburbanization trends have stalled or reversed. Yes, Manhattan today is not the same as it was in the 1960s-1970s. And a few other downtowns do look better today than then. But let's be careful about jumping to conclusions re historic reversals.

The problems with policy

Growth controls raise housing prices. Supply and demand cannot be fooled. And New Urbanists (and "Smart Growth" planners) like policies that compel builders to increase densities and supply open space (and ironically "affordable housing"). These also push up costs -- and evenutually housing prices. And Ed Mills notes that many jurisdictions (like William Fischel's Homevoter Cities) restrict densities, keeping them too low for their own economic reasons.

Any controls that push suppliers away from the product mix they would prefer to market have the potential to push up costs -- which have the effect of reducing profitablity and/or pushing up prices.

Mills suggests that the demand for subprime mortgages (and the crisis that they prompted) were a natural result of local governments pushing low densities and increasing house prices via that channel.

He notes that all levels of government have had a hand in the problem, not just the federal. Mills concludes that neither federal, state, nor local will mend their ways. "I conclude this pessmistic evaluation with the advice that housing is, even at best, a risky investment. Let the buyer beware."

It's all about incentives

The idea of "market failures" to be corrected by wise and selfless politicians and bureaucrats is standard fare in economics textbooks and courses and standard discourse among deep thinkers (thanks, again, Tom Sowell). One would think that the insights of public choice economics had demolished this fairy tale, but it is too good a chestnut to ever let go.

In the Spring 2009 Independent Review, Steven Horowitz writes about "Wal-Mart to the Rescue: Private Enterprise's Response to Hurricane Katrina." The public sector failed miserably, but alert private action was available to alleviate some of the suffering. Horwitz documents the case and also explains how and why it all occurred.

Groupthink and smugness

Dan Klein and Charlotta Stern theorize about Groupthink in Academia.

But why not? Academics are not terribly different from the rest of humanity. And a knack for moderately fancy footwork has its perils.

Everyone in Lake Wobegone is above average and everyone in academia (and journalism and entertainment, etc.) is "in the mainstream." And anyone too dim to get it is an "idiologue".

Deep thinkers (thank you, Tom Sowell) go on and on about "social justice" as though it had a clear meaning. But the presumption of shared assumptions is the ultimate smugness.

UPDATE

Russ Roberts and Robin Hanson discuss how often any of us actually examine and reject our priors.

Not promising

California's roads are in worse shape than ever. I have blogged about this before and called attention to Jon Sonstelie's analysis which shows that the policy decision to divert highway money to transit (social engineering) is the problem.

Transit use is still low and planners are still excited by the idea that Level of Service (LOS, standard grades used by highway engineers) can be made awful enough so that competing modes can succeed. Unfortunately, as long as this crackpot idea is taken seriously, we will have worsening road congestion along with low levels of transit use. The learning curve on this issue has been flat for many years.

Ed Stevens calls my attention to this conference where participants were invited to think motre broadly about LOS - and the trade-offs that are missed when a simple service measure is used.

Proper pricing would make the consideration of relevant trade-offs routine and automatic. But that is off the table in California at the moment. So trade-off analysis (according to the presentations at the cited conference) is to be top-down. That is not promising. And that is how we got into the mess we are in.

Credit

The famous poster of "The New Yorker's View of the World" is a classic and a much appreciated piece of self-parody. Whether the New Yorker's view of the economy achieves similar renown is hard to tell. The March 16 Style Issue has several articles on the economy that have me wondering. See John Cassidy's column on Obama's economics and Patricia Marx's "Made in U.S.A."

James Surowiecki's "House of Cards" describes how credit card companies are now "trying to get rid of customers." They were once optimistic that customers will make purchases, make payments and (best of all) run balances and pay interest. These chargers were politely labeled "revolvers". In bad times, the credit card companies reverse course and actually pay some customers to go away.

Surowiecki calls it the "paradox of deleveraging: it's good for borrowers to reduce their debt, and good for lenders to be more rigorous in their standards, but when everyone deleverages at once it does damage."

When I see new business models discovered, I see good news. Much of our prosperity (even in 2009) comes from entrepreneurial discovery of better mouse traps and better business models. Todd Zywicki reminds us that credit card and revolving credit are a good thing: the middleman function of credit institutions extended to areas where it had been largely absent. Some of us are old enough to recall purchases of major items on the lay-away plan.

Zywicki reminds us that GM surpassed Ford in the early 20th century because they were first to catch on to the idea that people like to drive their cars while they are paying for them, rather than after.

Winner's curse

Many of us enjoy college sports but recoil at the economics. The NCAA is a legally sanctioned exploitative cartel. Many young black males play for below-market salaries, do not make it into the pros, do not graduate (nor get an education) and are rewarded with serious and lifelong injuries for their troubles.

Andrew Zimbalist, writing in today's WSJ ("March Madness It Is, Economically") spells out how most colleges also lose, investing far more that they recoup. Read the whole thing. Here is an excerpt.

There are a few winners. The National Collegiate Athletic Association, for instance, makes out quite well. Last year, Madness brought in $548 million from TV rights and an additional $40 million from ticket sales and sponsorships, together representing an eye-popping 96% of all NCAA revenue.

Amid this cornucopia, the schools themselves are usually the losers. According to the NCAA's latest Revenues and Expenses report, in 2005-06 the median Division I men's basketball team generated revenue of $480,000 and had operating costs of $1.33 million, yielding a net operating loss of $850,000. If capital expenses and full university overhead were included, these results would be even more dismal.

The most successful programs, of course, will do better (the top 10 basketball teams had revenues of more than $11 million), but even these programs frequently lose money when the accounting is done properly. Why?

Most of the 300-plus Division I schools aspire to make it to the March tournament. To do so, they have to spend big. Since they can't go to a free-agent market to hire the best high-school players, they attempt to attract them in other ways. First, they spend lavishly to court the players during the recruitment process.

Next, they attempt to provide state-of-the-art arenas and training facilities, complete with luxury suites, Jumbotron scoreboards and spacious locker rooms. They invest in academic tutoring facilities, costing as much as $15 million, to help the athletes stay eligible for competition. Then they hire well-known coaches with a reputation for sending an occasional player to the NBA.

And the coaches don't fare too shabbily either. In 2005-06, the head coaches of the 65 Division I teams in Madness had an average maximum compensation of $959,486, with the top paid coach earning a guaranteed salary of $2.1 million and a maximum salary of $3.4 million. These figures exclude extensive perquisites, including free use of cars, housing subsidies, country-club memberships, access to private jets, exceptionally generous severance packages, handsome opportunities for outside income, and more.

These guys are making almost as much as NBA coaches, even though their teams' revenues generally are below one-tenth those in the senior circuit. The trick, of course, is that the players aren't allowed to be paid, so the coaches, in essence, get the value produced by their recruits. It doesn't hurt that college sports benefit from state subsidies and federal tax exemptions, and that they have no stockholders looking for quarterly profits.

More unintended self-parody

The PBS Evening News just showed an "in-depth" feature on "Transit in Trouble". If you see the whole feature, you see nothing but half-or-less empty trains, buses stations and stops. But in standard hand-wringing fashion, the story was all about these systems "needing" much more public funding. Unintended self-parody?

New Urbanists who campaign for "higher densities" of development can never answer the "how high?" question. In the same vein, the advocates of spending "stimulus" only know that we "need" even more. More USP?

Transit by other means

In various parts of Europe, there is click-and-drive. In the U.S., renting a car is now more streamlined, especially if you are enrolled in a rental car company program. In both cases, modern electronics have been deployed in clever ways to reduce transactions costs and improve and expand service.

In today's New York Times Magazine, there is a nice piece on Zipcar ("Share My Ride ... You may need a car, but do you need to own one -- or even lease one? Zipcar and a fleet of new competitors are betting that your budget and your green conscience are ready to cooperate"). The story mentions that Hertz has noticed and is working to implement its own version, Connect by Hertz.

Telecommuting will soon surpass commuting by public transit (in some places it already has.) Zipcar-type arrangements will probably surpass public transit for other kinds of trip making.

To be sure, public transit's political patronage usefulness will survive. Call it stimulus.

At the table and on the menu

Opportunistic politicians and gullible voters rally around free lunch ideas. The one that seems to captivate both groups these days is clean energy "investments" that will "create jobs" and clean the air. It is the two-fer that Barack Obama, Arnold Schwarzenegger and Antonio Villaraigosa (among many others) all enthusiastically support.

It now seems that the latter has come up short. Even the LA Times editorialized "Vote no on Charter Amendment B ... The proposed charter amendment and ordinance proposition is less about solar energy than it is a grab for political power." The Mayor and his friends had overreached and could not win this one (counting not yet over) in a low-turnout local election.

In this morning's WSJ, Kimberley Strassel writes that "The Climate Change Lobby Has Regrets." She quotes the Duke Energy CEO saying that: "If you don't have a seat at the table, you'll wind up on the menu." It seems that the poor guy overlooked the possibility that he could be both.

Not easy being green

Happiness research by social scientists has its problems. City rankings are also fashionable but problematic. Now we have rankings of the unhappiest cities. This ranking says that Portland is the worst. But Portland also shows up on most lists of most-progressive-and-most-green. I guess all these fields require more work.

More footprints

Those not satisfied that price signals prompt efficient actions (and who do not expect policy makers to modify selected prices accurately or soon) evoke footprints. Trouble is that there are many plausible footprints (water footprints, carbon, footprints, air pollution footprints, etc.).

We are back to the calculation debates. Can the giant calculation machine that markets serve as be replaced by mere mortals (let alone polticians)?

The Real Estate Research Corporation famously published its "Costs of Sprawl" in 1974, calculating what could be saved via compact urban development. Critics quickly found the flaws in this approach.

Today's LA Times includes Ed Glaeser's "Growing greener ... California should build more, not less to help the environment." The least carbon footprint-demanding development is in the most benign climates.

Along the same lines, The Economist (Feb 28-March 6) reports information on water footprints ("Excess liquidity"). It requires 140 liters of water to brew one cup of coffee -- includes growing the coffee beans.

Who knew? And that's the point.

The theory predicts

The new (Feb. 2009) American Economic Journal: Microeconomics includes an interesting investigation by Ginger Zhe Jin and Phillip Leslie on "Reputational Incentives for Restaurant Hygiene". LA County food inspectors have been placing letter grades (A or B or C) in restaurant windows since 1998. I see mainly As, a few Bs and never any Cs. Given the high frequency of As and Bs, I would never enter a C-rated establishment. In light of all this, the authors test for pre-1998 reputational effects. They find that "... chain restaurants tend to have significantly better hygiene than independent restaurants because of the reputational effects from chain affiliation."

Economists expect this, but (the authors note) there have been few serious tests. This paper should, therefore, find its way into various collections of papers.