Teaching moment

What are the top three ideas in economics? How about (1) The non-zero-sumness we get from specialization and voluntary exchange; (2) The benefits (and inevitability) of creative destruction; (3) The fact that there is no economics without politics and no politics without economics. 

Call the latter "political economy" or call it "public choice" or call it "politics without romance."

All of my top three appear in this episode reported in today's WSJ: "Uber, Taxis Engage in French Street Fight ... Online Car Services to Oppose New Rule on Pickup Times". And what are the French public servants proposing? "Under the new rule, all car services—but not licensed taxis—must wait 'at least 15 minutes' between taking a reservation and picking up a passenger, more than double what car services like Uber say is their normal wait time. The only exception: pickups at four- and five-star hotels and at industry expos."

Where there are "public servants" there you will find interesting contrivances that seek "level playing fields."

I mention all this because (late to the party) I had my first Uber experience yesterday. The service was many times better than I had been getting from the LA taxi monopoly -- and the fare was lower.

I expect that the local public servants are well aware of the problem -- and that they have it in their sights.  

Pope Francis' turf

In today's WSJ, John Cochrane describes market-based alternatives to Obamacare.  Sounds like a no-brainer but apparently a hard sell in the "real world."

A page away, Paul Rubin writes "How to Roll Back the Demonizing of Free Markets ... 'Competition' carries a negative connotation, despite its contributions to human happiness."

The "How to" part is beguiling but there is a huge literature on how to get the non-zerosumness of markets into the heads of undergraduates and others.  Contrary to Rubin's argument, many of us celebrate the cooperation that happens quite spontaneously in markets.  I, Pencil and variants are widely taught.  Here is the movie.

An uncountable number of many-times-more-complex supply chains routinely serve us.  Unlike pencils, none of us could even describe them.  Baumol and Litan and Schramm note that "The most astonishing thing about the extraordinary growth and innovation that the U.S. and other economies have achieved over the past two centuries is that it does not astonish us."

I think Rubin is on the right track. Non-zerosumness is a wonderful thing. It happens in markets and it is celebrated in the world's great religions (The Evolution of God). This is Pope Francis' turf.

Great conversation

Russ Roberts and Judith Curry talk about climate change.  This is the most enlightening and delightful discussion of the topic I have yet seen or heard.  I am calling attention to it for the benefit of anyone who was not already aware of it.

Enjoy.

My regulators will be better than yours

Joseph Stiglitz writes "In No One We Trust ... Inequality is eroding our institutions and our way of life." in today's NY Times. What to do?

I suspect there is only one way to really get trust back. We need to pass strong regulations, embodying norms of good behavior, and appoint bold regulators to enforce them. We did just that after the roaring ’20s crashed; our efforts since 2007 have been sputtering and incomplete. Firms also need to do better than skirt the edges of regulations. We need higher norms for what constitutes acceptable behavior, like those embodied in the United Nation's Guiding Principles on Business and Human Rights. But we also need regulations to enforce these norms — a new version of trust but verify. No rules will be strong enough to prevent every abuse, yet good, strong regulations can stop the worst of it.

I had to chuckle at the UN recommendation.  More than a few of the member states (and their delegates) are not the folks I would go to for advice on clean government. I also had to smile at the idea that the New Deal years were without cronyism. Those were the days?

We all like to be seen as on the side of the angels. But does that mean we do not consider how great wealth was accumulated?  Was all of it nefarious? Do we begrudge Silicon Valley billionaires who improved our lives in tangible and profound ways?  Did the Wall Streeters who Stiglitz attacks not get bailout help from Stiglitz's friends in high places?

It's easy. My regulators will be better than yours. Very smart people still talk this way. Politics without romance (public choice economics) got James Buchanan a Nobel in 1986 but since then most people have managed to ignore the whole thing.

Were Buchanan still around, he might even see this as ironic vindication. Romantic notions are the last ones to go.

ADDED

Here is "Public Choice 101" from Arnold Kling.

ADDED

Greg Mankiw lists six ways to get median income trends wrong.  All the errors bias results in the same direction?  Coincidence?

Winners and losers

Bootleggers and Baptists explains more than any macro-economic model I have seen. Someone alert the proper Nobel committee. Never underestimate the power of rent-seeking coalitions.

While we're at it, never underestimate the tenacity with which people will hang on to their sunk human capital.  (This is where even economists put aside what they know about sunk costs.)

Today's WSJ includes "California's Bullet Train Derailment A judge says the rail authority is breaking the law. Who cares!" Eminent domain is being used to confiscate private property for a project that will never be completed.

This morning's LA Times includes "Buses are their route to a brighter future" which emphasizes that it's not easy depending on the region's bus system. But it would be asking a lot to get transit fans to connect the dots. The Times has been beating the drums for rail transit for as long as I can remember.  We live in a world of trade-offs and we have less bus transit service now than we could have, had funds not been diverted by the campaign to build rail.  A lot has been spent so that fewer could be served. Where are all those who make it a point to be advocates for the people described in the story?  Read the whole thing.

Many years ago, the advantages of bus over rail for modern American cities was demonstrated by Meyer, Kain and Wohl. But that analysis was no match for the B and B coalition.

Designs

Before the tech-bust of 2000, Po Bronson wrote this:

"Silicon Valley Searches for an Image ... Recently a five-person crew from ABC's 'Nightline' planned a trip to Silicon Valley to shoot a minidocumentary.  Their subjects were preinterviewed, schedules were cleared, flights were booked.  There was only one problem: No one of the crew had ever been there before, and they had no idea what scenery to put on tape. Theye were hoping for the equivalent of New York City's skyline or the Hollywood sign. They needed to point the camera at something that captured Silicon Valley's buzz.  Instead, they found an endless suburb ..." (WSJ, Feb 9, 1998).

That was then. Fast forward and here is Paul Goldberger on plans underway for the Valley:

"In a community that you could almost say has prided itself on its indifference to architecture, Apple, which had already changed the nature of consumer products, seemed now to want to try to do nothing less than change Silicon Valley’s view of what buildings should be."

Read the whole thing. Goldberger is disappointed in how two large projects are taking shape, Norman Foster's ideas for Apple and Frank Gehry's plans for Facebook.

"Undoubtedly, both buildings will bring a degree of architectural excitement to Silicon Valley that it has never seen before. But the real question is whether, for all their ambition, they will do much to change the underlying suburban culture. They are both big, private, sealed-off corporate villas that most people will reach by car. At a time when the city, not the suburb, seems to hold the allure for younger workers in the technology industry, how much will Foster’s refined, iPhone-like architecture or Gehry’s lively, garden-topped workspace matter? Twitter’s renovated office space in an old San Francisco neighborhood may, in the end, be the real harbinger of the future."

The new look will make life simpler for future camera crews.  But employees who can afford it will commute from San Francisco -- which no one designed.  Steve Jobs had an amazing knack for finding pleasing designs for small gadgets.  But how scalable is that knack?

Silicon Valley will continue to thrive as long its workers come up with ideas.  They will exploit the great communications gadgets available to them to do that -- to find ways to interact no matter the design of their work setting. 

Wealth and spatial order of cities

Chris Webster and Lawrence Wai-Chung Lai published their Property Rights, Planning and Markets: Managing Spontaneous Cities in 2003.  They highlight the various "orders" they see relevant to cities, including "spatial order".  In describing the latter, they note the economics of land markets and also the possibilities of externalities as well as their internalization.

I went back to Webster and Lai because I just came across Glaeser and Gottlieb's "The Wealth of Cities: Agglomeration Economies and Spatial Equilibrium in the U.S." Here is their abstract:

Empirical research on cities starts with a spatial equilibrium condition: workers and firms are assumed to be indifferent across space. This condition implies that research on cities is different from research on countries, and that work on places within countries needs to consider population, income, and housing prices simultaneously. Housing supply elasticity will determine whether urban success reveals itself in the form of more people or higher incomes. Urban economists generally accept the existence of agglomeration economies, which exist when productivity rises with density, but estimating the magnitude of those economies is difficult. Some manufacturing firms cluster to reduce the costs of moving goods, but this force no longer appears to be important in driving urban success. Instead, modern cities are far more dependent on the role that density can play in speeding the fl ow of ideas. Finally, urban economics has some insights to offer related topics such as growth theory, national income accounts, public economics, and housing prices.   

They mention density thirty times throughout the article but they do not say much about it. Cities are cities because they are more dense than non-city areas. And we know that this is beneficial -- otherwise cities would not be the "engines of growth."  But there are many possible densities and there are many densities within each city.  In other words there are complex spatial patterns that matter.  How do we get the patterns that work? the ones that enable cities to continue to compete for labor and capital (especially entrepreneurial capital)?

I think that Webster and Lai are on the right track. There are emergent spatial orders. In fact, although they do not say so in so many words, the spatial patterns that succeed are the ones that manage to internalize many of the possible positive externalities -- while  creating enough distances to avoid many of the negative ones.  Profitable locations include ones that deal with externalities this way.

This is how the land market process is essential. This part is much more interesting and complex than just "density".  It also highlights the fact that there are more than just the standard textbook ways (Pigouvian taxes or Coasian rights trades) to internalize externalities.This is part of spatial order. It is part of how cities create wealth.

Gross Output and GDP

Mark Skousen celebrates the fact that Commerce's BEA will soon issue quarterly reports on Gross Output (GO) -- in addition to regular GDP reports.

Most Econ 101 courses cover the various limits of GDP accounting which are well known.  The economy is huge and complex; efforts to sum it up in a single number are heroic.  Compromises are inevitable. "Accountants measure what they can."

GDP is crafted to avoid double-counting.  In the process some data are not reported.  In contrast, input-output accounting and modeling are now widely used and available.  These highlight gross output consequences that do include all inputs and all outputs -- even though the value of the latter may include the value of the former.

Businesses practice double-entry bookkeeping and that has never brought on double-counting worries.  GO and GDP serve different purposes.  GDP reports all of value added. But all of activity is greater than all of value added.

My friends and I have been interested in linking economic activity to infrastructure activity.  Here is an example.  Infrastructure services are required for all material inputs as well as all material outputs.  This is just one example where GDP cannot replace GO

How to really help

Here is Prof Arindrajit Dube's summary of research that points to moderate to negligible unemployment impacts of a minimum wage law.  Here is Prof. Don Boudreaux's response.  Color me skeptical when it comes to claims that the Law of Demand does not hold.  The intuition that higher prices are incentives to discover substitutes has been corroborated an uncountable number of times.  There may be cases where within some narrow range of price hike there are short-term negligible effects.

But this is all the green light that the class-warriors need as cover.  Their redistribution and price-fixing agenda is way beyond any short term and narrow range. Steven Landsburg notes that if there are no unemployment effects, there are likely to be price effects. Who shops at WalMart and MacDonald's? Not the 1%.

But the deeper point is that the only way to really help low paid people is to give them an education and a marketable skill. It is telling that those most eager to be seen as lining up to "help people" are also reluctant to back the radical shake-up of the public schools that might make a difference to the very poorest. The Obama Justice Department fights school voucher programs where and when it can.

Meaningful shake-up has to be bottom-up-demand-driven. This means choice and empowering the parents.  Shake-up from the top is Obamacare.  The difference between schooling and education is best identified by parents, not the people responsible for the current state of the public schools in poor neighborhoods.

ADDED

Here is Pritchett discussing his book with Russ Roberts.

Simple but hard

What governments should and should not do is an old question. Adam Smith had his say.  "Little else is requisite to carry a state to the highest degree of opulence from the lowest barbarism but peace, easy taxes, and a tolerable administration of justice: all the rest being brought about by the natural course of things."  But this is hard because of the great urge by officials to be expansive -- and to get re-elected.

What about cities?  Keep the streets safe, pick up the trash, remove the snow, patch the pavement, etc. Get the basics right. Do few things but do them well.  But here again, the impulse is to do too many things -- and end up doing them badly.  In the interests of "economic development," we gets sports stadia and and a thousand other such projects that feed the local corporatism.

Ray Avent is astute about these questions. He discusses modern American cities and ends this way:  "And so one thing society might want to discuss is whether leaving land-use decisions mostly in the hands of a metropolitan area's local, rich elite is likely to produce the best outcomes or is maybe just a recipe for inefficiency and rent-seeking on a jaw-dropping scale."  It's a simple idea but seemingly very hard to execute

Little else is requisite to carry a state to the highest degree of opulence from the lowest barbarism but peace, easy taxes, and a tolerable administration of justice: all the rest being brought about by the natural course of things.
Read more at http://www.brainyquote.com/quotes/quotes/a/adamsmith408719.html#Tii8xh7HKzXqz1i8.99

Little else is requisite to carry a state to the highest degree of opulence from the lowest barbarism but peace, easy taxes, and a tolerable administration of justice: all the rest being brought about by the natural course of things.
Read more at http://www.brainyquote.com/quotes/quotes/a/adamsmith408719.html#Tii8xh7HKzXqz1i8.99

Exotic and/or sinister

What can economists contribute to public policy discussions?  Job #1 would be to introduce markets and/or pricing where there isn't any.  Greg Mankiw's "Pigou Club" advances the idea but it has been around for a long time (at least since Pigou).  Countless papers and books argue for the pricing of road access, parking spaces, airport landing slots and any other facility where rationing by price is feasible.  If price does not ration something else will. The alternatives, crowding and congestion spring to mind, are usually frowned on. Teachers and textbook authors usually present the basic story with slam-dunk logic and finality.

If you do not like pricing administered this way, consider allowing markets where there aren't any and let them find a price.  Cap-and-trade have practically made it into mainstream discussions.

But it is not that simple.  look at portions of this op-ed from this morning's WSJ:

You know an agency has gone off the rails when its rules make the Ninth Circuit Court of Appeals look like a beacon of sanity. So it goes at the Department of Health and Human Services, where a proposed rule-making is seeking to override the court's decision to allow bone-marrow donors to be compensated for their donations.In 1984, Congress passed the National Organ Transplant Act banning the purchase or sale of organs like livers and lungs for transplants. The intention was to prevent the exploitation of poor donors or self-mutilation for profit (think drug addicts). Swept up in the ban was bone marrow, which produces blood cells and is critical to the immune system.Organs are unique and specialized groups of cells, but bone marrow is a connective tissue that regenerates naturally in a healthy body. In 1984 the typical bone marrow transplant was relatively complicated. Today, you can donate bone marrow through an outpatient procedure called apheresis. A donor receives a series of shots and then is hooked up to a machine that draws blood and collects marrow cells, much like blood donation.

The default non-price rationing here is death.  Many sick people die waiting for a donor.  Altruism is not enough (unfortunately) and introducing (permitting) markets will save lives.  

Here is the rest of the story:

In 2009, the Institute for Justice sued on behalf of Maine resident Doreen Flynn, whose three children have a disease called Fanconi anemia and will most likely need bone marrow transplants to survive. In 2012's Flynn v. Holder, the Ninth Circuit agreed, noting that new technology and the ease of marrow donation put the ban wholly out of step with the purpose of the organ donation law.The Justice Department petitioned for rehearing en banc, insisting that marrow transplants should "not be subject to market forces." When the Ninth Circuit declined to rehear the case, the Administration mobilized HHS, which has proposed a rule that would overturn the Ninth Circuit and define marrow extracted from the bloodstream as an organ. The purpose, says the rule, is to "ban the commodification" of bone marrow used in transplants, "encourage altruistic donations, and decrease the likelihood of disease transmission resulting from paid donations."

Market forces are viewed as exotic and/or sinister in some quarters. "Commodification" is how we get our food.  In fact, absent food "commodification", people starve.  That's been the case in all too many places where "food policy" has banned or discouraged markets.

In the bone marrow case, given the chance to let market forces save lives, the administration intervenes to try and stop them.

"Havoc"?

Would you give up internet use for life for a million dollars? It only costs you pennies a day. It's a great question and Michael Cox's way of illustrating what economists call consumer surplus, the difference between price and how much the item is valued.

We also know that consumer surplus is not in GDP.  And we know that accountants measure what they can.

But people take their economic stats very seriously.  Data releases move markets almost daily.  No doubt the people laboring at the various statistical agencies are smart and hard working, but they have a difficult task -- one that is becoming harder all the time.

So official GDP reports must be taken with at least a grain of salt. And GDP is likely to become a more difficult concept as we get ever more satisfaction from "free" stuff.  These simple observations are a challenge to the increasingly popular stagnation narratives.

This is nicely summarized in the latest James Surowiecki column in the New Yorker (Gross Domestic Freebie.) He adds that these new-economy effects are unevenly spread. What is not? He also mentions "havoc" but that too is inherent in a dynamic economy.  Who really wants to go back to "the good old days?"  Almost no one who is seriously informed.  I usually have two words for anyone who pines this way: "medical science."

ADDED

Same theme but more vivid.

Cosmos and Taxis

David Andersson introduces us to a new journal, Cosmos and Taxis.  The lead essay in the linked issue is by Gus diZerega and lays some of the groundwork, introducing readers to the various themes to be developed.  These include spontaneous orders and spontaneous networks.  The latter includes Jane Jacobs' insights into how cities work: "At a time when many believed cities could be planned and reorganized through directives chosen by experts ... Jacobs argues that cities are too complex to respond predictably to such planning ..."  Read the whole thing.

Johanna Palmberg elaborates the story in another essay. Note that she elaborates the urban agglomeration theme of the spontaneous co-location of complementary firms (as they judge the complementarity and as they see fit).  I have previously stressed the co-location of households and firms -- as workers and their employers behave strategically and also as retailers and shoppers do the same.  Households produce and consume knowledge and can be treated as "firms" in this context.

Questions not asked

David Theroux sends us to this bizarre Obamacare interview with Nancy Pelosi.  Nevertheless, many writers are trying to be charitable. Here is Gerald Seib, who writes that the ACA we got is the most plausible left-right health care compromise in light of current U.S. politics. The resulting complexity of the compromise is the Achilles heel. Here is Arnold Kling also being charitable.

But it's hard to blot out the Pelosi performance; she has long been one of the ACA's most passionate sponsors and defenders. Note how many times she defends herself by touting the ACA's feature that pre-existing conditions are not grounds for insurers' screening or rejection.

But that's not insurance. I could, for example, have the pre-existing condition of multiple DUI convictions and I expect that this would impact an auto insurer's decision of whether or not to offer me a policy. ACA defenders go repeatedly unchallenged (as in the Pelosi interview) when they tout this great reform feature.

The argument for "reform" and  ACA-type legislation often hinges on the poor U.S. showing ("U.S. Ranks Below 16 Other Rich Countries In Health Report") when health care spending is compared to longevity and other health outcomes.  But the health (and unhealthy) habits of many Americans are not addressed by these approaches.  

"Many people might be surprised to learn, for instance, that for more than half the males who die before age 50, the cause of death has nothing to do with disease — and is therefore not amenable to reduction through medical care."

In all of today's health care discussions, most do even mention this elephant in the room.

Most Americans have their health care paid by third parties (private as well as public insurance).  This explains high levels of demand and treatment and also high prices (and costs). But this links to a bigger problem.  In his very readable and informed discussion, Angus Deaton (The Great Escape, p 146-7) points out that most people do not see that the current arrangement lowers their wages; they do not blame slow growth in take-home pay on how they buy health insurance.

One cannot even imagine an interviewer pitching these questions at the Pelosi we see on the video.

Where we are

Media and others have coined the term Abenomics to describe the economic policies of Japanese PM Shinzo Abe.  There are seemingly three prongs:  more fiscal stimulus, more monetary stimulus and "reform".  We hear of late that the third one has stalled.

But this is true almost everywhere.  It is easiest for politicians to turn on the fiscal and the monetary stimulus -- and less easy to somehow turn them off.  "Austerity" is widely disparaged.  Reform means taking on the special interests and that's much harder than spending money.

I mention all this because Kevin Warsh does a fine job of summarizing U.S. policy challenges in his "Finding Out Where Janet Yellen Stands."

I had previously posted some reactions to Edmund Phelps' fine new book, Mass Flourishing. But now, listening to Phelps discuss it with Russ Roberts at econtalk, I get the impression that he is more pessimistic than I had thought when I read the book. Phelps worries about a decline in U.S. productivity growth and is seemingly perplexed about where we go from here.

If we adopt the shorthand of three possible policy prongs, it seems clear that politicians rely on the ones that are easy (spend more money, print more money) but these have almost nothing to do with the problems that they are addressing.  Structural problems are bigger.  The schooling establishment, for example, has a lock on political support and also produces product that badly fits the requirements of the labor market. In that case, all of the monetary and fiscal stimulus will not do much for unemployment rates.  That is where we are and where we have been for some years.

ADDED

Lindsey on Phelps

Off topic: caption contest

I expect that most people have seen the delightful Nov. 11 cover of the New Yorker. But the weekly magazine that most people buy for its caption contest, passed up the opportunity to link a caption contest to this cover.

Let's see. "Fatal conceit" is taken. "Ignorant arrogance" is clunky.  "Arrogant ignorance" is not much better. "Social engineering is hard work" is too long. "Central planning is hard work" is not any better. "Hope and change" is rubbing it in. "If you like your current plan ..." is too painful. “But we have to pass the [health care] bill so that you can find out what’s in it....” is actually pretty good but a bit long.

Full disclosure: I have entered the actual caption contest a few times but never even made the best three. Time to move on.

ADDED

On a serious note, Keith Hennessey cites all the unforced errors.

"More commuters go it alone ..."

In 1997, Loren Lomasky published "Autonomy and Automobility."  He articulated what we all knew, that nothing beats the freedom and mobility of the private auto. This is not about "car-crazy Californians" or such. Look abroad; as people begin to earn, guess what they want. Or, as we used to say, "Ask any teenager."

Today's WSJ includes "More Commuters Go It Alone ... Americans Increasingly Ride Solo or Work From Home; Carpooling Now Below 10%. ... Meanwhile, just about every other way of getting to work has either languished or declined. Carpooling has tanked—falling from about 20% in 1980, when gasoline prices were soaring from the oil shock of the late 1970s, to under 10% in 2012. Public transportation accounted for just over 6% of daily commutes in 1980 and is now 5%. A category the Census calls 'other means'—which includes biking—stands at 2%, largely unchanged over the past decade. These commuting trends come despite efforts to get people to use public transportation or other alternatives. ..."  The writer could have added that there are no signs that these efforts are even being re-thought.

None of this is news. It highlights the power of the Bootleggers and Baptists insight. Once a coalition forms that includes those who feed at the trough (favored construction interests in this case) holding hands with greens who will support any program that might challenge automobility, it is game-over. This is a much more powerful public policy analysis than all the silly stuff about "evidence-based" policy and serious cost-benefit accounting.

Bad fixes

Pre-ObamaCare health care in America had many critics. Daniel McFadden referred to that "system" as "A Dog's Breakfast." I have kept that clipping around since it appeared in 2007 as a useful classroom conversation starter.

McFadden's essay must be recalled in light of what the apologists are now reaching for as it became apparent that many Americans will not be able to keep their health plans. This morning's NY Times editorialized that those were "Policies Not Worth Keeping". The President just "misspoke".

One could say that the last refuge of a political scoundrel is the rhetorical device of a false choice. The Dog's Breakfast vs. Obamacare. Various state legislatures have been in bed with various insurance companies and assorted lobbyists for years. We get restricted competition (including barriers to inter-state buying and selling of policies) as well as a heap of mandated coverages. We also have favorable tax treatments of insurance plans as long as long as they are employer provided. On top of that we have Medicare and Medicaid which weigh in with their own requirements. Both the private and the public insurers invite price discrimination that pundits routinely see as some sort of fraud

All of this is well known and better explained by health care scholars. Here are five common sense reforms that (sad to say) both political parties have shied away from. It is the old story of bad policies prompting a demand for fixes by way of more bad policy. 

Sprawl again

I had previously cited Bumoo Lee's study (here) of commuting in 2000.  He looked at where commuters worked (downtowns, sub-centers or dispersed) for the 14 largest MSAs in 2000. Of these 42 average trip times, the shortest commutes were for workers driving to dispersed job sites in Phoenix. Call it sprawl.

There are good commuting data from NHTS 2009.  These are the most detailed, offering summaries of individual records for MSAs for four metropolitan subdivisions: "urban," "suburban," "second city," "town and country," as well as the "metropolitan" area as a whole.

Consider NHTS' three major trip types: journey-to-work, home-based shopping, and home-based recreational.  Consider also average trip time for each area and purpose as well as the corresponding variances.  There are, then, as many thirty readings for each major metropolitan area (three trip types, five area designations, two statistics each). There are fewer than thirty readings for some MSAs where observations are too few (I ruled out cases of N less than 100).

I looked at the 14 major MSAs that Lee studied. Which of these had the most of 30 possible readings better than than US 50-metro area average?  You guessed it. For Phoenix, 29 of the 30 readings beat the 50-area overall. No other metro area came close. Call it sprawl.

This is all about the co-location of people and their destinations.  Co-location was most successful in most places for shopping trips.  Where was co-location least noticed?  In Washington, DC. As far as worktrips go, Washington's major employer is the least footloose.  The traffic consequences are clear.

Head-to-head comparisons between Phoenix and Portland (not one of Lee's biggest 14) were possible for only four summary statistics because of small NHTS sample sizes for Portland. For journey-to-work metropolitan area average commute times, Portland outperformed Phoenix, 22 minutes vs 24.6 minutes; for the corresponding variances, Phoenix wins, 263.1 vs. 414.9. For metropolitan area shopping trips, Phoenix wins, 11.9 minutes vs. 14.4 minutes.  For the corresponding variances, Phoenix wins again: 91.5 vs. 154.7. But in 2009, Phoenix had a population almost 70 percent greater than Portland. Good for sprawl.

I must say that the cost comparisons ignore the benefits side and are therefore incomplete. But the "high costs of sprawl" have been the popular drumbeat for years.

What goes up?

I enjoyed Joe Studwell's How Asia Works: Success and Failure in the World's Most Dynamic Region.  The author notes (p. 267), "The historical review of east Asian economic development shows that the recipe for success has been as simple as one, two three: household farming [land reform], export-oriented manufacturing and closely controlled finance that supports these two sectors." He attacks western economists who (seemingly) push the "Washington consensus" view that Studwell disdains.

The author makes his case by carefully describing the post WW II experiences of Japan, Korea, Taiwan and China. Thailand, the Philippines and Indonesia did not or could not execute one-two-three. North Korea, Cambodia, Myanmar and Vietnam would merit another book.

Is one-two-three the "Take-off" of W.W. Rostow's famous Stages of Development? Studwell seemingly thinks so. I am clearly not an Asia expert, but I have two questions.  The first comes from Econ 101, "At what cost?" For the case of China, the answer boggles the mind. 

The second question comes from Tom Sowell. He suggests "And then what?" This weekend's WSJ includes Josef Joffe's "China's Coming Slowdown: History shows that every economic miracle loses its magic. How much longer can China sustain such astounding growth"?  Post-1980s Japan offers one lesson. Here is Joffe's summary of what the others have done. You have to wish them well. But a betting man would look at the record.

Bad spiral

Incumbents in the U.S. House of Representatives are overwhelmingly re-elected.  The explanation is simple.  Most are gerrymandered into safe districts.  But these graphics show that U.S. Senate incumbents are re-elected with about the same frequency. Senate seats are not gerrymandered. What is going on?

A related data point involves the widely cited Congressional "approval ratings." These have apparently gone from 73% in 1958 to 19% now. Why do commentators even cite these in light of the incumbent re-election frequencies?

There is a fascinating discussion of voter ignorance (rational, irrational, or any other kind) at Cato Unbound. Most people are basically sensible, but the opportunity costs of further investigation rise quickly while the marginal benefits are small, usually limited to the joys of team membership. The political parties understand the game and realize that obfuscation is a plausible strategy.  This makes the costs of sorting out arguments much higher for voters. The political parties, of course, find common cause with interest group lobbyists who spend wisely and generously.  We have seen that politicians cannot figure out a way to spend less of other people's money.  The "sequester" was pathetic.

High opportunity costs of participation is good news and bad news. The fact that many people have bigger fish to fry is good news. The fact that successful obfuscation causes many to decide it's hopeless to bother is the bad news.  We end up with a bad spiral when enough people are turned off for interest groups to have their way. That augments obfuscation by the entrenched, etc., etc., etc.

It is happening

The Copenhagen Consensus project is a heroic attempt to conduct some very difficult policy analysis. Where markets cannot be expected to do their magic (e.g., vaccines or treatments for rare diseases), we rely on policies. Choosing among these is a huge challenge. Economics is useful here because it is micro, not macro, that is relevant.

Here are the Copenhagen Consensus current recommendations for sixteen policies that ought to be priorities. Look them over. Chances are that most people have not heard of most of them.  You will not find green energy, sustainable development, high-speed rail, obesity, or any of the favorites of western media and policy elites.  In a world of scarcity, this is of course tragic. Rather than take actions that channel resources to where they can quickly save and prolong lives, we have long and learned discussions of policies that make elites feel good about themselves

Can we turn Copenhagen around and pick and rank the most wasteful and most mendacious projects or policies? The choice set is huge and the ranking would be difficult. Brad Hill alerts me to a contender, California high-speed rail.  I know that many thought it is so crazy that it will never happen. Wrong. It is happening.

Market failure?

If you just just make an effort, you can find market failures everywhere. Many of my friends explain that some Americans are obese because they are stuck in "food deserts" -- places where dark forces (profits) conspire to keep the locals from eating healthy foods. The many food truck operators (as well as the rest of the food industry) have not noticed and have ignored the opportunity to rush in and fill a market void (profit).

Today's WSJ reports "At McDonald's, Salads Just Don't Sell". Letting the international leader in food marketing do what they do best creates the "food desert" phenomenon. But shame and browbeat them into going against their professional instincts and doing the right thing and what happens? Apparently nothing? What to do?

Make them a public utility. We can do that with health care and health insurance. But that may have its own issues. At this writing, HHS cannot get their health exchanges to work. There are "technical problems." And HHS will not reveal (just yet) how many have signed up.

But these things can be fixed. Spend enough money and the government can put a man on the moon. You eventually run out of other people's money (M. Thatcher)? No true. In recent weeks, Congress proved that.

Not the flu

Elizabeth Kolbert writes about Malthus and neo-Malthusians in the current New Yorker ("Fertilizer, fertility, and the clashes over population growth"). I once (briefly) thought that Julian Simon had dealt Malthus a knockout punch but that was silly of me. I mean knockout not only in the way of ideas (people have brains and hands as well as mouths to feed) but also by putting his money where is mouth was and winning the bet with Paul Ehrlich. Kolbert cites Ehrlich and his poor forecasts ("England and all civilized nations stand in peril of not having enough to eat.") but fails to mention Simon or the bet.

She takes a dig at Jonathan Last and then ends on a very strange note. Social insurance proponents had guessed wrong about population growth. This has now put these Ponzi schemes on thin ice. So some guess there will be too many people (Ehrlich and the Malthusians) while others (social insurance engineers) underestimate fertility and population decline.  She seems to shrug.  "It seems that one world can't have two population problems: either the glass is too empty or too full."  Forecasting is hard work.

Kolbert could not bring herself to suggest that lawmakers go easy on the social engineering. That would improve the odds of high-fertility places developing. Let people become prosperous and they will choose smaller families. Depopulation is not some flu-like thing that just seems to show up unexpectedly.

To the rescue

Here is Russ Roberts' interview with Cliff Winston re Cliff's recent JEL paper. Various important points are made. 1. Try privatization of facilities; we would be surprised at what entrepreneurs come up with in terms of innovation; 2. Try experimentation; give cities and states the leeway to experiment (even as they receive federal money); 3. Get the prices right before you decide that more "needs" to be built.  Hear, hear.

My one quibble with the discussion is over the discussion of congestion on U.S. roads and highways. Of course, there is too much of it where we do not price. But it is also true that average commuting times are remarkably constant over time. ACS (site shut down for some strange reason) reports the U.S. average at between 25 and 26 minutes for every year between 2000 and 2010), over metro area sizes, as well as within metro areas (between cities and suburbs).

We have recently found that even travel time variances are remarkably invariant to metro areas size. Workers and their employers do a fairly decent job of staying within each other's range.  Land markets are quite encumbered with rules and regulations, making this result interesting.  The land market comes to the rescue of transportation policy.

No paradox here

We are on fairly solid ground when we study revealed preferences. Until the neuroeconomics people make a lot of progress, that may be it. There are many "happiness"surveys and I have no idea how to interpret them. We all have mood swings and making inter-personal comparisons is risky.

I just read "Stress that Doesn't Pay: The Commuting Paradox" (by Alois Stutzer and Bruno Frey; H/T Wendell C). Why a paradox? Because if surveys show that long commutes are judged onerous by commuters, that would contradict the idea of a theoretical equilibrium wherein markets adjust to compensate those who travel further.

But perhaps there is no paradox.  Minimizing the commute is neither realistic nor desirable. The average commute in the U.S. is remarkably stable -- while everything else changes (Anas in Brooks et al.). Most workers and their employers seemingly choose locations that keep the whole thing ("costs of sprawl") in check. Many people actually choose a longer commute because they traded that off against a hundred other things in their lives that matter. They may want to be near a particular school, amenity, spouse's job, etc.

Twenty-five years ago, urban economists wrote about "wasteful commuting."  People took longer trips than a very restrictive model or cities predicted. "Wasteful" was always in quotation marks. Stutzer and Frey have not really discovered a paradox.

Detroit and much more

Today's WSJ includes "GM Prods Dealers to Sell Cars Online ...Software Lets Shoppers Bypass the Showroom."  There is an app. But there is also understandable opposition from dealers, most of whom have state franchise laws on their side. Dealers are influential in local politics.

I just read David Nye's America's Assembly Line which I greatly enjoyed. The book is a great blend of history, economics and engineering.  Students in at least these three fields will learn plenty.

But, to go back to today's GM news, Nye mentions that in 2002 only 6 percent of American cars were made to order whereas more than 60 percent were ordered this way by Japanese and German customers. "As a result, US automobile production was still 'pushed' to the consumer far more than it was pulled by orders" (p. 236).

Even great authors stumble. Why, of all people, does Nye mention "planned obsolescence" (p. 261)? Surely, Nye knows that the international competition he writes about has increased the quality and longevity of cars.  Nevertheless, a great read.

Hope

Richard Thaler writes about Americans' appalling financial illiteracy. As a result, many plan poorly and become dependent on others, including the various forms of public assistance.  This links to the various debts and unfunded liabilities at the various levels of government.  Timothy Taylor cites a 75-year $50-trillion problem at the federal level (mostly medicare and social security).

Federal budget problems are all over the news and have given us the (partial) closure of the federal government, the debt ceiling debate(s) and all of the associated problems.  Both sides have their well rehearsed talking points, many of which were recited on this Sunday morning's TV talk shows. It is just sound bites and talking points because of the many uninformed and untrained in the audience who Thaler writes about. They would be unable to grasp national financial planning and debt if they cannot even understand their own financial situation.

What to do? Tyler Cowen mentions that the brightest spot on the horizon for improved learning involves games. Here is the relevant quote from his recent econtalk conversation with Russ Roberts:

Russ: I agree with that. Let's talk about games. You have some interesting things to say about games and the application toward education. Guest: Well, if you ask in what sphere of modern life has education really succeeded, I think it's gaming. These games are incredibly complex. When I look at them I feel they are too complicated for me; I could never learn them. But the people who are interested--the game itself teaches people how to play. It's all done by software and very often online. And it seems it really works. They teach you in steps. They make it hard enough to be interesting but easy enough that you feel you are making progress. And in my view the big educational breakthrough has already come with games. It's just a question of how do we apply that to educating everyone else to do other things. And we're far behind on that. Russ: What are some of the ways that might be applied? Guest: Imagine an intro to economics textbook but structured more like a game, where you move on to different levels and maybe you capture pieces or you acquire points. And there's a competitive angle. And I'm not saying everyone has to do it that way. But I think there's really a big chunk of people who get interested in games, who would otherwise, say, never be interested in medieval history or battles or whatever else, but the games get the interested. And I think that's a big frontier for education, where we've actually solved the problem. We don't quite even know we've done it yet. Now we just need to apply what we've already learned.

Bill Gates and other philanthropists have been supporting various educational experiments. All this suggests that the way out may involve pairing philanthropists with gamers. The latter would have to invent games that boost financial literacy. Would that put an end to the sorts of claims the talking heads and pols were making on TV this morning?  One can hope.

Chicken and egg in LA

Last June, the LA Times lamented the low voter turnout for LA's recent mayoral election (23.3%). Today's LA Times reports that (no surprise to those who live here) we lead U.S. big cities in the condition of our roads ("L.A. has worst big-city road in the nation ...").  A coincidence?  Just like the fact that chickens and eggs are often found in close proximity. Chicken-and-egg will probably go on for a very long time. In our other cycle (voters are turned off-interest groups win and take all the money-city services decline-voters are turned off) how long can that go on?

Los Angeles' core area will continue to have declining share of a growing metropolitan area. The core and the periphery continue to hang on together -- even as their relative weights continue to shift. The New York metropolitan area has been #1 in the U.S. for a long time, even as New York City went through bad as well as good times.  LA has been #2 for many years too (although not as many) for the same reason. Chicago has been #3 since 1960 when it switched places with LA. There is remarkable stability at the top because big cities get big suburbs.

How can "car crazy" Los Angeles have the worst roads?  How can it survive with a dysfunctional city hall? It hangs on as center of a large patch that offers just enough variety of opportunities to remain attractive to just enough labor and capital. This suggests that the dysfunctional city hall will also survive.

Not how this game works

The LA Times reports polling of California voters, the majority of whom now report buyers' remorse and worry over the California bullet train project. "52% want bullet train stopped, poll finds ... California voters are showing signs of buyer's remorse over the $68-billion bullet train project, poll finds." 

Sorry guys. That is not how the game is played. 

Sunk costs are irrelevant every time businesses drop product lines or even close shop. These are tough choices made every day. But sunk costs are seriously considered in emotional contexts. Marriage counselors routinely deal with some version of "I cannot leave this [unpleasant] relationship; I have invested so much in it." My guess is that such counselors do not then reach for the economic thinking.

It is not at all strange that sunk costs are taken seriously in politics.  When it is other people's money, we may as well go with unexamined impulses.

Here politics as usual where rhetoric matters.  The great practitioner of all this was Robert Moses. Robert Caro does a good job laying it all out in The Power Broker.  My copy is not handy but the key passage is cited by Peter Ubel here.

Is this a cynical use of power? Is there any other kind? Is the "buyer's remorse" of Californians relevant to anything?  Once some concrete is poured, it's all over.

ADDED

Here is Timothy Taylor citing a wonderful paper by Cliff Winston.  The way transportation should be (Winston) and the way it is (Robert Moses, Jerry Brown and countless others) remain breathtakingly far apart.

Beyond zero? (not a Fed funds rate story)

What is the most important thing we learn from economics? High on the list would be the idea of consumer sovereignty. That goes with the idea of the invisible hand.

Consumer sovereignty leads us to the idea of subjective choice and the conclusion that consumers evaluate options in consumption in their own personal ways.  Actually, they trade-off the various (many) aspects of any consumption choice.

This is why we say that judgments of "good" vs. "bad" substitutes are in the eyes of every beholder.

This is all old stuff but it comes to mind when one sees "College Football, Minus the Students" in today's WSJ.

The scene at home football games here at the University of Georgia is almost perfect. The tailgate lots open at 7 a.m. Locals brag of the bar-per-capita rate. The only commodities in greater abundance than beer are the pro-Bulldogs buttons that sorority girls wear.

There's just one problem: Some students can't be bothered to come to the games.

Declining student attendance is an illness that has been spreading for years nationwide. But now it has hit the Southeastern Conference, home to college football's best teams and supposedly its most fervent fans, giving athletics officials reason to fret about future ticket sales and fundraising.

As it turns out, Georgia students left empty 39% of their designated sections of Sanford Stadium over the last four seasons, according to school records of student-ticket scans. Despite their allocation of about 18,000 seats, the number of students at games between 2009 and 2012 never exceeded 15,000
.
Winning isn't even necessarily a solution. The average student crowd to see last year's Georgia team—which finished the season ranked No. 5—was almost 6,000 short of maximum capacity. Even at Alabama, 32% of student seats went unused by students between 2009 and 2012, when the Crimson Tide won three national championships. Alabama coach Nick Saban wrote a flattering letter last week in the student paper to recruit students back.

Georgia officials have been so concerned by student attendance that they reassigned 2,000 seats previously reserved for students to young alumni before this season. "It was a significant hole, and it was very noticeable," Georgia athletic director Greg McGarity said. "It was way too obvious."The inscrutable behavior of 18-to-22-year-olds is actually understandable in this case: For students today, there are more reasons than ever to skip the game.

The cellular reception at the stadium is bad. The nonconference schedules these days are worse. And the high-definition broadcast at home (or at the frat house, the bar or wherever) is gorgeous. The result is students are focusing on the few marquee games—like Saturday's matchup of No. 6 LSU and No. 9 Georgia—at the expense of others.

We have options as never before. Being at the bar (or wherever) in front of a large HD screen with closer rest rooms, perhaps a larger selection of beers (and more), often at lower prices (and no limits) than at the stadium appeals to many. Add better smart-phone reception, a controlled climate and much more and we see the results. Video on demand will only get better and cheaper.

So the biggest straw man is the thought that there is nothing like being there. For some, yes. But this is a moving target.  Attitudes change.  Many already have.

Dropping the prices of stadium seats my not end at zero.  Perhaps it might be a good idea to pay people to attend and fill those empty seats. That would make for a great looking stadium spectacle -- for all those watching on their big-screen or small-screen devices.

Phelps on cities

If you like reading economic history (how can you not?), one of the best I have seen is Mass Flourishing by Edmund Phelps. I am not sure I agree with his analysis of today's economic problems, but the first half of the book is splendid.  He asks the basic economic questions.  Why are some places rich and some poor?  Why did economic growth really get going in 1815-1820 -- and then in only a few places in Europe?  Phelps carefully evaluates all the usual suspects (culture and institutions being high on the list although he thinks they are linked). But then reports he is still short and something is missing.  I quote at length from pages 104-106 because his analysis is compelling.

Yet something is missing.  Why was it that, next to innovation in the 19^th century, especially after the first quarter with its wars, innovation was so paltry throughout the 18^th?  The answer may be that something may have grown to multiply or amplify the faint impulses of innovation – to potentiate the democracy and the vitalism that were already present at relatively high levels by the last quarter of the century.  But what might that something be?  Economic historians appear not to have identified it.  Why did innovation come earlier to Britain, America, and possibly Belgium than to France and Germany?  We do not have to share de Tocqueville’s impression that culture is everywhere the same to wonder whether differing intensities of the above forces argued to be central – the corporation, democracy, vitalism, and economic freedom – can wholly or largely explain why France and Germany got their dynamism later that the others.

The missing piece, which is obvious once one hits on it, is population density – the number of working-age persons in the country, excluding remote areas.  Not many innovations in a country can be encouraged by its culture and promoted by its institutions if there are few minds.  (Why, then, are Icelanders, with their small numbers, not backward and therefore poor?  The reason is their proficiency in English and Scandinavian languages virtually integrate them into the economies of America and Europe.)  Having more persons, all energized by vitalism and encouraged by democratic limits on arbitrary powers, surely increases the total number of new ideas being generated, even it leaves unchanged the number per generator.  Further, if the resulting new products and methods generally lead not to private use by the developers but to adoptions over the country – to diffusion – the end result is an increase in the number of innovations:  the new products developed by companies themselves and those developed by other companies, which grew in number with the increased population.  Thus, the more people there are in a rather integrated country to inspire, develop, market, and try out new ideas, the greater is its prospective rate of indigenous innovations per capita – provided the necessary institutions and culture are in place.  (Why, then, was China, despite a population far greater than that of Britain or America, not generating many innovations in the 19^th century?  Or earlier?  There was a phenomenal abundance of entrepreneurs in China’s cities in the 18^th century, the Irish economist Richard Cantillon reported in his 1755 study.  The reason is China was seriously lacking in the economic institutions or the economic culture of both needed for innovation, indigenous or exogenous.  It is far less lacking in the 21^st century.)  If the economy of the West experiences more innovations per capita now than 100 years ago, it is mainly because there are many more people engaged in innovation in that economy;  it does not follow that every (or any) subpopulation of a given size generated more new products and methods. 

The benefits of increased population come not only from more creations, most of them available for adoption by others.  If new ideas and new products based on them are striking a country, they are likely to spread faster through the economy the more dense the population is – just as heat travels faster when there are more molecules and a disease is apt to spread faster (and farther) through the world the greater the population size.  Ideas are communicated very much like diseases.  More people, more relays.  Also:  more people, bigger market.  The Beatles could play 1,000 nights in Hamburg, that city being big enough, but not Liverpool.

It's the cities and their role in facilitating the exchange and development of ideas. Yes, it's Jane Jacobs but in the hands of a masterful economist. Phelps' broad brush uses a generalized population density measure but notice that he has to arrived at his story, having carefully explored the others contenders.

Urban economists have for most of the history of the field modeled the journey to work as the spatial organizing principle. Recently, they have rediscovered Jane Jacobs.  The exchange of ideas is a key dynamic force.  

Aggregating capital (as many economic theorists do) does great harm because we get economic growth if capital markets screen projects so that we get the good ones and do not invest in the bad ones. But we should no sooner aggregate land.  Location matters and sites have peculiar advantages. We want an assignment of activities to sites such that producers (including individuals) go where they think they can be productive.  This includes where they can burnish their thoughts and ideas.  Ray Oldenburg wrote about this.  Look at the title of his book.

Snowflakes and cities

There is so much in Vernon Smith's Nobel acceptance speech (recording here and reprinted recently in the AER) that I have been going back to it more than once. Start with the three quotes that he begins with. Look at the one by Herbert Simon.

We have become accustomed to the idea that a natural system like the human body or an ecosystem regulates itself. To explain the regulation, we look for feedback loops rather than a central planning and directing body. But somehow our intuitions about self-regulation do not carry over to the artificial systems of human society. (Thus) ... the ... disbelief always expressed by (my) architecture students (about) ... medieval cities as marvelously patterned systems that had mostly just “grown” in response to myriads of individual decisions. To my students a pattern implied a planner ... . The idea that a city could acquire its pattern as “naturally” as a snowflake was foreign to them (Herbert Alexander Simon, 1981, 1996, p. 33).

Cities as snowflakes does not mean that the cities or the snowflakes involve a central planner. I often cite an old David Brooks NY Times Magazine piece (April 9, 2000) in which he notes that, "The ritziest suburbs are filling up with urbanites who swore they'd never live there. To make them feel at home, retailers are rapidly turning suburbia into SoHo."  We get this outcome (and an uncountable number like them) from markets, not planners.

A propos Brooks, my student Qian An has found that the average time spent to get to a shopping destination in the large U.S. metropolitan areas was just over 14 minutes in 2009. It was just over 13 minutes in the suburbs. The travel time variance was also smaller in the vast and "sprawling" suburbs. That is one nice snowflake.

The half-life of cliches is a thing to behold

Today's NY Times includes "Is Suburban Sprawl On Its Way Back?"  Not to beat dead horses, but it was never gone. Most Americans not living in rural places live in "the suburbs". This has been the case since 1970 (see Table 1-15).  Wendell Cox has been flogging this issue for years. Bob Bruegmann spelled it out carefully in one of my favorite passages, as follows:

Most American anti-sprawl reformers today believe that sprawl is a recent and peculiarly American phenomenon caused by specific technological innovations like the automobile and by government policies like single-use zoning or the mortgage interest deduction on the federal income tax.  It is important for them to believe this because if sprawl turned out to be a long –standing feature of urban development worldwide, it would suggest that stopping it involves something much more fundamental than correcting some poor American land-use policies.  In the following chapters I will argue that the characteristics we associate today with sprawl have actually been visible in most prosperous cities throughout history.  Sprawl has been as evident in Europe as in America and can now be said to be the preferred settlement pattern everywhere in the world where there is a certain measure of affluence and where citizens have some choice in how they live.

The writer and editors of the Times' piece could also have benefited from just a little research beyond the likes of Smart Growth America. The article dwells on all the awful commutes that must be the fate of suburbanites. But there is more to the story. Prof Alex Anas has summarized substantial research on commuting and cities this way:

The data on the largest U.S. MSAs show that commute times increase only slightly with city size: the elasticity of the average commute time with respect to the number of workers was about 0.1 in 1990 and 2000. (p. 146 of this Handbook).

People and firms make location choices that are strategic rather that suicidal. This includes finding ways to avoid impossible commutes. But that is a matter of trade-offs and we all make individual choices, including lengthy commutes by some, all things considered such as schools, prices, other destinations, etc.

Looking at the bigger picture is always a good idea. But that old time religion casts its own spell.