Food and profit

Most NY Times readers have pretty good lives because they live in a world where sellers' interests and buyers' interests can be aligned.  It is a sweet spot that business people spend their lives seeking.  Writing in last Sunday's NY Times Magazine, Michael Moss ("How the processed food industry creates the crave") has another view.  He investigated how food industry people work to find the "bliss point".  He refers to foods that consumers like and that are profitable for producers.

The creation of cheap calories can also be seen as a great success for science and market.  Our ancestors worried about famine and death by starvation.  But Moss and many like him are not happy.

I do not know if there is any science to food "addiction".  I do know that self-control is hard for many.  But I prefer a world where we all live with our own demons.

We get nannyism because many prefer that world (e.g., Michael Bloomberg and many others). When pressed, they trot out externalities arguments. There may be second-hand smoke health hazards but most of us can find ways to steer clear.  Private owners of common area spaces can easily figure out what kind of atmosphere their customers prefer.  The externalities argument from obesity-health problems exists because we are not allowed to live in a world where insurance pools and insured can select and court each other.

Finally, I do not worry about Bloomberg's wealth but Moss and many others surely keep an eye on their 401k balances.  In fact, the mantra is that most of us are too skittish about stocks; too skittish, we trade too much.  I will never know how people can be so dismissive of profit-seeking in general but so keenly interested in the profits they earn.

ADDED

Speaking of sweet spots, Craig Newark sends news of Lay's Chicken and Waffle chips.

Michelle Obama writes about healthy sweet spots and how "we" can help businesses discover them.

Hollywood

Mary Theroux explains why she thinks that the recent "Oscars" ceremony was one big Hollywood-Democratic party lovefest.  But are we suprised?  Both groups are seemingly convinced that they have a corner on "fairness".  Both groups believe that by being redistributionists they are on the side of the angels.  Both groups believe that crony capitalism is practiced by everyone but them.  Both groups believe that everyone else is boorish and that they are not.  With so much in common, how could there not be all the public display of affection?

Interesting that Amy Davidson of the New Yorker finds plenty of boorishness on her side.  Read her "Seth MacFarlane and the Oscars’ Hostile, Ugly, Sexist Night."

ADDED

Economist Dave Berri ("An Economist on the Oscars") notes that the best movie of the year was actually Marvel's The Avengers (H/T Freakonomics) -- when judged by 2012 revenues.  Without defending the Academy's choices, can it be that consumer sovereignty falls flat when it comes to artistic virtue?  Of course.  Both are worthy.

Telecommuting and networking

USAToday reports that Yahoo employees will have to work at the office ("Ban on working at home goes against trend").  No more telecommuting. "Yahoo's decision is meant to foster collaboration, according to a company memo sent to employees Friday."

I have mentioned networking often at this blog.  Whereas most of urban economics is focused on commuting and residential location equilibrium, most people make location choices much more complex than journey-to-work-based.

In fact, firms as well as individuals seek locations from which they can manage the various networks that matter to them.  We network from home and at the office.  We network face-to-face, via auto access, via long distance travel and electronically.  We look for places and situations that help us to manage the various networks that matter in our lives.

Firms also manage many networks; they look for locations from which they can do this best.  Firms manage supply chains for goods as well as information.  Individuals manage supply chains for ideas.

The musical chairs that people and firms do as they seek to manage all of their networks gives us the cities we have.  This is all subject to the forces of history and some lock-in effects.  This is why there are no "good" or "bad" city densities.  Rather, there are complex patterns that emerge -- if we let them.

Back to the Yahoo story.  The "best" way to arrange the various networks that matter involves a dynamic process of discovery.  Is Yahoo's new policy re teleocmmuting a good idea or not?  They (and we) will have to see.

Where are the smarts?

David King alerts me to the "Strong Towns" website, in particular, this "orderly but dumb" discussion, where the writer evokes the contrast with the preferred "chaotic but smart."  But who is being smart?

I have been wary of policy makers who arrogate "smart" to their approach because it usually reveals amazing hubris.  "Smart growth" has been city planner's favorite for for some years.  You  must wonder about the unintended irony.  Hillary Clinton would campaign against Republican foreign policy by invoking the prospect of "smart power."  Who can resist that?

Hayek's "The Use of Knowledge in Society" bears a theme that is wise and also studiously avoided by those who could use the message the most. It is their kryptonite.

Alain Renaud was the keynote at the USC Lusk Center's Rena Sivitanidou Annual Research Symposium last week.  He spoke about "Urban Structures, Markets, and Mobility."  Alain presented an amazing amount of data from major cities around the world.  He referred to the "new proletariat." These are people who commute more than one hour each way.  There are many large cities with many such people.  But look at the U.S. data from the ACS.  What proportion of Americans commute longer than 90 minutes (the ACS cut-off). Less than 2.5%. Only 8% report more than 60 minutes.

How did we achieve this benign result in a world of second-best? Policy makers are still wary of proper road pricing. But workers and employers are well aware that it is in their interests to avoid expensive commutes and try to locate accordingly -- when and if we let them.  They are being "smart", as we expect them to be.

Im Possible

Here is on of my favorite Jane Jacobs quotes: “Their intricate order – a manifestation of the freedom of countless numbers of people to make and carry out countless plans – is in many ways a wonder" italics mine.  She got cities better than anyone.

Here is the NY Times' report of the NYU smart cities project.  Big data can be a wonderful thing but I try to digest the Times' report alongside what I read daily happens in Los Angeles' city hall (and many others).

Big and little data on how big money for big transit has paid off for U.S. cities have been around for a long time.  But no one in city hall seems to think that this matters.  City hall is run by interest groups and I wonder if big data will make the policies we get smart.

But back to Jacobs.  The plans that matter most are the plans that people have -- for their businesses, their families, their groups, etc.  Markets are known to coordinate an uncountable number of plans.  So it is with land markets -- if an only if we allow them to be flexible enough.  But our experience has been that big data often gives top-down planners the impression that they know better.  As Sam Goldwyn used to say,  I have two words, "Im Possible." 

Running things

Here is a nightmare:  You own or manage a large (or not so large) business or organization.  How do you manage all of the people involved? How do you incentivize and monitor them? How can you be reasonably sure they are all "on the same page"? How do you manage all of the various transactions costs involved?

Business schools have been teaching classes that mull these challenges for many years.  Ronald Coase famously brought these problems to the attention of economists. The firm is no longer a "black box" that can be adequately described as the challenge of equating marginal this to marginal that to marginal something else.

The variety of actual rules in play is much more complex and much more interesting. Ray Fisman and Tim Sullivan provide a very readable tour of the problems and approaches in The Org: The Underlying Logic of the Office.

 

Where are the happy and the sad?

Big Data, like everything else, will not be an unmixed blessing.  David Brooks elaborates here.  A subset of Big Data is happiness data, and a subset of that involves the geography of happiness. Now there is twitter-based geography of happiness data (hat tip TMG).

The freedom to pursue happiness is a wonderful thing. But the advice of where and how to do it has morphed with the self-improvement genre.  Endless demand and, therefore, supply. Cosmo and Playboy (and such) feasted on offering a steady stream of advice on how to catch (and satisfy) that man or woman.

Unlike slippery happiness, being good is within almost everyone's reach.  In fact, it may even make one happy.   

Economists have good stories

Economists have good stories.  They have theory, math and econometrics, but they also have good stories.  Pietra Rivoli's The Travels of a T-Shirt in the Global Economy (2nd ed.; I am late to the party again) is a superb story. It is one thing to mention supply chains, it is another thing to think about them for a few minutes (I, Pencil) but it is still another thing to follow cotton from Texas cotton field to manufacturer (usually abroad) to U.S. stores and consumers and then to the Tanzania rag trade. Along the way Rivoli tries to disabuse some Georgetown University student activists of the morality tales on which they build anti-globalization protests.

Here is the start of Chapter 13, "Where T-shirts go after the Salvation Army bin ... In the wealthy and normally well-mannered Washington suburb of Bethesda, Maryland, the competition is heating up.  It is a Saturday morning and soccer moms are in a race to throw things away." The truck fills up and leaves before the moms are finished.  Rivoli also mentions that the moms shop for new shirts on the same trip at the same mall where they encounter the Salvation Army truck. "It is easy to see the simple dynamic of secondhand T-shirts in a wealthy U.S. suburb, all supply and no demand" (p. 216).

"My T-shirt story, then, is not a tale of Adam Smith's market forces, but instead a tale of Karl Polanyi's double movement, in which market forces on the one hand meet demands for protection on the other" (p. 255).

No theory without data; no data without theory. But included in the data, there must be the good stories too.

Media bias?

To his great credit, Pres Obama spoke about the problems of families, the lack of fathers, in Chicago and how that contributes to gangs and gun crime.

But as he made clear in Chicago it will take improvements in the home environment for children to keep them off the streets and that this will require help from parents, teachers and clergy.

"When a child opens fire on another child, there is a hole in that child's heart that government can't fill," Obama said. (Reuters)

He went on to cite the lack of fathers in too many homes. But the PBS Evening News (and all the other coverage I saw), to their great discredit, only heard and reported Obama's call for gun control legislation.  But Chicago already has some of the toughest gun controls.  An alert audience would have been wary of the gun control message in the midst of the murder sprees there.  An alert audience would also have noticed that the President acknowledged that there are serious cultural problems. More gun control chestnuts only divert attention from the hard problems.

It's not "media bias".  It is worse.

ADDED

To be clear, is it conscious filtering or unconscious filtering?  I fear it is the latter.

Smart libertarian guy meets smart occupy lady

I have often mentioned how much I enjoy Russ Roberts' weekly econtalk podcasts.  Russ is smart and a terrific interviewer.  This week he speaks with Cathy O'Neil.  Cathy is a mathematician who had a career doing financial modeling on Wall Street.  She became disenchanted and got active in Occupy Wall Street. 

On how much would you guess these two agree?  In the podcast, my judgment is that they are in agreement about 90% of the time.  It's a subjective judgment by me and the ratio could have changed had they gone on for another hour or so. 

I prefer to think that it is their common denominator of smarts and decency that did the trick.

V-Day love

I am a big fan of modernity and tech.  But there are no unmixed blessings.  There are great robotics and amazing algorithms but there are also stupid ones.  The dummest algorithms are the ones that run the voice-mails we too often get stuck in.  I also wonder about the people who run, manage, install these.  (While I'm ranting, the humans that we are usually directed to if/when we are, are often no better.)

But laughing beats crying.  This morning we are treated to news of Amazon's discovery of America's most romantic city.  Relying on their Big Data, they reveal that it is Knoxville.  Here is the LA Times report where I found the news.

The fun never stops.  When you click on the link, the Times' algorithm sends you to the right story but with the name of the wrong columnist attached -- unless they will have gotten the news and fixed it.

I was wrong, but read it anyway.
On Valentine's Day, you gotta love tech.

Theroux on Plantinga

We are built to spread our memes and genes. It is safe to say that most people also think that they are contributing to a better world along the way. There are old and interesting discussions on whether or not all of this reveals the divine.

I follow these discussions from a distance and so am pleased that David Theroux introduced me to the work of the philosopher Alvin Plantinga here. There are various links prvovided that the interested can pursue.  Thank you, David.

"Duopoly"?

The BevMo chain is all over my part of the world and I suspect that there are many like them across the U.S.  Their site mentions 1,330 beers.

Ths mornings' NY Times includes an editorial that supports Justice Department action against a proposed merger of two beer giants "America's Beer Duopoly".

Together the two companies sell about 46 percent of all beer in the United States and more than 50 percent in big cities like Houston and Los Angeles, according to the department’s antitrust division. The proposed acquisition would leave the country with just two companies — the second being MillerCoors — controlling more than 70 percent of the beer business.

These people do not get competition. We know what happened to Detroits' Big Three automakers and many other industries with seeming concentration.  But that was then.  Apple now has to worry about Samsung and others.  If the "duopoly" with about 70% of beer sales misses a beat, they will be up against more imports, more local craft brewers -- and even the possibility of beer drinkers looking at other alcoholic beverages.

If there really are budget negotiations in Congress, I can think of some lawyers that the Department of Justice should do without. 

Wall Street and Washington

Here are two quotes I have used in teaching.  Ben Bernanke (March, 2006): “Again, I think we are unlikely to see growth being derailed by the housing market.” Paul Samuelson and William Nordhaus (1989): "the Soviet economy is proof that, contrary to what many skeptics had earlier believed, a socialist command economy can function and even thrive." More here. There is also Stiglitz on Fannie Mae. Cue the appropriate Goldwinism.

Yet the Department of Justice is now suing Standard & Poor's for its pre-recession ratings of subprime mortgage securities.  You would think that the decision to take the advice of experts and consultants is inherently risky and a matter of choice -- with plenty of chance for error by the advisor as well as the advisee.  You would be wrong.  This WSJ editorial reminds readers that ratings by sanctioned ratings agencies (including S&P) was a matter of federal (SEC) policy.

There will be emails from S&P staffers ca 2007 revealing that final bond ratings were not as authoritative as their accompanying statements. Adults should know this. The poor performance of actively managed funds is well established. Go your own way.  Or make the choice to buy advice. As long as you have a choice.  Even Dodd-Frank recognized the problem. From the WSJ editorial:

And to this day, more than two years after the Dodd-Frank law ordered their repeal, SEC rules still force institutions to follow the advice of these government-anointed credit raters. Therefore the more appropriate defendant for Monday's lawsuit would be the SEC. But as a modest first step before suing a company for $5 billion, shouldn't the government at least stop mandating its products?

Trading on "inside information" is illegal.  Buying and selling on the advice of "experts" is very risky.  But things can go awry when you-know-who mandates where you go for advice.

ADDED

Here is the NY Times Gretchen Morgenson's "On the Waiting List at the Debt-Rating Club" 

Spatial self-organization

Urban economists have developed (and elaborated) models that show cities are self-organizing spatial units. This was a significant accomplishment. But most of the models are static. Is there evidence of self-organization as cities grow?  What do we know?

Joyce Dargay, Dermot Gately and Martin Sommer have shown that when people join the middle class, practically anywhere, they want a car. This is pretty obvious, but their arguement from data is powerful.  Wendell Cox shows that large cities practically anywhere grow outward.

The two findings fit together and they are ubiquitous.  Does this suggest spatial self-organization over time too?

The sure thing is that there are strong policy differences (towards cities directly or indirectly re gasoline and related taxes) among the places in both studies.  But these differences appear not to make a difference.  Call it spatial self-organization.


 

Coasian economy

Ronald Coase enriched economics by pointing to the importance of transaction costs.  Ngram Viewer shows that the expression was not much used before 1965.

But web and app innovators are just now showing us how modern communications can help us to establish reputation and credibility, thereby reducing transaction costs and creating previously unthought of transaction opportunities.

The current Forbes includes "The Share Economy ... Consumers are building multibillion-dollar marketplaces for sharing cars, homes, bicycles, driveways and tools. In looking for a better deal and extra income, they're reshaping business."

I have been skeptical of the various stagnation theses. Standard GDP accounting does not get at the welfare improvements we get when more of us supply and demand more to/from each other.  A matching problem (transaction costs) is scaled back as we communicate more cheaply, transact more and find economic value in all the idle stuff laying around -- much of it even being stored at high cost.

Help for light rail

Portland's light rail gets about 141,000 boardings per day.  Can it do better?  Here is an innovation that could do the trick.

Babies and the "dirt gap"

Many people want land use controls but also worry about housing affordability.  One cannot have it both ways.  Here is one of many reports that corroborate the simple point.

Today's WSJ includes "America's Baby Bust ... The nation's falling fertility rate is the root cause of many problems ..."  Author Jonathan V. Last makes the case, but ends with various policy proposals that may or may not make a difference.  My guess is may not.  Among them is one that addresses "The Dirt Gap."

A big factor in family formation is the cost of land: It determines not just housing expenses but also the costs of transportation, entertainment, baby sitting, school and pretty much everything else. And while intensely urban areas—Los Angeles, New York, Washington, Chicago—have the highest concentrations of jobs, they come with high land costs. Improving the highway system and boosting opportunities for telecommuting would go a long way in helping families to live in lower-cost areas.

I agree.  But I prefer the maximum of land market flexibility.  As people dream up their preferred networking options, as they discover the mix of physical and electronic attendance they like best for work and for play, and as they have a chance at achieving the preferred mix, family formation could be made a little easier.

Housing affordability problems are often thought of in terms of how they impact the poorest people.  But there is more to it, as Last suggests.