Dots to connect

This morning's LA Times editorializes about the "The 501(c)(4) fiasco ... the public needs to be assured that the IRS can enforce the law independently and fairly ... ."  You bet.

Trouble is that the IRS code we have (courtesy of Congress) is bizarre. The Economist (May 25) reports ("Why Americans love the IRS") Since 2001, there have been 4,680 code changes. The tax code includes four-million words. Each year, three-million man-years are spent complying with the tax code; $168-billion a year is spent complying.  The list goes on.

Today's WSJ reports "In Lithuania, the Tax Man Cometh Right After the Google Car Passeth ... Assessors Use Web Giant's Street View Photos To Find Signs of Undeclared Wealth ... More than 100 people have been identified so far after investigators compared Street View images of about 500 properties with state property registries looking for undeclared construction ..."

Big government advocates want big taxes but that means big politics -- and big and usually awful tax administration.  The latter is just a symptom. That's true in the U.S. and in Lithuania and everywhere.  These are easy dots to connect.

The back door

Paul Bloom had another wonderful essay in a recent New Yorker ("The Baby in the Well: The case against empathy").  It is all about hard to achieve wisdom and perspective. "...[w]hen [Natalie] Holloway disappeared, the story of her plight took up more television time than the concurent genocide in Darfur."

And there is this: "The government’s failure to enact prudent long-term policies is often attributed to the incentive system of democratic politics (which favors short-term fixes), and to the powerful influence of money. But the politics of empathy is also to blame. Too often, our concern for specific individuals today means neglecting crises that will harm countless people in the future."

We are not very good at preference aggregation, but what if we were? Our jumble of preferences is often messy. Writers like Bloom usually end with some wistful hope for better government someday.

The latest Cato Policy Report features "The Public Choice Revolution in the Textbooks" by James Gwartney.  Most of the essay is about how the revolution is slow in coming.

The exclusion of public choice analysis is particularly strong at elite schools like those of the Ivy League and the University of California, Berkeley. Buchanan is exceptional among American Nobel prize-winners in that he has never held a teaching or research appointment at an elite school.


The underrepresentation of elite schools among public choice economists is readily observable at the annual meeting of the Public Choice Society, the professional organization of public choice scholars. For example, 296 public choice scholars presented papers at the March 2012 international meeting of the Public Choice Society held in Miami. Only 5 of the presenters were from either an Ivy League school or the University of California, Berkeley. Among the 5, only 1 was a faculty member with an appointment in an economics department.

Underrepresentation of public choice in the economics departments of elite schools has been a major deterrent to the dissimination of the analysis. These departments supply a substantial share of the new faculty members at other departments throughout the nation. They also command prestige, and faculty at other schools often follow their lead. Thus, it is quite difficult for a new theory or methodology to exert widespread impact without attracting support from the top tier of schools.

But Gartney ends on this positive note:

... there has been a virtual explosion of literature that is now referred to as the new institutional economics during the past two decades. In contrast with the derivation of optimal conditions under restrictive assumptions that characterizes so much of modern economics, the new institutional approach focuses on comparative analysis. Building on the work of Nobel laureates Friedrich Hayek and Douglass North, the methodology of the new institutional economics examines how alternative forms of economic, political, and legal institutions impact the performance of economies. This literature and its methodology are penetrating the elite schools and journals to a greater extent than has been the case for public choice analysis, paving the way for greater integration of public choice into mainstream economics.

Public choice could enter public broader public discourse via this back door.  That may be the only way.  "Experts" will always promote the faith in governance by experts. 

Unemployment and commuting

A recent NY Times story called attention to research by Profs David Blanchflower and Andrew Oswald ("Challenge to Dogma on Owning a Home").  The study shows that states with higher home ownership rates have higher unemployment.  Here is a punchline (from the Times story):

"If the correlation is real, what could be the cause? The professors say they believe that high homeownership in an area leads to people staying put and commuting farther and farther to jobs, creating cost and congestion for companies and other workers. They speculate that the role of zoning may be important, as communities dominated by homeowners resort to “not in my backyard” efforts that block new businesses that could create jobs. Perhaps the energy sector would be less freewheeling in North Dakota if there were more homeowners."

I worry about the use of state averages.  Variations within and between metropolitan areas are big. (ADDED, not to mention urban vs rural areas.)  And I could find no correlations between metropolitan unemployment rates amd commuting. BLS provides metropolitan area unemploymwent rates as well as year-to-year unemployment rate changes. NHTS provides household level commuting data for the metro areas. The correlations that I found for the 43 areas for which I could get data for both variables were these: 2009 mean commute time (minutes, solo drivers) and 2012 unemployment -0.07; 2009 commute time variance and 2012 unemployment -0.12; 2009 mean commute time and 2012-2013 change in unemployment, -0.08; 2009 commute time variance and 2012-2013 change in unemployment -0.10. For the commuting-unemployment link, there is apparently not much there.

More generally, the default assumption has been that homeownership is chock full of positive externalities. So the more the merrier.  So pour on the policy. That has not worked out so well. The theoretical argument goes for market determined homeownership rates, not the ones that have been generated by years of policy push.

Understaffed, overworked, underfunded

The Cincinnati IRS office is understaffed, overworked and underfunded. So says this in the NY Times.

I suppose every agency of government likes to make such claims.  We have heard it from failing public schools for as long as I can recall.

But the unfolding IRS story suggests two entirely different thoughts.

First, in any two-party electoral contest, the strategic choice is between firing up the true believers or moving to the center.  Obama chose the former and it worked.  But a hyper-partisan White House will inspire hyper-partisans all the way down the line.

Second, some of us like the idea of a flat tax because the 60,000+ word IRS code we have is cumbersome, user-unfriendly to the extreme, and simply a way to accommodate thousands of politicized special deals.  The argument has been made many times. Here is a quick summary.

But the politicized administration of this rotten code only makes a bad deal worse.  This does bring the tax code problem home to almost everyone.  Most Americans fear the IRS.  To see the politicized misuse of its awesome powers exposed brings the flat tax argument home to those who had tolerated the tax code status quo.

Ain't seen nothing yet

Contracts beat conflicts.  And when it comes to stagnation or not, we ain't seen nothing yet. Here the NY Times reports on crowdfunding when it comes to real estate development. This may put a damper on NIMBY (h/t TMG). Contracting can replace a bunch of conflicts.

I have mentioned several times that when it comes to the way cities grow, it appears that preferences trump policies -- in spite of the thicket of politics we encounter everywhere.  The scales will tip more towards preferences as we give locals a chance to buy in to more local development possibilities.

ADDED

The Economist (May 18) describes Civic Crowdfunding for infrastructure. Crowdfunding, then, can go to public or private projects. It can include donations as well as investments. I like it.

Puzzles indeed

Today's WSJ includes "Beijing Puzzles Over Urban Growth ... Government Entertains Debate on How to Manage Population Gains as It Seeks Lift From Bigger Cities."  There are no "good" or "bad" city sizes, just as there are no "good" or "bad" city densities.  But many urban theorists and planners continue to chase these gross simplifications.

Cities contribute to productvity and economic development if they allow labor and capital to be productive.  The many agents that we aggregate into "labor" and "capital" can each be productive in urban settings if they manage to find the networking opportunities (conveying things as well as thoughts and ideas) that work best for them.  This describes the intricate locational puzzle that we call "urban structure" -- and that we cannot solve top-down.

Economic growth requires economic freedom, but some wonder about political freedom. In these discussions, there is always someone always who suggests China when trying to make the point that political freedom is not required.  But that means politicized meddling which inevitably gets things wrong ("Beijing Puzzles ...").  It surely gets cities wrong. Sandy Ikeda tells the story a bit more elegantly here.

What works?

Here is Wendell Cox's summary of 1920-2010 U.S. urbanization data. This stuff is indispensible because the Census' urbanized areas (UZAs) are periodically redefined to capture the boundaries of actual development. From 1950-2010, there are seven decennial observations.  How do the top-ten population rankings change over this period?  Without looking, everyone knows that the New York UZA was #1 in each year. So the number of rank changes for #1 was zero.  In the #2 slot, Chicago was #2 in 1950, but LA has been #2 ever since.  That means just one rank change for the title of second biggest UZA.

This is how the top ten rankings changed over the sixty years:

UZA rank    # of rank changes
1                 0
2                 1
3                 1
4                 1
5                 2
6                 2
7                 4
8                 4
9                 6
10               6

The greatest stability is at the top.  (Doing the same exercise for central cities would make no sense because they involve political boundaries that may or may not budge, depending on local laws and conditions.)

There are costs and benefits of UZA size. The trick is to exploit the benefits of size without being overhwelmed by the costs? I have mentioned often that flexible enough land markets are the only explanation. Allow for the propitious location and re-location of land uses. The propitious spatial arrangements are the ones that allow profitable interactions.  These are too complex to be knowable by policy makers.  Experimentation by risk takers is the only option.

Here is the Chatterji, Glaeser, Kerr study of "Clusters of Entrepreneurship and Innovation". Looking across their various cases and examples, the authors report a mixed record of success as well as a mixed set of policies.

LA is no Norway

Ray Fisman and Edward Miguel have garnered well deserved attention for their "Corruption, Norms, and Legal Enforcement: Evidence from Diplomatic Parking Tickets" in the 2007 Journal of Poltical Economy. For those who have not seen or heard of it, here is the abstract:

We study cultural norms and legal enforcement in controlling corruption by analyzing the parking behavior of United Nations officials in Manhattan. Until 2002, diplomatic immunity protected UN diplomats from parking enforcement actions, so diplomats’ actions were constrained by cultural norms alone. We find a strong effect of corruption norms: diplomats from high-corruption countries (on the basis of existing survey-based indices) accumulated significantly more unpaid parking violations. In 2002, enforcement authorities acquired the right to confiscate diplomatic license plates of violators. Unpaid violations dropped sharply in response. Cultural norms and (particularly in this context) legal enforcement are both important determinants of corruption.

The study marries a natural experiment (gold in the social sciences) with a profound question (the link between culture and trust). This matters greatly for private as well as public sector performance -- and economic growth.

I have long suspected that Los Angeles (not a country and not in the study) is no Norway.

The NY Times recently included "For Los Angeles, an End to the ‘Free’ Subway Ride" (H/T Brad Hill).  After our own twenty-year experiment, we see that the honor system has not fared well here. 

Station platforms will look even more lonely once the free riders stay away. But that is not yet certain because it appears that installing and making the turnstiles work is presenting its own challenges.

Transit dreams have long been a fixture among LA elites (most of whom never use transit).  But there are these realities. 

Recent past?

Everyone knows that everything has speeded up. Forget the obligatory "almost".  Here is a great 1993 v 2003 visual of how our personal electronics have changed in twenty years (H/T Craig Newmark). There is nothing like a crisp visual, but even that understates the drama. Prices and quality are not shown and we know that both have improved.

Today's WSJ includes "Poles Apart: Today's Kids Line Up to Learn About Communist Past in Poland ... Best Soviet-Era Shopping Strategy Wins This Board Game ... Shopping in communist Poland was a dreary gantlet of shortages, rationing lines and—if you managed to buy something—Soviet-Bloc dreck. So Karol Madaj has turned it all into a board game called Queue. The challenge: Buy everything on your shopping list. Players wait outside empty government stores, fend off line-jumpers and haggle with black marketeers. The 40-page instruction manual warns the game may inspire 'tears of exasperation' and 'the gnashing of teeth.' Queue, introduced in 2011, paradoxically proved to be so popular that buyers had to stand in line for hours for one and a black market emerged."

This is also about a (near) twenty-year change. Polish young people have no idea of how it used to be and the older generation wants them to know. Games are better than stories from grandpa.

Time marches on and history becomes more extended, but it also becomes more crowded as the pace picks up.

The news story ends with this wonderful irony:  "Unintentionally, the game is a living example of that world because it is produced by the Polish government. The Institute of National Remembrance, a state body created in 1998 to preserve memories of Poles' struggles against Nazism and communism, gets money to produce Queue from the national budget. Overwhelming demand hasn't induced bureaucrats to fund a production increase. 'It's like under socialism,' quips Andrzej Zawistowski, the institute's director of public education, who is pushing for a market-based approach. One queue for Queue formed roughly four days before sales began, he said. The shortage of the game about shortages has even prompted angry letters from consumers for whom it brought back bad memories, says Mr. Madaj. 'Some people didn't appreciate the irony.'"