Patterns or points?

The NY Times' Invitation to Dialogue had touched on the question of whether economics is a science.  In today's Letters, economist Eric Maskin rejects the idea that successful predictions are a plausible a test of science or not. He cites seismology and meteorology as sciences that explain but that do not predict.

But think about general pattern forecasts. Are they not predictions? There are plenty of seismic maps that do not predict specific earthquakes but that are useful to insurers as well as insured.  There are many similar products developed by meteorologists.  It is not a matter of predicting vs. not.  It surely is a matter of patterns vs points.

Science can be involved in either. But so can other areas of investigation, including the study of history.

Whereas the Nobel in economics is (unfortunately, in my view) awarded in the name of "economic sciences," many of the most auspicious awards have been to economists working in a literary/historic tradition, e.g., James Buchanan, F.A. Hayek, Douglass North, Robert Fogel, Elinor Ostrom, Daniel Kahneman, and others. Does that make them "economics scientists"?  Look who's most popular!

Economics vs. physics involves people vs. particles.  Unlike particles, people have mood swings. We should forget about point forecasts.

Contrasts

I went to to see the "Never Built: Los Angeles" exhibit yesterday. These collections are always of some historical interest. And we get to experience the relief of knowing that this stuff was never built.

There were a few appalling Albert Speer-type renderings of creepy civic centers. There was a rendering (photo included in this WSJ coverage of the exhibit) of a more-than-creepy Santa Monica-Malibu offshore freeway that would have paralleled PCH and also obliterated miles of ocean view.  There were the usual "rapid transit" and "monorail" route maps of plans that died. The fun there was to overhear the occasional visitor exclaim "if only we had built this then ... ." There was even a map of how a compact-development LA would have looked like.

There were also the occasional sermonettes posted with drawings and maps.  Here is one of my favorites:  "The city's longstanding culture of timidity, political fragmentation, and subservience to developers has not only thwarted a century's worth of visionary schemes, but has engendered an ineffectual public realm."  How many not-so-bright ideas can one squeeze into one sentence?

Escape was easy.  The exits were not bolted and the Petersen Automotive Museum is right next door.  The restored cars are gorgeous.  Most are arranged with contextual mock-up backgrounds (an old gas station, a vintage auto insurance office, etc.). These autos were the technological marvels of their day, built to satisfy users. "Playthings of the rich" were within the reach of almost everyone very quickly.  It's still amazing  to see what competitive capitalism can accomplish. The Petersen benefits from the contrast with what is housed next door. I worry, however, that not many who hold the mindset of the cited sermonette will be drawn to the Petersen.

What do we know?

Creativity and innovation are hard to measure. Sometimes success is not immediately apparent. Forbes' Rich Karlgaard cites the Apple Newton as an apparent flop in its day but also a scientific success that tested new components and ideas and set the stage for many of the gadgets that we now cherish.

In "Creativity, cities and innovation," LSE's Neil Lee and Andres Rodrigues-Pose report that they were able to identify innovation in various "creative" occupations but not so for the various "creative" industries (UK data).  The authors report that creative people do their thing in not just the creative industries. One would hope so. But the Newton story should give these investigators pause.

Many city planners and policy makers have been smitten by Richard Florida's Creative Class research and have pinned local area revival hopes on finding ways to get the "cool" people to move their way. But this gets back to the problem of necessary and sufficient conditions. There are probably many of the latter. And findings such as reported by the two LSE scholars may be interesting but we do not know enough to boldly go forward with grand plans.  Too often the plans simply represent current fads.

Entrepreneurs and diversification

Diversification prompts resilience. It's a common sense notion but it's nice to see research that corroborates the idea that the notion applies to cities. They are more likely to survive if their portfolio of talent is diversified. We should say metropolitan areas rather than cities because we must include suburbs and hinterlands for it to work.

Alex Anas reports that doubling metropolitan area size only increases average commute times by about 10 percent. How could that be? All that spreading out is much better than "unplanned sprawl;" people do not choose locations foolishly; they consider co-locating with others they do business with.

I had previously blogged about the fact that U.S. suburban area growth does a better job of predicting central city growth than vice versa. First, they complement each other which surprises zero-sum thinkers. Second, suburban locations are opportunities for many; they can connect and link from there also; they can access local labor and they may find cheaper land.

It bears repeating that almost anyone in almost any supply chain manages many networks, some physical and some virtual. We choose networks along with location. Making the good choices keeps business in business. This is the way entrpreneurs maintain their edge. They are not lemmings in some "unplanned sprawl" fiasco.

Diversification is nice but it takes the actions of alert entrepreneurs to cash in on it. Being able to move into new fields is abetted by variety of local talents. Call that a necessary condition but call successful entrepreneurship added to that the sufficient one.

What to do?

NYU's Solly Angel argues that city planners should do what they can to attain "orderly expansion." He wants major infrastructure trunk lines (water supply, sewage, highways, etc.) to be planned and laid out in advance of development. Sounds good and supposes the planners are good at predicting demand (the time and place) for development. If they are good at what they do and practice a light touch, they can let market savvy developers do much of the rest. The hard part is actually attaining this balance. Could we end up with "ghost cities" if we get it wrong? What are the likelihoods?

This brings up the difficult division of labor question when it comes to city development. Randy Holcombe suggested that infrastructure be the domain of public planners while land use development be handled by private planners (developers). The latter wouldd take published infrastructure plans as parts of the "rules of the game." I elaborated in my Spontaneous Cities chapter (of David Emmanuel Andersson's volume), suggesting that only the one-off mega projects be left to public authorities -- and noting the inevitable risks involved.  Anything one-off will be risky but not likely to come into being via private risk taking.

Interesting but how do we get there? For starters, it would be nice if the question of a division of labor were included in planning curricula. Much of the literature presumes that markets are best characterized as "market failure" to be righted by public action immune to "government failure". But there is lots of evidence that the land use planning cherished by so many reduces housing affordability.  Why not start there?

Politics without romance

Many people have puzzled over the seeming contradiction between the fact that approval ratings of the US Congress are near single digits but incumbents keep being re-elected.  The simple story is that the people who bother to vote are not the ones who answer survey responses.  Or Congress in the abstract is easy to dislike but "my rep" is an entirely different matter.

I have just read This Town by Mark Leibovitch which is thoroughly enjoyable. The author is not Fox News or MSNBC. He has the just the right touch whereby he can describe the Washington DC egos and situations and the unfolding spectacle always speaks for itself.

Of all the things I teach, the one that is seemingly the oddest to most students is the story of public choice and "politics without romance."  Many people have an odd romantic attachment to politics and the inchoate idea of "the public interest."  Dan Klein wrote about "The People's Romance" a few years ago.  He has a point.

We chuckle at the bizarre attachments that citizens of petty dictatorships display toward their regime. I refer not to the obvious cronies but the many others who are swept up. Nazi Germany stands out because a broad and educated middle class eagerly took up the state religion. Politics without romance is pretty clear to some but somehow exotic to many others.

Loopy

We have to focus and concentrate to not call the Elon Musk "Hyperloop...(Imagine paying $20 and sitting down inside a Space Age capsule in Los Angeles. About half an hour later, you're in sight of the Golden Gate Bridge") idea hyperloopy (sorry!)  For anyone who thought that the California High-Speed Rail (HSR, the one on which they will soon break ground) is loopy, this one is really out there.

My friends at Reason write that the HSR is $50 billion short and counting. But no problem. There will be the inevitable sunk cost argument that is routinely applied to any once-low-balled project ("We can't quit now after all that has been invested ....!").  So if Musk thinks that the HSR money can be diverted his way, he is really throwing the dice.

The two proposals (HSR and Hyperloop) are obviously different. The first uses a very old technology that has been proven many times but that has been made irrelevant by the aluminum capsules we all fly around in quite comfortably. The second one proposes a technology that no one has ever seen in action.

But the two ideas share a fatal flaw. People who see Los Angeles and San Francisco as mere points on a map to be somehow connected overlook the key fact that we all have origins and/or destinations not at these points but scattered over large metropolitan areas.  High-cost ways to make the distant point-to-point part of journey faster make no sense. If LA-SF air flight time is currently about one hour and if I spend at least an extra hour on the ground at either end, then cutting the point-to-point time in half actually shortens my trip by just 17 percent. What is that worth to me? I can already fly business class and also get Global Entry to save marginal amounts of time. In fact, many people are already making these trade-offs.

Until we have beam-me-up technology, we still have to think about how to get to and from airports, train stations and even loop-ports (if that is the name they end up with).

NY City taxis

The LA Times reports "New York's biggest financial winners -- cabdrivers."  The value of a NYC taxi medallion (permit to operate in closed market) has risen to $1.3 million and has recently outpaced the S&P 500. This has occurred in spite of competition from Uber and similar services.

The story is wrong to suggest that the asset price gains all go to the drivers. Most drivers are not the medallion owners.

The Times story does mention the installation of credit card readers enabling customers to pay and tip with plastic. The lazy customer can simply put a check by one of three suggested tip amounts, 15% or 20% or 25%. Most people choose the middle 20%. When the choices were 10% or 15% or 20%, most lazy customers checked the middle 15%.  So push up the middle option. Behavioral economists would have predicted that most people will take the middle choice -- and these people are unlikely to do the math to fill in an amount of their own choosing.

People that print menus and wine lists have known about such strategies for years. But now the science of behavioral economics corroborates what has long been suspected. But this is what social science is supposed to do. How good are the hunches we have developed over many years?  Usually quite good.

Bay Area news

I have looked at the proposed Bay Area Plan (by the SF Bay Area MTC and ABAG) and can report it is awful. Cliche-ridden and uninformed are among its faults. Throw in counterproductive. Housing affordability and "equity" are often cited as goals but the land use proposals (greater density!) will have the opposite effect.

I can see the religious left (greens) going for it. They will be joined by connected developers who profit when limits are imposed. Reminds us of Bruce Yandle's B and B.

One shudders to think what was spent putting this mess together -- and how much will be spent to defend and see it through. This is all very sad.  But my friends at the Pacific Legal Foundation are making an effort to stand up for common sense.  Here is their introductory video. Here is their press release. Wish them luck.

Stop the shovel brigade

Industrial policy is risky for the well known reasons that it avoids capital markets (the only institution we have for allocating scarce capital) and compounds the problem by politicizing investment choices. This is not to say that we have "perfect" (or anything close) capital markets, but their problems can be traced too much crony capitalism (too little real capitalism).

These are old ideas but they have to be re-learned often.  This morning's WSJ includes "Volt Falls to Electric-Car Price War ... General Motors Lops $5,000 Off Sticker of 2014 Model; Cheap Gasoline Tethers Sales of Plug-In Cars ..."  Read the story. The details are amazing. The layering of blunders is stunning. Bail out General Motors instead of a Chapter 11 reorganization; push a pre-mature "green" but emotionally satisfying technology on the already politicized company; do all this in a city (Detroit) that is already in a deep hole; do all this in the context of an economic and federal budget crisis that are yet to be resolved; do all this as the fracking boom and cheap oil have arrived.

There used to be the idea of taking shovels away from people digging themselves deeper into holes. I expect that there will be more bail-outs of GM, Detroit and many others.  But whatever it is it, will be wrapped in something green and worthy, just like the Chevy Volt.

If we are going to have serious anti-carbon policies, they will be costly.  Further weakening a weak economy is not the way to prepare.

Wrong way

Preference aggregation is a huge problem. When transacting is out of reach, we get politics as the default -- and all the grievances that go with it.

Today's NY Times Sunday Dialogue ponders "Can Suburbs Help Cities?"  The idea of regionalism has been kicking around for a long time. Those who have moved to the suburbs, so the story goes, have skirted their obligations to those "left behind" in the cities.  Simple justice requires that they not get away with this and that we corral them via regional government  There is the linked idea that suburbanites get benefits from the cities that they do no fully pay for.

But that is not the way we address gains from trade in any other context.

In the regionalization process, we cartelize government and lose choice. More choice is better than less. Arnold Kling has argued that we have governmental units that are too large and choice that is too restricted. I agree. Making jurisdictions bigger, more remote, and less accountable to voters is precisely the wrong direction. It is just bail-outs by another name. Detroit (and other cities) got into the predicament precisely that way. It is interesting that proposed antidotes are often prescriptions for more of the same, but big-time the next time.

On a related note, the Times also reports on the city's race for mayor, "16 Vying to Lead Troubled Detroit." In this job market, we have gotten used to job openings drawing large crowds of hopefuls.  Or is that these 16 cannily see that the Detroit mayor these days has no authority and no influence and not much to do.

Downtown LA looking better

We should all claim our bad calls as well as the good ones.  I have long been critical of efforts to revive downtowns.  These had been declining for many years, as cities decentralized. In most cases, there have been downtown renewal/revival efforts and most of these have been too costly to be justifiable.

Los Angeles' downtown had been declining since the late 1940s-early 1950s.  But things are now looking up as gentrification sets in.  Whole Foods has anounced they will open a store in downtown LA in 2015. To be sure, this has less to do with planners' efforts than it has to do with the drop in crime.

The big plan for downtown LA was that it would become the "financial capital of the Pacific Rim." This never happened. The few Fortune-500 headquarters that were here all left. But LA redevelopers and boosters had already seen to it that new class-A office high rises (the new downtown skyline of TV's LA Law) were built.  They overbuilt, office space rents fell, B-office people moved into A-spaces and the B-spaces became available for loft and condo redevelopment, just in time for the drop in crime and gentrification.

The white elephants are still around.  There is a huge and underutilized convention center, a downtown-centered subway line and other baubles that we will be paying off a long time.  Developers have caught on that anything that can be sold as transit-oriented has a better chance of being greenlighted by planners.  My colleague, Jenny Schuetz, and her co-researchers have shown that this is not yet working out in LA.

Nevertheless, many of us apply our wisdom to predictions. Its pretty clear that I should have thought more about gentrification for downtown LA.