Inequality and our cities

Here is Paul Krugman writing about inequality and the urbanism we have.

I have often commuted to and from USC, eastbound ("inbound") in the AM and westbound ("outbound") in the PM.  For as long as I can recall, the heavy AM traffic is "outbound" and the heavy PM traffic is "inbound". In a monocentric city model, this makes no sense. But LA is certainly not monocentric and there are many decent-to-good jobs on the "westside" where housing tends to be expensive and much more low-rent housing on the "eastside".  This is an awful "mismatch" if one cares about commuting efficiencies and/or the plight of lower-income eastsiders.  These are all general statements; generalizing about large metropolitan areas, where there can be stark contrasts block-to-block, can be tricky.

Los Angeles is as "blue" as major American cities get. Urban visionaries and progressives claim to address spatial mismatch as well as the problems of the less well off. But they don't. The local planning process is mainly a politicized, cumbersome and an expensive dogfight. Here is just one high-profile example. Stuff like this is in the news almost daily. Who (besides the rent-seekers) needs it?

Bent Flyvbjerg and Russ Roberts discuss megaprojects here. They do cite rare successes but how do we get from here to there? How to get more successes? More politics is surely not the answer. Flyvbjerg suggests that infrastructure contracts be written clearly so that it there is no question who bears the burden in the event of the inevitable contingencies. How about public posting of all contracts several months in advance? Allow some months for wiki-editing. Then see if the usual suspects still line up to sign.

In the July Reason (gated), Greg Beato writes about "Better Government Through Crowdsourcing."  He likes government's challenge website and the effort get government agencies to work in tandem with large crowds to discover "bold new ideas". So it should be with megaproject contracts.

Not from The Onion

Today's LA Times reports this:

Labor leaders, who were among the strongest supporters of the citywide minimum wage increase approved last week by the Los Angeles City Council, are advocating last-minute changes to the law that could create an exemption for companies with unionized workforces.

Not a lot of comment is required. People who politic for a "level paying field" are typically not so candid about what is meant.  In this case, however, it could not be clearer: provide unionized shops anything bit a "level playing field."  How will our lapdog city council handle this one? I expect brain trusts are churning. Stay tuned.

Big questions and big answers

The big question for many historians and social scientists is still "how did we get so rich?" Economists have come full circle and have again started addressing the role of "society" and "culture".  But these too evolve and are not really exogenous.  What then is?  Jared Diamond says it is geography -- and its own slow (exogenous) shifts. Ian Morris in Foragers, Farmers and Fossil Fuels: How Human Values Evolve takes human hunger (the necessity for energy capture; the more calories per day, the better) and historic climate change (post-ice age warming) as the real exogenous forces. They made it possible for humans to shift their attention from foraging to farming to fossil fuel users. And as they did, their values changed. 

Morris' Table 4.1 (p. 134) is the summary: The four "universal" values listed on the left best serve the three activity types if they are accorded the status shown in the the body of the table.

                        Foragers         Farmers                    Fossil-Fuel Users
Political
Inequality         Bad                 Good                         Bad

Wealth
Inequality         Bad                 Good                        Middling

Gender
Inequality         Middling         Good                        Bad

Violence            Middling         Middling/bad        Bad

The book includes the reactions of four eminent respondents as well as Morris' rejoinders.
                                               

Minimum wage

The LA Times has been popping corks over the LA City Council's vote to hike the minimum wage. This morning's lead editorial, however, exhorts the Council to also mandate more and better jobs. Why not?

Matt Kahn sees the LA wage hike as an opportunity for a natural experiment. James Pethokoukis notes its a gamble, at best.  But Joel Kotkin points out that the experiment has been running for some time and the findings are not pretty: regulations, mandates and taxes kill growth and jobs -- and worsen inequality along the way. Alex Tabarrok offers a useful visual to (perhaps) chasten the Law of Demand deniers. Don Boudreaux has been hammering this group for some time. Bryan Caplan and Mark Perry cite slow phase-ins as a gadget to mask unemployment downsides of mandated wage hikes.

Central planning is hard work; the "helping people" part is extraordinarily difficult.

ADDED

Megan McCardle

Not easy or simple

Central planning is hard work. This is why they usually get it wrong. This morning's NY Times includes "Brown's Arid California, Thanks Partly to Father ... Pat Brown Used Water For a Booming State. His Son's Era Is Far Different." Southern California "needed" lots of water and the elder Brown pushed through the costly California State Water Project to channel water from the north to the south. The south grew and now "needs" even more water. The younger Brown has responded with his own rationing-by-edict plan. No one said it would be simple.

Departing from its policy of never mentioning "price" and "water" in the same piece, the same NY Times also includes "How to Get People to Pitch In ... We cooperate because it makes us look good." Yes, to some extent, you can shame people into being ostentatious conservationists. Interesting, but I doubt that this alone will get the job done. Widespread conservation is surest if it responds to incentives. Incentives must respond to conditions. That would also be "cooperation."

The op-ed continues, "The 'Pigouvian' approach to encouraging cooperation ... Make water more expensive ... But Californians are stubbornly unresponsive to higher water prices. Estimates suggest that a 10 percent increase in price would result in reductions in water use of 2 to 4 percent."

Yes, pricing is also hard work. Trial-and-error discovery of the right price is widespread, essential, challenging and ongoing. We encounter proclamations of "sale" and the like a thousand times. These sellers are looking to discover a better price, not from econometric estimations but from hands-on experiments.  Water planners would have to do the same.  Not easy or simple.

Our infrastructure and theirs

Taxpayers are often asked to spend ever more, even as they get less in terms of services. Los Angeles' political leaders cannot manage to make sidewalks safely walkable and it takes an ADA lawsuit to compel them. This LA Times summary tells the story. Note that the story hints at new taxes to meet the lawsuit requirements -- because the old money had "dried up." I guess, left out in the noonday sun, money will do that. Today's WSJ highlights the same phenomenon with respect to the Amtrak derailment tragedy.

I recently spent about two weeks cruising Germany's amazing autobahn. The riddle is how they manage to keep surfaces so smooth while back in Los Angeles the potholes jar cars as well as drivers. This is not a cheeky comment; our road surfaces are perilously bad in many places. OECD reports that as a percent of GDP, the U.S. and Germany spend about the same. Germans, apparently get more bang-for-buck than Americans do.

Is too much of our spending politicized? Do our leaders see infrastructure spending as mainly a jobs program? As the Amtrak story unfolds, we will see more evidence on this.

ADDED

Amtrak's budget

Charter city rules

Paul Romer has long argued the case for "charter cities". There is a growing (and unmet) demand for urban living, especially in poor countries. How can "start-up cities" help?  If they are able to offer and enforce rules that respect private enterprise and property, they are likely to attract labor and capital -- and to thrive.

It is important that these rules allow the operation of flexible land markets. Cities can be "engines of growth" as long as labor and capital are able to seek and find propitious locations. What does this mean? We are used to simplistic definitions of location, e.g, journey-to-work, distance from CBD, etc. But these will not do. People and business interact with many others. And they interact in complex ways. including via physical and electronic access. Physical access can by via a variety of transportation modes.

People and businesses manage a variety of networks -- and they choose sites and networks simultaneously. Flexible land markets are the only way to accommodate all this.

In fact, transactions costs evolve -- as networking options expand. Networking and location choices will change accordingly.

The current mode of land use planning is quite the opposite.  It s guided by top-down "visions" of how land use arrangements ought to look and evolve. Any such visions are clearly inappropriate.  The complexity to be managed is far beyond the ken of top-down planners.

Better policy

Here is the Governor of Maryland intoning that Baltimore's inner city (any inner city) "needs" more money. That, or more "unrest." Alex Tabarrok is one of many who blasts that one into the bleachers. But it does not matter. In 1989, diehards shrugged off the implosion of the East bloc by claiming that the "real" Marxism had not actually been tried. A dismal U.S. economic recovery is explained by the fact that "real" stimulus spending had not been tried. Fifty years into the "War on Poverty" and we get armies of Johnny one-notes saying guess what?  Failing public schools?  Guess what?

It's a pretty neat gambit. No failed policy can ever be acknowledged a failure. Policies tested via randomized trials linked to betting markets would be a step forward. If there could be randomized participation in a program involving schools, housing, you-name-it -- and with a betting market attached, we could get real and identifiable winners and loser.

ADDED

http://econlog.econlib.org/archives/2015/05/markets_polls_g.html#

Mark-up

The WSJ recently described the costs involved in Smart phone manufacture and the "mark-up" to the retail price. This is where economists part company with accountants -- and useful for teaching purposes. Prices are discovered by sellers. This is on-going work. "Sale", "discount", "clearance" and so many others like it are just shorthand for "we made a mistake and must try again to find the market price." So the "mark-up" is endogenous and responsive to market conditions. This also means that it is impossible to judge mark-ups as "too big" or any such thing.

There is much misunderstanding of simple economic thinking in the world and one would hope that respected business press would get this one right.

Successful branding impacts demand and gives sellers a shot at mark-up and profit. But buyers have their reasons for preferring brands. Whether these are "good" or "bad" reasons is unknowable. Sellers do their best to understand all this - and often get it wrong. Will people like the current version of the Smartphone -- at the current price?  Many are anxiously waiting to see.