Cities and economic growth

Frank Rose reviews Matt Ridley's The Evolution of Everything: How New Ideas Emerge in yesterday's NY Times. I am enjoying the book. I'm a huge fan of Ridley so all of this is great fun.

In the review, Rose mentions "Highways are designed; traffic happens." Of course. The world we have is the upshot of top-down as well as bottom-up actions. The latter is much better at error correction and learning from feedback.

A la Ridley, consider the big picture. Prosperity and economic growth require robust specialization and exchange. This means the formation and maintenance of numerous complex supply chains. These include supply chains for things and supply chains for ideas.

All supply chains have a geographic dimension. Firms carefully choose what to make vs what to buy and also where to buy it, from near or far. The whole system tends to a pattern of locations that denote realized transactions (and transactions costs) as well as realized externalities. The city remains a competitive producer if these costs are contained.

Cities have been seen as “engines of growth.” This means they offer attractive supply chain formation and management opportunities. Networking and location opportunities are significant as these choices are made. Flexible land markets, if we can have them, denote more such opportunities. 

ADDED

http://www.newgeography.com/content/005111-white-house-economist-links-land-use-regulations-housing-affordability-and-inequality

Smart Planning

Here is the new LA Mobility Plan -- and LA Times coverage. Here is yesterday's L.A. Times report that some of the nation's worst traffic bottlenecks are in the LA area. A case can be made that the two are not from the same universe.

Here are 2010-2014 commuting trends by mode. One day it may dawn on planners and politicians (and their friends) that most people like their cars. If that day ever arrives, then accommodating to autos via a clever blend of facility expansion and management will be seen as the best policy.  Reason's Mobility Plan just released hits nail on head in this regard.  (Full disclosure: I read and commented on early drafts).

What is to be done. Don Shoup has hit on the obvious (but not obvious until someone points it out).  Return some of the parking as well as time-of-day pricing road toll revenues to the locals -- and watch them line up as advocates for the policy.

Serious transportation planning as well as the political implementation are within our reach. What else? Call it "Smart Planning."

The "all of the above" energy fantasy

An "all-of-the-above" energy policy has been a political dodge, recently promoted by the White House.  The authors of this report are smart economists and they well understand that we live in a world of scarcity and must choose among various tough trade-offs.

Take away the recent U.S. energy boom and the report collapses. Yes, relatively clean natural gas production and usage are up but this has not exactly been a policy success. The White House loves to be seen as opposing anything having to do with fossil fuels. The Keystone pipeline project was deep-sixed after years of political hide-seek-dodge.

Yes, renewables are up but spend enough money and you can put a man on the moon. There are no cost-benefit studies in the WH report. In the world of serious policy analysis, cost-benefit studies are essential.  For a while, it was fashionable to cite the many poor cost-benefit studies done over the years. I forgot who said it but it is fundamental that the antidote for poor cost-benefit studies is good cost-benefit studies.

The antidote is surely not the pretense that scarcity and trade-offs are not relevant -- and that we can live the "all of the above" fantasy. I mention all this because I just read Matt Ridley's post on the topic. "By preventing investment in gas, the dash for wind has done real harm ..." Read the whole thing.

The democracy we have

Prof Adam Grant writes about "The Virtue of Contradicting Ourselves ... We don't like flip-floppers, but we should consider voting for them." (today's NY Times.) A good way to test our views is to see how they stand up against other views we hold dear. But we should be open to attaching some weight and some importance to views we hold that are not consistent with the otherd. Do we abhor war? Do we resist military adventures abroad? Do we recoil at the idea of taking no action against the Paris bombers and their ilk?

Grant also writes, "Using neuroscience to track activation in different brain regions, Professor [Eddie] Harmon-Jones and his colleagues found that inconsistent beliefs really bother us only when we have conflicting implications for action. People have little trouble favoring both abortion rights and tax cuts. But when it comes time to vote, they confront a two-party system that forces them to align with Democrats who are abortion rights advocates but against tax cuts or Republicans who are anti-abortion but for tax cuts. ..."

The democracy we have forces us to live with binary choices. Some people complain about too many toothpastes and detergents at the super-market, but shelf space is scarce and products that do not sell are quickly pulled (and sent to the 99-cent store). Fewer choices does not make things simple. If we choose to vote, we have just two options. The winner of the binary-choice election will make many appointments (judges, commissioners, others) and promote many causes and policies. We cannot fine tune to match our preferences; we are obliged to "purchase" vast bundles.

Place this next to the Adam Grant comment and notice that the problem grows as the scope and size of government (run by the people we elect) expand. The binary choice problem is less onerous where a smaller set of policies is involved. The problem grows as the scope and size of government grow.

Bad inequality, good inequality

I often cite Baumol, et al's Good Capitalism, Bad Capitalism, and the Economics of Growth and Prosperity for the simple reason that many critics see only the Bad and suggest that this is all there is. Some writers cite crony capitalism. The irony is that many of the prescribed "fixes" open the door to more cronyism. Why is the IRS tax code, lengthy, bulky, complex, always growing and likely to remain so? Because it is chock-full of special treatments.

Increasing (reported) inequality is everywhere red meat for demagogues. It is time for a companion volume that describes "good" vs. "bad" inequality.  First, the big three: (1) Not all gains or riches are ill-gotten; entrepreneurial success must be rewarded; it is indispensable because it assembles new ideas and new products that enrich others; the rule of law means that ill-gotten (and only those) gains are pursued at great risk; (2) We do not live in a zero-sum world; the gains by some are not at the expense of others; (3) Increasing poverty is not equivalent to increasing inequality; magically double all incomes and poverty declines while inequality increases.

And three more: (4) Most reports of increasing inequality are flawed; comparing statistical groups over time is meaningless; the key measure is economic mobility as seen via panel data; the rare panel data we have are inadequate; the most upwardly mobile, the immigrants, are excluded; (5) It's a safe conjecture that more Americans aspire than envy; economic growth provides more upward mobility possibilities; redistributionist interventions are likely to stunt growth -- and create more cronies and more inequality; (6) All of the acknowledged national income measurement problems and shortcomings make their way into the inequality discussion; not everything that counts can be counted; the greatest inequalities involve longevity, health, general well-being -- all beyond the scope of traditional national income accounts.

There are surely more. The problem we have is that the mere waving of the "inequality" flag often ends the discussion.

Winners

The Economist has a very nice cover story on blockchains and trust ("The trust machine: How the technology behind bitcoin could change the world"). Technology helps people find ways to reduce transactions costs, promote trust and enhance productivity and wealth. The story begins where Hernando de Soto leaves off: there is "dead capital" when and where people do not have clear title to their property. So they remain poor. But better record keeping is expensive. It appears that that proper record keeping and all that follows is now within the reach of many via the application blockchain technology.

Economic growth is natural (people want to make money) but it's movers have to contend with an army crony capitalists and redistributiuonists. (Even now the latter have not grasped the fact that the harder they work, the less there is to redistribute.) The U.S. economy usually grows impressively after a downturn. But after the Great Recession, we got the Great Regulation -- and growth that's less than half what it should be, still hovering at near just 1.5% annual GDP growth.

That aside, in the derby between the forces for growth and the redistributionists, I remain optimistic that growth will win. Blockchain technology powers Bitcoin electronic currency but could just as well advance all of the other transactions that require record-keeping and verification -- and therefore trust. Here is how The Economist's Leader for the story concludes:

The notion of shared public ledgers may not sound revolutionary or sexy. Neither did double-entry book-keeping or joint-stock companies. Yet, like them, the blockchain is an apparently mundane process that has the potential to transform how people and businesses co-operate. Bitcoin fanatics are enthralled by the libertarian ideal of a pure, digital currency beyond the reach of any central bank. The real innovation is not the digital coins themselves, but the trust machine that mints them—and which promises much more besides

Many have experienced Uber and they quickly get it. But this is just the start. The winners will be not just be the smart and inventive people but the rest of us who too.