An economist goes to Washington

Here is Trump economist Peter Navarro explaining the benefits of protectionism to Paul Solman and the PBS NewsHour audience. The best (worst) part is where they go to a display board and write down the textbook components of final demand that define GDP.

GDP=C+I+G+(X-M). The "chalk talk" quickly gets pretty awful. Trump wants more "I" but "Keynesians" want more "G". Trump-Navarro want to boost GDP by reducing the "trade deficit" (reduce gap between U.S. imports and exports). There follows a discussion of China's trade abuses, including selling their stuff to us at low cost.

Where to start?
1. Trade is a good thing; specialization and exchange are the fundamental insight of market economics; they explain our prosperity.
2.  The "trade deficit" is a meaningless idea left over from the days when mercantilism was a serious idea, embraced by royals seeking ways to pay for their perennial war making. They were perhaps blind to the idea that currency exchange rates are always in flux, responding to the demand and supply for goods and services as well as the demand and supply for assets.  These flows respond to prices (exchange rates). At the end of the day, there are trade flows and capital flows that exactly balance.
3. The international demand for U.S. assets signals confidence in the U.S. economy -- we are still the "tallest pygmy." I would feel better if the U.S. Treasury borrowed less. Tallest pygmy status feeds a bad habit (addiction) by U.S. taxpayers (and Congress). More capital flows would go into U.S. productive projects were there less competition from U.S. unproductive (government) projects.
4. Going back to the textbook definition of GDP, the items on the right-hand-side are not independent of each other. A trade war, for example, could tank "I" as well as "C".
5. If any government anywhere does "manipulate" anything to make their exports (my imports) cheap, thank you very much.

U.S voters have spoken but the conversation never stops. If economists invoke textbook discussions of GDP, they should at least do so without all of the errors that Navarro promotes.

Out with the old; in with the new

The NY Times notes: "L.A. Drivers on the 405 Ask: Was $1.6 Billion Worth It?"

Good question. Also interesting amid the clamor for a "big infrastructure push". Also interesting after billions have been spent in L.A. and other U.S. cities on rail transit with nothing to show.  Perhaps people who make (and talk about) public policy operate by their own set of rules; losses are not the usual impetus to re-think. Learning from mistakes (the way to progress) are no big deal.

What are the substitute rules? Do more of the same. Stick to your emotionally-based beliefs. Stick with your crony capitalist partners; it's a beautiful friendship (Bootleggers and Baptists). Fudge the numbers when it's convenient.

In the fairy tale version, there would come a point when people get fed up and throw the rascals out. The fairy tale has no room for a populist reaction. Some of the bootleggers get the drift and catch the wave of discontent.

You get a Bernie Sanders and a Donald Trump.  Poor Hillary Clinton and team Podesta. They were busy so prepping for the coronation that they thought the old politics would work just fine.

Trouble is that the new politics may be as awful as the old politics.

ADDED

Learning from our mistakes is our only hope.  Here is more: http://www.nationalaffairs.com/publications/detail/cultural-intelligence

Better way

Recent LA Times coverage of California's "climate fight" has caused a stir because the writer actually mentioned a downside. There will be economic costs. But the legislature was apparently reluctant to even address possible trade-offs involved. ("California's climate fight could be painful -- especially on job and income growth").

But, on the other side, there is similar disdain for serious discussion of costs and benefits. Michael Greenstone and Cass Sunstein, in this NY Times op-ed write about the incoming administration's seeming efforts to dismiss attempts to place a social cost on carbon. 

For some time, skeptics have been tarred as "deniers".  On the other side there are plenty of proud know-nothings.

In all this mess, what do we know?  First, climate models are not gospel. Here is just one credible critique by Charles Hooper and David Henderson. Should not allegations of "settled science" raise alarms?

Second, the climate discussion involves a global commons and, therefore (presumably), the need for policies and, therefore, politics. But politics sends people to the barricades where they take uncompromising positions that deflect trust.

What to do? Marginal Revolution points us to an economic assessment of fracking. The biggest steps towards cheaper and cleaner energy (natural gas) came about via the market and not (actually in spite of) the politics we have. Entrepreneurial risk taking and trial-and-error learning are all we have. Nothing else come close.

We should have far less reason to worry about temperatures 50-100 years from now if we lower our expectations of what the politicians can do and give the entrepreneurs some space to do what they do.

That is the real way to avoid "doomsday". How have we avoided all of the past "doomsdays"?  Not via politics but via the efforts of private investors who discovered better and cheaper ways to house, feed and clothe us -- and much more.

Johan Norberg has an up-to-date summary of views articulated by Julian Simon about 20 years ago,

Game changers?

Wendell Cox points us to this essay by Walter Russell Mead: "The Path to Mt. Rushmore? Trump's Third Ring of Suburbs."

Mead is a smart man and always worth reading. While it's pretty clear that Barack Obama's people like high population densities and public transit while they hate fossil fuels and cars, and that these sentiments are less held by whoever Trump brings to Washington, it is also true that unbundling and local NIMBYism are forces to be reckoned and will go on in spite of what happens in Washington.

Richard Balwin's The Great Convergence tells the unbundling stories. He studies the history of location (his interest is globalization) and cites two great unbundlings. He notes three spatial barriers, high trade costs, high communications costs and high face-to-face costs. His “1^st unbundling” refers to lowered trade costs. Producers did not have to be near consumers. Shipping costs had fallen dramatically. This changed the world in terms of the comparative advantage of world’s various regions. The “2^nd unbundling” lowered communications costs; he cites lower ICT costs. This had an equally profound effect. Much of labor could be offshore. He sees no 3^rd unbundling; face-to-face-costs remain high – and we will still have clusters and cities. Baldwin recognizes the special nature of exchanging tacit information. This is beyond ICT.

Back to Mead, would a bunch of bullet trains have made a any difference in all this? They would have accelerated national debt growth a bit faster but that is the only plausible effect.

Public transit was never the game-changer that advocates had promised. Will Uber-type services be the game-changer? Yes and no. Unlike transit, they will cause some households to forgo one or more cars. Look for cars per household to plateau. But, here is the difference: will these services draw people to a residential location closer to the place of work -- as transit was supposed to? Uber is OK only for commutes over relatively short distances -- where you are already close to the office. It complements walking and biking, depending on the weather.

Here Sam Staley speculates on what a Ben Carson-led HUD will and will not be doing. Interesting but I do not see how any of this weighs for or against Mead's argument. The spreading out of cities is very old and will continue no matter who is elected and who is appointed.

Another one bites the dust

"Industrial policy" is the polite term. Trumpian "bullying" is more accurate. The Carrier deal agreed to last week is a case in point -- and just the beginning. It would be much better to separate politics from economics.  Here are the big four reasons why:

1. No third party is equipped to second-guess any business decision.
2. Third parties are easily involved in political grandstanding. This makes them worse than ill-quipped to intervene.
3. Politicians inevitably over-promise. Delivering is the hard part. The Obama forces may still be puzzling over Democrats' thrashing last week. But it's very simple. "Hope and Change" set expectations much too high.
4. Over-promising also leads to restiveness that invites despotism and repression. Venezuela, Cuba, North Korea and many others are in this state. This is where it gets really ugly.

These are well known non-trivial dangers. The unseen (Bastiat) is always the problem.

Trouble is that both political parties love this stuff. Particularly awful us how the normally sober Peggy Noonan (WSJ) and Mark Shields (PBS NewsHour) also cheer. This is not about elites vs non-elites. One more cliche just died.

ADDED

Dan Griswold reminds us of the danger of "blowback" retaliation from abroad. Yes, the hole being dug can get pretty deep.

Explanations, please

The "fix infrastructure" chorus is bi-partisan. That may be a problem. Here is James Surowiecki's Nov 28 New Yorker column. It mentions that "Debt-fueled extravagance was bad for his [Trump's] companies, but it could be good for America' s economy and infrastructure ... Done right, a big infrastructure spree would boost demand and make travel more efficient."

Done right? Pure win-win? What do we know?

1. There will be pork projects, including bullet trains to nowhere. No one has suggested a vetting procedure that de-politicizes the fest. We have very little history of getting this right.

2.  Those looking for a macro-economic demand boost owe us an explanation of why the Obama stimulus of 2009 fell flat. That one took place when there was significantly more unemployment than now.

3. Stimulus dreams assume that unemployed resources are easily available and easily malleable. Neither is true. We are now told that the U.S. economy is near full employment. (To be sure, Tyler Cowen has suggested that large numbers of undocumented immigrants would like to work on these projects.) 

4. Surowiecki seems to agree with those who want the U.S. to borrow more. But the federal debt (plus unfunded liabilities) is too big and there is no plan to address it.  Servicing the debt will be a bigger problem as interest rates rise.

There are other reasons to be concerned . But start with these four. Infrastructure enthusiasts have some explaining to do.

Negation and skipping classes

I share Arnold Kling's enthusiasm for Martin Gurri's The Revolt of the Public. Here is Kling's review. When you read the book, try to keep in mind that it was published in 2014. I hope the author made many bets on the recent election. I expect he would have bet on a Trump win -- and made a lot of money. That does not mean I see Gurri as a fan of Trump.

There is little I can add to Kling's review. Gurri writes about recent political protest movements in Egypt, Spain, Israel and the U.S.  He notes, "Like their brethren in Spain and Israel, the OWS [Occupy Wall Street] protesters were energized primarily by the force of their repudiations. They made no demands, but felt free to accuse. The objects of their loathing -- a predatory economic system, a corrupted government, a society ruled by money -- united them in a way that common goals did not. They spread the notion that the top 1 percent of Americans tyrannized the bottom 99 -- and that they, a handful of white, middle-class youngsters, represented the vast American public, the people in revolt. OWS injected these once-marginal attitudes into the mainstream, where they became fodder for liberal politicians. The romance of condemnation, in my judgment, has become the most conspicuous feature of Obama's mode of governance ..." (loc 1904 on Kindle).

More negation and protest than demands. Post-election, young people protest Trump by boycotting their college classes. What's to lose? If they still graduate, do most of them care about missing a few lectures?  Any bets that most of them are not from college majors where hard content is taught? Or perhaps they can get academic credit writing papers on what all makes them feel bad. Do not bet against it.

Read Gurri's book.

Emergent

When I write about cities and cite the bottom-up as well as the top-down forces that shape cities, I usually end up with the conclusion that most of urban form is emergent. Journal referees often challenge all this with references to infrastructure which was presumably installed top-down. The favorite story is usually Manhattan's street grid and the Commissioners' Plan of 1811.

But Los Angeles is different. A friend points me to Reyner Banham's Los Angeles; The Architecture of Four Ecologies, particular its Chapter 4, "The Transportation Palimpsest." There were ox cart and horse trails, including the Camino Real, many of which predated the alignments of railroads.  Most of the rails were private,  many installed to guide buyers to outlying real estate developments. Many of LA's freeways, most of which came in the 1960s, followed routes quite similar to or nearby the old train tracks.

Banham's Figure 30, "Route Map of the Pacific Electric, 1923" (p. 62-63) has much in common with an LA freeway map of today.

The major spines of the freeway plan are apparently emergent alignments. I would not be surprised if there are stories like this in other places. You can never know enough history.

Bad news bearers

My favorite theme is human progress.  Many of us are blessed to be living in a time and place where it is so apparent. But this does not mean that it is apparent to all of our friends and neighbors.

There are so many good books on progress that it is hard to say where to start. The names Deaton,    Lomborg, Maddison, McCloskey, Mokyr, Phelps, Radelet, Pinker, Ridley, Simon, and Shermer are good places to start. There are many others.

Among the clearest and most concise is Johan Norberg's Progress: Ten Reasons to Look Forward to the Future.  I am not trained in psychiatry so I can only speculate why young people are taught more about the bad news than about all the good news.

Here is one snippet from Norberg (page 161):  "After winning the Second World War against the Nazis' brutal form of racism, the Allied democracies showed how many problems still remained among themselves. When General de Gaulle wanted French troops to lead the liberation of Paris on 25 August 1944, American and British commanders accepted it on the condition that no black colonial forces were included, even though they made up two thirds of the Free French forces." The author includes other snippets like this, all guaranteed to hit you over the head.

They hit you over the head because they are so crazy from today's vantage point. Like Norberg, some of us celebrate how far we have come in a short space of time. Yes, there is never a time to simply stop and be smug.

I mention all this because, in spite of progress, so many among us prefer to look at the election results as simply the result of racism. No. Barack Obama was elected two times by large margins. And his popularity rating remains amazingly high for an incumbent at the end of his second term.

Those who cannot accept progress, but instead like to dwell on the past, cannot accept the idea that the Obama policies and mode of governance, not to speak of all the Clinton detritus, were the real problems.

I say this as someone whose side (divided government) lost. May our side prevail soon.

For the children

I briefly cited Edmund Phelps' wonderful economic history, Mass Flourishing, in this post a while back. A brief version of his argument is in the NYRB of August 12, 2015.  Here is the link. 

On election day next week, voters across the country will be asked to approve all sorts of new school bonds and taxes, "for the children." But we (should) know from long and sad experience that throwing money at the problem is ineffective. Phelps has a better idea. 

Below is lengthy quote from his NYRB essay. It is quite wonderful but very far afield from the standard election year talk about schools. As always, there is the unaddressed question of how we get from here to there. That would be another essential book.

How might Western nations gain—or regain—widespread prospering and flourishing? Taking concrete actions will not help much without fresh thinking: people must first grasp that standard economics is not a guide to flourishing—it is a tool only for efficiency. Widespread flourishing in a nation requires an economy energized by its own homegrown innovation from the grassroots on up. For such innovation a nation must possess the dynamism to imagine and create the new—economic freedoms are not sufficient. And dynamism needs to be nourished with strong human values.

Of the concrete steps that would help to widen flourishing, a reform of education stands out. The problem here is not a perceived mismatch between skills taught and skills in demand. (Experts have urged greater education in STEM subjects—science, technology, engineering, and mathematics—but when Europe created specialized universities in these subjects, no innovation was observed.) The problem is that young people are not taught to see the economy as a place where participants may imagine new things, where entrepreneurs may want to build them and investors may venture to back some of them. It is essential to educate young people to this image of the economy.

It will also be essential that high schools and colleges expose students to the human values expressed in the masterpieces of Western literature, so that young people will want to seek economies offering imaginative and creative careers. Education systems must put students in touch with the humanities in order to fuel the human desire to conceive the new and perchance to achieve innovations. This reorientation of general education will have to be supported by a similar reorientation of economic education.

We will all have to turn from the classical fixation on wealth accumulation and efficiency to a modern economics that places imagination and creativity at the center of economic life.

The real question

Last January, I was temporarily cheered by the LA Times'  uncharacteristically critical examination of LA's rail transit madness.  The awful record made it to their front page. Check it out.

That was then. Now it's election time and various propositions to vote to throw more good money after bad are on hand. Measure M is on the ballot. It would bump up the county sales tax by anther half penny to fund more transit boondoggles (and various trimmings to make it appear to be "multi-modal").

Yesterday's Times front-page "L.A.'s traffic battle plan: transit, yes, but cars too" cites the MTA chief's goal of converting 20-25% of the county's population to regular transit users. LA transit use has been near 6% of commute trips for some years. Is the chief a betting man -- with his own money?

Re the proposal, the Times' story these days is "yes, but."  If we could allow and prompt more high-density and mixed development near transit stations, then perhaps we have a shot. But what are the odds? And what are the costs? And who pays?

Finally, what are the essential details? Airy statements about density and mixed use miss the point. It is the details of what goes on the ground that matter. What density? What mix? There are thousands of details that only the actual risk taker can be trusted with.

Will developers have the leeway? Probably not in the politicized (cronyist) arena of LA planning. Can the rules be made simple and clear and minimal? These, and not another tax increase, are the essential questions.

Minimum wage

Over at Cafe Hayek, they post these three outstanding videos. Watch and enjoy. Very stiff competition for those of us who try to teach this. Competition is a wonderful thing.

They'll take romance

It may be time to give up on hopes for a Kotlikoff-Leamer or a Johnson-Weld victory -- or even a non-majority in the Electoral College. All of these scenarios presumed that Trump and Clinton would self-destruct at about an even pace. But it's very hard to keep up with Trump in that department.

What is next best?  I saw a post (somewhere) where someone asked what they would miss most about Obama. The answer in this conversation was "Congressional gridlock". My next best hope is divided government.

That is not the view of Alan Blinder, writing in today's WSJ.  He sees Congressional gridlock as the problem.

OK for him if he dreams of a Clinton win and a sympathetic left-leaning Congress. But what would they do? Is a further drift to statism beneficial? Would a further left EPA be helpful? Would a more complicated tax code be useful? Would more Dodd-Frank and more politicized health care do any good? Would more power to the education establishment help anything but strengthen that group?  Would more tightly regulated land use do anything for housing affordability or labor mobility? I could go on.

"Politics without romance" never caught on with most people or with most economists. Blinder and others stick with romance? Do romantic notions have a place in serious discourse?

ADDED

Don Boudreaux notes the "nirvana fallacy."

China stagnation?

Everyone's favorite question about China is: how long can they keep it [amazing growth] up? Performance following the Deng Xiaoping reforms has been unparalleled in world history. The Communist Party is still in charge and the standard view is that the Party and the population have struck a bargain: leave the vast Party apparatus in power and they will deliver ever rising standards of living. Again, for how long can the bargain work?

A good friend reminds me that there is something wrong with the first question. China is not a country but a continent. Many parts (the major cities) do quite well but, please, do not generalize about the whole continent. And generally speaking, cities do better that countries. Some coalitions are just too big.

On top of that, Blumenthal and Scissors think that the "bargain" is unsustainable. The country's debts are too high, official data releases cannot be trusted, the military and security establishment require constant care and feeding and will soon become unaffordable, the Deng-era reforms have stopped.

That's the bad news. The good news is that China's investments in education have been spectacular; education is serious and (from what I could tell) unfettered. Best of all, there are signs of a significant return talent migration.  I have seen this at both ends, talented Chinese leaving the U.S. to return home and (this visit) encountering some now in Shanghai who have returned from their U.S. sojourn and prospered..

Eve of (self-) destruction

There are many things one can say about the two major party candidates for President but no one has suggested that either is Churchillian. Lee Pollock recently posted "What would Churchill think of Trump and Clinton?" in the WSJ (gated by now). The piece includes two of the great man's (attributed to him) most memorable (and relevant to this election year) utterances. “The best argument against democracy is a five-minute conversation with the average voter.” And “Democracy is the worst form of government except all those other forms.” Did he ever attempt to reconcile these two? What flavor of democracy was he thinking about?

Our flavor includes an Electoral College whereby most states award that states' electoral votes on a winner-take-all basis. The Wikipedia post site mentions that there are two exceptions, Maine and Nebraska. The post's authors say this about these two states: 

Except for Maine and Nebraska, all states have chosen electors on a "winner-take-all" basis since the 1880s.^[5] That is, each state has all of its electors pledged to the presidential candidate who wins the most votes in that state. Maine and Nebraska use the "congressional district method", selecting one elector within each congressional district by popular vote and selecting the remaining two electors by a statewide popular vote.

Given all this, can Gary Johnson garner enough electoral votes to put the selection into the House of Representatives?  The House apparently most chose from the top three vote-getters.

By then, two will be seen as exposed and as losers -- and we could get an adult.

My previous posts on this topic presumed that Trump and Clinton would self-destruct at about the same pace so that there would be no clear Electoral College majority by early Nov. Each have tendencies to self-destruct but they do so unevenly and unpredictably.

FiveThirtyEight has a slightly different version.

Policy #12, the cities

Here are eleven policy suggestions to boost the economy for the next president from Brookings researchers. These are all good and we have heard them before. I have two thoughts. First, issue another paper on why these have been unattainable -- and how and why they can become attainable. That would be a longer paper.

My other quibble is that cities ought to be included as policy #12 -- or the existing entry on productivity should include a discussion of cities. Cities are "engines of growth" because the ideas that boost productivity are spawned in cities. Moreover, cities are where supply chains are located and thereby realized. I have mentioned before that Coase's what-to-make vs what-to-buy challenge to entrepreneurs and managers must include what to buy where. The Coase question cannot be fully evaluated unless spatial choices are included.

What, then, is the policy challenge? Brookings and many other have chimed in on the unproductive (anti-productive) land use regulations that have been embraced by greens and others. These have been used by NIMBYs to freeze or slow development and have undermined housing affordability as well as labor mobility.

But at the same time, supply chain formation is stymied.  Cities are the spatial realization of large numbers of (emergent) supply chains. I include supply chains for ideas. Ideas can be exchanged face-to-face or electronically. Following, Mokyr, we can say people are keen to find useful knowledge. To do so, people network (shmooze?) at the mall or on the golf course or you name it. Most (perhaps all) people and firms evaluate and choose locations as well as blend of networks based on the many supply chains they participate in.

The Feds dole out so much money to cities that approvals simplification (how about a one-stop approvals process?) could be a requirement from Washington.

Silly me. I almost forgot who the two major candidates are.

Laugh or cry?

Here are John Cochrane and Russ Roberts talking about economic growth -- and why we have so little of it. Most economists stake out positions on various fiscal or monetary policy stimuli -- and usually argue for their preferred version or mix. But the inability of fiscal and/or monetary policies in the developed countries to have any significant impact these days is ignored. The third option ("third rail"), reform of the bizarre regulations and codes now on the books, is the one Roberts and Cochrane take up.

"Third rail" says it all. Tax code reform has been talked about for years but Congress and President are impotent when it comes to taking on all of the cronies who live off and love our IRS code. Is news of Donald Trump's taxes -- and the very "Trumpian" defense that his clever use of the code is something to behold, a game-changer? Is all this a gift from the heavens, not just to the Clinton camp, but the even usefully to beleaguered tax reform advocates? I keep looking for the good in all the nonsense?

There's a pony here somewhere

Here are Bryan Caplan's reasons for disdaining politics. I feel the same. In fact, I could add to it. But the point is made. This political season has not helped. The fact that Americans' cynicism towards politics grows is not a good sign. I have no idea if any of  this is reversible. Where do we go after Clinton-Trump? There are cliches about "hitting bottom" and then somehow bouncing back.

In all this it's good when politicians connect dots. We did have a short spate of de-regulation under Carter-Reagan. And that was it for a while.

So here is some good news. Almost everyone has by now seen hard evidence that restrictive land use policies are the cause of the widely lamented housing affordability problem. Green land use policies have had this effect since the UK 1947 Town and Country Planning Act. So in 2016, we finally get "Obama takes on zoning laws in bid to build more housing, spur growth." Is it a sign? We'll have to see.

Teamwork and fun

Nobelist James Buchanan's public choice (politics without romance) ideas are profound. But public choice is still missing from most economists' "toolkit". It is seemingly easier to find departures from Nirvana economics (models built on assumptions of perfect information, perfect foresight, perfect rationality, etc.) and hop-skip-jump to the conclusion that markets fail -- and a wise and dispassionate tribe of experts should get to work fixing things. It's the old progressive idea. It is seductive and it seemingly appeals to people who dream of social order -- and also many brainy people, perhaps elevating their self-image as the engineers of such order.

But beyond that, one sees the problem every time a political candidate speaks -- and when listeners jump and shout for joy. Nothing may make logical sense. But people are tickled to be there and to be participants. The human instinct is that people desperately want to be on a team -- just like at sporting events. The impulse to form teams and bands is a favored evolutionary tale of how sapiens came to dominate all of the other faster and stronger species roaming the planet.

All of this is stark in 2016. It has been many times noted that Clinton and Trump are flawed candidates. But Clinton's lying is no big deal; Trump will become "presidential" anytime soon! Many are desperate to be on a team -- and tie themselves into knots to find a way get behind one or the other of the unappealing candidates. People cheering at the game Saturday afternoon are having a lot more fun than those who stayed away, attending to their normal lives.

Small government (small politics) advocates will always have a tough time. What they offer comes up short in the fun department.

Pillars

Here is Issi Romen's Romem's "Can U.S. Cities Compensate for Urban Sprawl by Growing Denser?"
It's a thoughtful piece.  Here are my top five thoughts and responses.  Readers of this blog may have encountered these five "pillars" (apologies to David Henderson) before.

1. "Sprawl" is vague, pejorative and misleading. We have auto-oriented development -- because autos are dominant.
2.  "Density" is likewise misleading. Can we describe a large urban area via just one number? There are many densities in most places -- to accommodate a variety of tastes and interests.
3.   Planning policies are a mixed picture. The ones in place and the ones advertised may not be the same. A lot happens in the approvals process. This includes too much cronyism.
4.  Market forces are the prime movers of development. Development that fails the market test has a bleak future. In the event, even government subsidies can only go so far.
5. There is no way for planners (or anyone) to know the right (or wrong) density. There is a diversity of tastes and opportunities out there. These are best evaluated and responded to by people with (i) local knowledge; and (ii) the capacity to take risks.

Not the full story

Millions of Americans have gone through some sort of college, taken the standard principles of economics course, and heard about specialization and trade. Exchange means more consumption and more consumer well-being. Prices are lower, variety is greater, as is innovation. Consumer sovereignty is the best way to allocate scarce resources.

Strangely, however, the simple story is ignored in standard political discourse. Trump, Clinton, Sanders and all the others only talk about jobs lost (trade) or gained (protection). Cronyism, xenophobia and ignorance are a miserable brew. Among the ironies is the fact that most Americans do poorly in school (by international standards, OECD PISA comparisons) yet live very well (again, by international standards). The apparent irony cannot ever be addressed if terms of trade are never explained.

I had hoped for clarification via Nathaniel Popper in today's NY Times, "We know plenty about the losers in global trade. Why don't we know more about the winners?" But he too sticks to the jobs gained vs jobs lost narrative.

Live to work or work to live? Most people would say it's the latter. But even the smart people, like Popper for example, only highlight the work part. It is not the full story. In fact, it's misleading.

Ironies

California's establishment (a large club) cannot fix potholes but they want to build a bullet train. I get that. More baffling is the fact that many leading economists (and others) ignore all this and promote ever more spending on "infrastructure". When it comes to public spending, it's apparently OK to double-down on multi-billion dollar waste.

The real game-changer (challenge to the growth of private auto use) is from the likes of Uber. The Economist of Sep 3 includes "From zero to seventy (billion) ... The accelerated life and times of the world's most valuable startup." Ironies everywhere. Uber's billions, for new ideas and approaches, are volunteered; transit's billions for old tech are coerced -- with predictable results. And transit's politician friends do what they can to throttle Uber -- and protect the taxi status quo.

What will Uber-plus-self-driving technology do? Door-to-door personal transportation will beat fixed-route collective transit in most cases. Serving the public does not involve "public servants." Quite the opposite.

ADDED

Cowen re Uber.

History riddle

The WSJ links to Gary Saul Morson's "The house is on fire! ... On the hidden horrors of Soviet life." There is a discussion of who murdered more, the Nazis or the Communists? In the early 20th century, class war and race war rhetoric were widely invoked. But since the Holocaust, race war rhetoric is decidedly unfashionable (at least in polite company). But class war rhetoric is almost a mainstay of political campaigns around the world. The free-lunch brigade exploits it all the time.

Morson mentions that the body-count casualties of class war (Stalin, Mao, Castro, Kim, Pol Pot, etc.) are largely out of sight-out of mind. But that begs the question. Why should it be so?

Both of the socialisms (national socialism and bolshevik socialism) were utopian. Both promised to create a "new man" (and woman, I suppose).  But the Nazis were German-centric while the bolsheviks talked in international terms (their anthem).

Morson's punchline is one of those laugh-or-cry East bloc jokes:
 ... a story, set during the Great Purges, about some families in a communal apartment who are awakened at 4 a.m. (the usual time for arrests) by a peremptory banging at the door. Finally one old man, with less life left to lose, answers, disappears into the corridor, and at last returns. “Comrades, relax!” he explains. “The house is on fire!”

I am reading Svetlana Alexievich's Seconhand Time. Today's Homo Sovieticus is tragic in many ways.

Climate news

The climate news most likely to make it into the popular discourse tends to be one-sided. Matt Ridley ("An Ice-Free Arctic Ocean Has Happened Before ... When the Arctic loses all it sea ice one summer, will it matter?") reminds us once again that the real story is quite complex -- and not easily amenable to the kind of posturing that is so popular in politics, media -- and beyond.

Wringing of hands over distant climate change is required of all right-thinking people. We can thank Bjorn Lomborg for reminding us that in a world of scarcity, it is important to prioritize. The only tool we have is serious cost-benefit analysis -- with all the proper caveats about inevitable uncertainties. Large numbers of people face awful conditions right now that are remediable sooner rather than later. High on the list are toilets for the millions that do not have them. The health and dignity benefits are clear. This is about the plight of people now.

The important point is that technological change does not cease. Timothy Taylor cites research on making fuel from carbon dioxide.  Russ Roberts and Chuck Klosterman discuss the almost inevitability of being wrong -- and  perhaps prompting those who come after us to someday roll their eyes? "They used x-ray?!"

Who most likes doomsday scenarios? There is always a Bootleggers and Baptists coalition with a keen interest to "do something." Included among the spiritual seekers are those with an attachment to the idea of state action.

ADDED

The WSJ's Holman Jenkins is blunter than I was.

Mal-investing as policy

The revised second-quarter GDP numbers are here -- and again dismal. What to do? "Janet Yellen is calling for investment in public infrastructure ... monetary policy tools have reached their limit .."

But here is a more plausible view: The Perils of Public Capital. Read the whole thing. It cites the many bridges to nowhere and other similar missteps. Are all of these failures invisible to Yellen and Summers -- and the many others of their persuasion?

The blinders seem to come on when the old-time religion, more public spending, is evoked. One can excuse the pandering and posturing Clinton and Trump, but the smart people are another story.

Here are two thoughts. First, for many academics, their intellectual capital is their whole being. Hold on to it at all costs. If nearly $1 trillion of spending on "shovel-ready" projects did nothing, suggest to spend even more. The model says so. Second, and related, many smart people have a strong need for closure. Ambiguity and open-endedness are no fun. The theory has to work.

So why all this sidewalk psychiatry? Because it is bizarre that our best and brightest will say anything on behalf of good old-fashioned public spending. And convenient for you-know-who.

Econ 101 says that capital markets are essential so that scarce resources not go into mal-investments. But we are in the unfortunate situation where public infrastructure and mal-investment have become almost synonymous.

"Youthful safety and adult immaturity"

There are few if any unmixed blessings. Almost everyone likes and uses the internet. But there are obvious downsides. Ross Douthat takes up that theme in Sunday's NY Times, "The Virtues of Reality ... Online realms can make us safer, but stunted." Virtual sex and computer game violence mean that young people have been less likely to get in trouble. But neither are many of the young ready to get out, join the workforce and sample non-virtual reality. Many stay with parents, stay home,  and make do with not much of what we can call a life. 

"... I want to advance a technology-driven hypothesis: This mix of youthful safety and adult immaturity may be a feature of life in a society increasingly shaped by the internet’s virtual realities." 

Douthat moves the discussion away from the standard (boring) talking-heads litany of political errors and political opportunities. And the young people least equipped are most likely to use internet addictions to avoid getting a real life. "The poor spend more time online than the rich ..." There was a time, of course, when class warriors embraced the "digital divide" concern. They were apparently wrong.

Read Douthat's whole piece on this. When I get the Sunday Times, I look at his column first.

What would they do all day?

There are many pithy ways economists use to make important points ("no free lunch", "compared to what?" etc.). Among the most useful is Thomas Sowell's "and then what?".

Today's WSJ cites a short piece from Esquire on some of the consequences of marijuana legalization. The "War on Drugs" has been a disaster on many fronts and legalization is the way to go. But partial legalization also has consequences. These were harder to anticipate. Here is the story:

... The heroin epidemic was caused by the legalization of marijuana.

We wanted legal weed, and for the most part, we got it. Four states have legalized it outright, others have decriminalized it, and in many jurisdictions police refuse to enforce the laws that are on the books, creating a de facto street legalization.

Good news, right?

Not for the Sinaloa Cartel, which by the time Colorado passed Amendment 64 in 2012 had become the dominant cartel in Mexico. Weed was a major profit center for them, but suddenly they couldn’t compete against a superior American product that also had drastically lower transportation and security costs.

In a single year, the cartel suffered a 40 percent drop in marijuana sales, representing billions of dollars. Mexican marijuana became an almost worthless product. . . . Once-vast fields in Durango now lie fallow.
More good news, right?

Yeah, no. Guzmán and his boys are businessmen. They’re not going to take a forty-point hit and not do something about it. They had to make up those profits somewhere.

Looking at the American drug market as it existed, Guzmán and his partners saw an opportunity. An increasing number of Americans were addicted to prescription opioids such as Oxycontin.

And their addiction was expensive. One capsule of Oxy might sell on the street for thirty dollars, and an addict might need ten hits a day.

Well, s—, they thought. We have some of the best poppy fields in the world. Opium, morphine, Oxy, heroin—they’re basically the same drug, so . . .

The Sinaloa Cartel decided to undercut the pharmaceutical companies. They increased the production of Mexican heroin by almost 70 percent, and also raised the purity level, bringing in Colombian cooks to create “cinnamon” heroin as strong as the East Asian product. They had been selling a product that was about 46 percent pure, now they improved it to 90 percent.

Their third move was classic market economics—they dropped the price. A kilo of heroin went for as much as $200,000 in New York City a few years ago, cost $80,000 in 2013, and now has dropped to around $50,000. More of a better product for less money: You can’t beat it.

At the same time, American drug and law-enforcement officials, concerned about the dramatic surge in overdose deaths from pharmaceutical opioids (165,000 from 1999 to 2014), cracked down on both legal and illegal distribution, opening the door for Mexican heroin, which sold for five to ten bucks a dose. ...

Partial legalization is the problem. People's capacity to discover (and supply) substitutes is vast. To avoid messes like the one described, go back to principles. Prohibit nothing that has the potential to only harm the individual exercizing his or her free choice.

Freedom is inherently attractive and also so practical. But the freedom idea also places a lot off-limits to the state. What would politicians do all day?

Urge to mandate updated and cleaned up

Ironies make us think. And there are plenty of them. We know that in U.S. politics, "liberal" is now the opposite of its original meaning. We also know that people who would have claimed that label as recently as 20 years ago now prefer to be called "progressives." People who see themselves as "liberal" in the old fashioned sense now prefer the label "libertarian".

But, on examination, the original progressives of the Progressive Era were not the congenial folks we learn about in high school. Fred Siegel covers this ground in his The Revolt Against the Masses: How Liberalism Has Undermined the Middle Class.  Thomas C. Leonard does much the same in his Illiberal Reformers: Race, Eugenics & American Economics in the Progressive Era. Most disturbing is the fact that, in the great desire to be be modern and scientific, the Progressives embraced eugenics. We now know how badly that ended.

Almost all of polite company these days favors raising the minimum wage in the service of "helping people." But the original Progressives were quite explicit about their motives. They also got their econ 101 right. Here is Leonard (on page 130): "Thus did many observers accuse inferiors of accepting low wages and undercutting the American workingman. Sometimes inferior workers were portrayed as explicit dupes of the capitalist. At other times they were portrayed as the capitalists' accomplices. Often they were made out to be both. In all events, the threat was the same: the low standards of inferior workers."

That sort of candor has been updated and cleaned up. It is now about "helping people." Trouble with that is it just ain't so. The Law of Demand, as they say, "takes no prisoners."

Don Boudreaux makes a similar point.

"Have you no sense of decency?"

Here is the Malcolm Gladwell podcast re Toyota's "sudden acceleration" problem. Listen to all of Episode 8. Here is Gladwell's abstract:

In the summer and fall of 2009, hundreds of Toyota owners came forward with an alarming allegation: Their cars were suddenly and uncontrollably accelerating. Toyota was forced to recall 10 million vehicles, pay a fine of more than $1 billion, and settle countless lawsuits. The consensus was that there was something badly wrong with the world’s most popular cars. Except that there wasn’t.

Politician-lawyer-media frenzy are almost inevitable when a "big corporation" can be blamed. Most of the rest of us are happy that Toyota manufactures and sells great product -- and we prove it with our purchases of the company's product year after year.

Some years ago, I had occasion to work with then-East-bloc colleagues. It was best to tippy-toe around all sorts of issues and episodes that might embarrass them. When there was embarrassment, they would shrug and smile and simply say "that's politics." Move on. Nothing can be done.

I am happy to live in a better place. But "that's politics" also comes across in Gladwell's piece. Two cabinet secretaries are shown to be part of the extortion mob. And we now have an "historic" nominee for president who lies until the paint peals. But the toadies still cheer. "Have you no sense of decency?" was once a powerful statement. Directed at either major party candidate, it would be (sadly) laughable today.

Waste and debt

The mantra used to be that the antidote for bad cost-benefit studies is good (properly done) cost-benefit studies. But Bob Higgs remains skeptical. He invokes the "first do no harm" principle and notes how hard it is to meet that standard -- no matter what the estimated costs and benefits are.

But we now live in another world. Whether it is Clinton, Trump, Sanders or Obama, they are fond of discovering (and championing) free lunches (trade protectionism, free college, banning immigration, overtime for everyone, free child care, energy independence, etc., etc., etc.).

The locals in my part of the world are not to be undone. Friend Brad H. notes that the Los Angeles Economic Development Corporation has discovered the best deal yet: Raise the sales tax by one-half cent and "put billions back into the economy". How does that really work? There are no opportunity costs. In fact, costs are benefits. Spending is a benefit.

Light rail, subway and bus rapid transit construction projects that would be funded by the tax plan would result in $51.1 billion of economic output, while another $28.2 billion would be generated through freeway and highway projects during the first 50 years, according to LAEDC analysts.

But even high authority (in this case J.M. Keynes) said that "whenever you save five shillings, you put a man out of work for a day."  The spending sentiment still resonates. Spin it with talk of less traffic, less carbon, etc. and it's off to the races.

The great two-fer these days involves public projects that denote more waste and more debt. Debt is justified if and when the projects funded contribute to growth. But these are not the sorts of projects that politicians place on the ballot these days. Quite the opposite

ADDED

The list of free-lunch fairy tales is long and growing. This one surely belongs: "The All-Time Regulation Record."  The slowest post-war economic recovery speaks for itself. 

ADDED (2)

The NY Times includes "A Low-Growth World ..." on this Sunday's front page.  No mention of the elephant-in-the-room-all-time-regulation-record. This goes on here and abroad and explains low growth here and abroad. Some years ago, Mancur Olson published The Rise and Decline of Nations: Economic Growth, Stagflation and Social Rigidities.  The "mystery" was solved by Olson some years ago.

Be careful

Here is the always wise Matt Ridley talking about experts and their forecasting skills (lack of). He cites the Philip Tetlock project.

We have a natural human interest in the future; we have to reconcile this with the fact that we have no clue (can have no clue) about the distant future. We are routinely asked to make large sacrifices to avoid the consequences of climate change in as many as 100 years in the future. There has never been a serious 100-year technology forecast. I doubt that there will ever be one. (I just made a safe forecast.)

It is an entirely different matter if private parties make bets with their own time and money. If they choose to putter around laboratories, pursuing wild ideas, good for them. It is a different matter when they hector others to do so with their time and money -- or via their influence on those with the power to tax.

One can never know enough history. It's also good to know a lot of economic history; my taste runs to Deirdre McCloskey's way of combining the two fields. But do these oceans of scholarship allow one to make forecasts? For the short run and in terms of broad patterns only. And even then, be careful.

If cities were to implement one-stop developer approval processes in place of the drawn out and expensive mess we now have, there would be more housing, greater affordability and also more mobility. These are all to the good. But my forecast lacks a "when" and a "where".

In the run-up to 2008, most economists were still celebrating the Great Moderation. Were any of them in the room when Queen Elizabeth asked the obvious question? Be careful.

Two thoughts for this political season

First, I cannot imagine more enjoyable economic history than by Deirdre McCloskey. I just finished Bourgeois Equality: How Ideas, Not Capital or Institutions Enriched the World.  The old questions: How did we get so rich? Why for those in some places and not others? Why all the great improvements since 1800? She cites "the bourgeois deal" -- how commerce and "economic betterment" became respectable after about 1800, especially in the UK and Holland. It's not simply "good institutions" but the right culture. I cannot place who asked, "How do we get a better culture?" The brisk answer was "Get a better history."

Along the way, McCloskey cites Peter Boettke's thought that "the economy involves a continuing struggle among the Three Ss: Stupidity, Schumpeter and Smith." (p. 205). Smithian gains from trade and Schumpeterian inventiveness suggest that economic growth is the natural condition unless stupidity manages to choke it off. Pass more laws, enact more edicts and regulations.

Looking at what the major political parties are up to (I only tuned in for a few minutes to see cheering crowds in Philadelphia moved to tears of joy in response to idiotic banalities from the stage) it may be that stupidity is now in the saddle.  Bourgeois Equality suggests that the first two Ss had been ahead (by a nose?) since 1890. But post-1980?

Second, the WSJ offers this helpful electoral college scenarios cartogram gadget. Campaign managers will play these until the eve of the election. One not crazy scenario shows a Clinton majority by just one electoral vote. Both major party candidates are "high-negatives-with-more skeletons-in-the-closet". This means that as the skeletons tumble out, a very close outcome is certainly possible. This also means that a serious run by Libertarian Gary Johnson, whereby if he wins just one small state, could foreclose an electoral college majority -- and therefore the choice goes to the House of Representatives -- where it is possible that they may actually select someone who does not scare (terrify) people. As I keep saying, many ifs.

ADDED

Arnold Kling on voting Libertarian this year.

Who do you trust?

This week's NY Times coverage of Los Angeles ("The Capital of Car Culture Warms to Mass Transit") was 100% wrong. Wendell Cox and Tom Rubin provide the facts. LA's celebrated rail transit extensions have prompted net losses of transit ridership, the opposite of the Times lede. Elite opinion has a clear idea of how the world should work and this becomes, in their minds, a rendition of how the world does work.

But this is old news. Arnold Kling links to a remarkable essay by Walter Russel Mead here. Give it enough time, and the credibility of elites (not just mainstream media) sinks so low that Trumpism happens. Mead does not mention the candidate but rather the growing gap between "the professional class" and everyone else.

This is not just about income inequalities. It is about the antics of those who are doing well, including their opinions and pronouncements. Hillary Clinton is caught lying to the American people (over and over) and the FBI chief fancy-dances to paper it over. The attorney general just clams up. Bill Clinton escaped perjury charges because his lies to the American people were about sex and, therefore, a lesser perjury. H. Clinton's lies were more serious stuff but no big deal. Now she will save us from Trump.

I support the Johnson-Weld ticket, ably profiled by Ryan Lizza in the current New Yorker.

ADDED

 More on Johnson-Weld.

Dumb idea sticking around

Wendell Cox reports that the latest data show that there are "Shorter commutes in American Suburbs and Exurbs". He means in terms of travel time, the only thing that matters. This has been known for some time but is apparently counter-intuitive to many. The old Costs of Sprawl notion still lives: spread out cities must mean longer trips -- and more uncompensated externalities. This must mean that central planning ("Smart Growth") is needed -- and will somehow make things better. Anything goes.

But think for a minute. Cities (metropolitan areas) compete for labor and capital. They must provide settings that are attractive. Locators (labor and capital) evaluate sites, contemplate many trade-offs (everyone considers commute times and access to a variety of destinations) and bid for space accordingly. Markets are always there and do not tolerate unsustainable (that word) waste.

Yes, markets also internalize many externalities. Location choice means that, among other things, locators look at local external costs and benefits.

As in all other areas (watch Cleveland this week), dumb ideas stick around. They do not stay around forever but often a very long time.

Sunk costs

I often used the Paul Heyne (now with Boettke and Prychitko) textbook for its many appealing features, one of which is end-of-chapter questions that are far superior to any I have seen in an introductory text. For their discussion of sunk costs, they ask whether casualties suffered in a war can be used to justify staying in the war. The point is that cultural norms may be up against economic thinking. The latter argues for comparing expected (future) costs with expected (future) benefits. But the culture may argue for honoring the sacrifices of the fallen by staying in the fight.

In an "overrated/underrated" discussion of sunk costs, Tyler Cowen cites the culture as a sunk cost not to be underrated. My favorite class discussion head scratcher involves couples tempted to separate but citing all they years they had "invested" in the relationship as getting in the way of a "rational" assessment of whether to stay together. What about all the years already sunk into an academic major connected to an unattractive career (life)? Is it somehow too late to switch?

Private companies shut down the losers. Even public-private ventures throw in the towel on unpromising projects. Airbus may finally cut back on production plans for the A380. Walking away from California high-speed rail will be much more difficult: once a few miles of track are laid, the sunk cost story will be the story. There are no stockholders; bondholders only exist in the promises of the High-Speed Rail Authority which is properly exposed here. (h/t Newmark's Door).

MC=MR static equilibria are standard classroom fare (wonder why do students fail to respond?). But the more plausible model involves dynamics that involve learning from mistakes and error correction. That model includes walking away from mistakes. How else could there be any progress?

Clustering with elbow room

Is it "death of distance" or is it agglomeration? It is both. False choices mislead. We keep getting clusters of complementary activities but the new clusters are at lower densities and more spread out.

Today's WSJ includes "Startups Try to Spread Outside of Silicon Valley ... The biggest, best funded companies are still being built, for the most part, in the Bay Area."  This is not surprising. All of finance was never expected to be in Manhattan; all or entertainment was never expected to in in "Hollywood"; all of the auto industry would not be in around Detroit. But these places maintain(ed) leadership. Clustering will always be attractive but clustering with elbow room is better.

Here is the map of the many shapes, sizes and densities of the many Bay Area clusters.

Another cost disease

Baumol's cost disease famously calls attention to the fact that when there are reasons to expect steady productivity divergence between sectors, the associated product prices will diverge and this will impact consumption patterns. The fine arts sector, for example, cannot expect productivity improvements to match those in manufacturing. Fine arts prices will rise in comparison to manufactured goods as will their relative importance in people's budgets.

The July 10 NY Times Magazine includes Marie Kondo's Stuff Of Nightmares ... and the ruthless war on clutter". Look at all the garage and yard sales, the rise of the self-storage industry -- as well as the relentless accumulations of stuff in our own homes and offices. A la Baumol, the relative costs of accumulating stuff and the space to house it are systematically diverging and there is no relief in sight.  Easy on-line shopping and delivery only make it worse (cheaper in terms of time). There is even now a National Association of Professional Organizers. The problem is that  city and state governments make it increasingly difficult to build.  Growing housing affordability is a result. But so is the growing problem of organizing and storing all of our stuff.

This is another first-world problem, one that we have inflicted on ourselves.

You have to be quick

"Studies show" that raising the minimum wage has no (or very few) unemployment consequences. This is an approximate version of the free-lunch mantra that some in the dirigiste community have adopted. So, have at it. This is, of course, just convenient rhetoric. There are an uncountable number of everyday substitutions in light of price differences. Their timing is always peculiar.

But anything-goes rhetoric is not a problem. Look at who the two major U.S. political parties are about to nominate for president. Anything goes.

Now it also appears that "A Robot-Run Burger Joint is Coming to San Francisco" (h/t Scott Alexander). "Substitutes always and everywhere" is a truism. The interesting question is how many see the substitute as a good one or a bad one. Demand is wonderfully subjective and market tests are all we have. Fortunately, there are market tests all around -- until and unless some make it their project to outlaw them. Then its a race between the innovators and the controllers (see Uber/Lyft, drones that deliver packages, etc.). Staying one step ahead of the controllers is how progress is accomplished

China food

Deng Xiaoping was probably China’s greatest 20^th century leader. He turned a very large and very poor country into a very large country that is among the world’s richest (measured by GDP, not GDP per capita). Economic freedom expanded but political freedom not so much. How are the two linked? Is there a “night watchman state” standard for fast-growing large Asian countries that have no western liberal tradition? No one knows.

How to build on Deng’s magic? Land and agricultural policies, not so long ago, were so misguided that millions starved. That was then. But even today, China’s poorest are still in the countryside.  Food has to be imported.

Farmland cannot be owned; it can only be leased for up to 30 years. Here is some land policy history.

Crop plantings that require many years to mature, as well as farm sizes that reap scale economies, are foregone. A recent FT (gated) includes Lucy Hornby’s “Losing the plot … For decades, the country has wrestled with modernizing its agricultural industry, sometimes with tragic results. But as long as the sale of rural land remains illegal, how realistic is it to expect radical reforms?”  Policymakers are trying to import food and even buy land abroad to feed the population. Taking a page from Deng's playbook, more land policy liberalization would help to solve a bunch of problems.

I have no idea about the domestic politics of further reform.  In any political system, reform encounters resistance. How did Deng Xiaoping do it? He started small. First Shenzhen, then the rest of the country. That's the way to go here as well as there.