Confidence soup

Holman Jenkins writes about "The Auto Emissions Crackup ... 'sophisticated state failure'" It's not just VW.  He mentions nine other auto-makers that have been forced to issue recalls (or worse) for similar emissions tests tampering. Could it have been any other way?

Prostitution and hard drugs have been "illicit" and illegal for some time. Enforcement has failed. Prohibition re alcohol consumption in the U.S. had to be rescinded via Constitutional amendment. Unenforced/unenforceable laws and standards are not hard to find. But vote-hungry politicians enact them anyway. Posturing is often involved.

In the auto emissions case, political posturing gives us impossible standards and automakers can cheat or go out of business. "Sophisticated state failure" sounds about right.

The slow recovery (here and abroad) strongly suggests that risk-taking has retreated in the face of policy-inspired uncertainty. Paul Krugman mocks all this as the "confidence fairy".  Alberto Alesina responds (in part) on Econtalk.  So is people's confidence way down?  It's fair to say that in desperation more and  more voters are ready to gamble on unusual candidates for high office (previous post). That looks like a desperation move. Call it confidence fairy. Call it turtle soup.

ADDED

Abysmal GDP growth.


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Regulation is not free

It can't happen here

Peggy Noonan comments on the 2016 presidential campaign in the WSJ, She is quite unhappy, as are many people. "That Moment When 2016 Hits You ... Because too much is being lost. Because the great choice in a nation of 320 million may come down to Crazy Man versus Criminal."

Many people will have many questions. Is this where the electorate goes after eight years of an administration bent on being transformational? Is this where the electorate goes in the age of twitter? Is this where the electorate goes after years of political correctness encroaching on school curricula? Someday there will be dissertations and books.

Those are hard questions. What are we to do with economists' models of the (mythical) "median" voter?  That model has often been applied to the choices that voters make in local elections. William Fischel writes about "homevoters". In suburban areas where most residents are owners rather than renters, they are keenly interested in how local public policy issues might impact the value of their home, their primary financial asset. As such, we expect their votes to be "rational" from their point of view. If, for example, they expect local schools to be improved by a proposed measure and if they see the link between home value and local school quality, they will compare the tax-price (to them) of the proposal with the expected home value appreciation and vote accordingly.

But can this type of economic voter rationality be seen anywhere else? "Rational" is complex and has to be defined in narrowly -- which works in the case of the homevoter example. But looking around (as does Peggy Noonan), what is before us is much more complex. We have seen voters (the public) lose their minds in other countries. We kept saying "it can't happen here."

ADDED

Instability

Infrastructure chorus

What do we know?

1) Infrastructure in much of the U.S. is in bad shape. In the current New Yorker, James Surowiecki reminds everyone of this once again. Where do I go to claim $1 for every such essay written?

2) Most U.S. local governments in the U.S. are in bed with their public employees' unions. Pension obligations are huge (often unfunded) and have first claim on infrastructure (and other) revenues (see my April 7 post).  On a related theme, politicians here and abroad love pork mega-projects. These are prone to cost overruns; normal infrastructure maintenance gets postponed (often indefinitely). There are no ribbon-cutting photo-ops for repair and maintenance projects. And nothing can stop the California Bullet Train project.

There is seemingly a taboo among most commentators to connect these two realities. Pork (by definition) is unlikely to be de-politicized.  What we can do, however,  is to only take seriously discussions of infrastructure "needs" where the writer/speaker also pays some attention to where the money already allocated is going.

BTW, here is Matt Kahn re LA's new Expo Line. And last January (and after 40+ years(!) of cheer leading), an LA Times writer looked at the numbers for LA rail transit and reported the colossal waste.

ADDED

When you hear the standard laments about infrastructure, ask how the spending plans can be made pork-proof. Also ask about the California bullet trains which has no redeeming qualities. 

Cities, growth, talent, location choice

When it comes to economic growth, it is all about human capital. Add the importance of human capital externalities, and you want cities with properly trained and skilled work forces. This morning's WSJ reports that one of employers' favorite data sources in this quest is LinkedIn profiles. "Companies Flock to Cities With Top Talent."

I have argued that the importance of location choice within cities cannot be overestimated. Here follows an abstract of a talk I will give at USC today on "Cities and Economic Growth: Emergent Spatial Organization"

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. The latter can be via transactions and/or realized positive externalities.

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 denote more such opportunities. Cities are the spatial realizations of many complex supply chains. This is much too complex for top-down planning.

Getting to Denmark?

Francis Fukuyama (among others) asks how we can "get to Denmark."  He means, how can we emulate that country's seemingly efficient public sector.  He cites the problem of U.S. public sector unions: "Today, these same public-sector unions have themselves become part of an elite that uses the political system to protect its own self-interests. ... the quality of American public administration has declined markedly since the 1970s, in no small measure because of these unions' ability to limit merit as a basis for promotion." (p. 163-164 of Political Order and Political Decay). With rare exception, a visit to your local post office or DMV (or similar agency) will bear this out.

This morning's WSJ includes yet another op-ed on how to fix America's infrastructure. "Finding the Money for America the Fixer-Upper" by George Shultz and John Cogan. Reform health care, social security and public pensions and the money will be there.

But I am not sure that such reforms in our lifetime are plausible. And more money fails to fix anything if the system is flawed. (Example, large public school districts.) In light of the politics now on display, is there a plausible challenge to the influence of public sector unions? Unlikely.

Free lunches

The free lunch fantasy is a favorite among politicians. It often garners enough support from voters to tip an election. The Santa Claus fantasy works on kids until (approximately) the age of five but the free lunch fantasy seems to work on enough people (voters) of all ages.

It is interesting that the LA Times occasionally broaches the idea that the money will have to come from somewhere -- including higher retail prices and fewer low-skilled people hired. "Some restaurants face pressure to trim menus and staffs under California's wage hike." There will be price hikes for those who shop at low-price outlets and job cuts for those with the fewest prospects.

TV talking heads have noted the interesting labor market "experiment". What will be the effects of the biggest minimum wage boost ever? We hear this a lot. Is not federalism supposed to be an opportunity for competing sub-national units to experiment and innovate? Are not the states supposed to be the "laboratories of democracy" in the words of Supreme Court Justice Louis Brandeis?

That abstraction supposes state officials seeking the best economic outcomes for their state, not the class warfare fantasies of those who run so many state legislatures. And, as David Henderson reminds us, "Don't Experiment on Non-Volunteers." Their lives are not a free lunch for the social engineers -- or for the posturing class warriors.

This NY Times op-ed predicts that there will be more gainers than losers. But who gains and who loses? Among the losers may be those who most need to break into the world of work. Social engineering is so hard. 

Productivity and all that

Here are two similar news items from this morning: "Online Groceries Becomes Next E-Commerce Battleground ..." and "E-Commerce Boom Roils Trucking Industry ..." We can be sure there are many others on the same theme.

Is there a productivity slowdown? Is it apparent or real?  Here is a SIEPR debate on the topic. Watch the whole thing.

It's the data. If we rely on traditional metrics, Hal Varian mentions various products that are no longer sold in the volumes they once were -- like cameras even though we take many more photos without them, using our smart phones. The conventional GDP data are ever less useful in these kinds of productivity assessments. On the other side, Nick Bloom does not dispute any of this but answers in terms of the uneven distribution of the benefits. But, again, the data that depict uneven benefits suffer from the same problems that Varian addresses.

There are an uncountable number of disparities in the world. How tolerable are these? How acceptable ("fair") are they? I briefly mentioned the politics in the previous post on the politics we have.

In the year of Clinton-Cruz-Sanders-Trump, is it time to address the most important question? How can we reduce the ambit of politics and thereby have some insurance against political disasters? Tyler Cowen poses the question.