Coffee blends

We know that many of the geniuses of fin de siècle Vienna met in the café’s of that city’s first district to produce great conversation and ideas. The magic of those times and places is impossible replicate but many have tried to approximate the idea. Starbucks (and competitors) filled a void in many cities here and abroad. Yes, they’re even in Vienna. 

But there is simply no way to mass market and mass replicate the legendary café’s that Shachar Pinsker writes about in A Rich Brew: How Cafes Created Modern Jewish Culture. Pinsker focus is Jewish culture but we know that conviviality and conversation are a universal human desire. The fact that great ideas and great art come about this way is a wonderful bonus and, under the right circumstances, to be expected. We think best when we interact and network.

Pinsker ends his tour of the erstwhile landmark coffee houses of Odessa, Warsaw, Vienna, Berlin, New York, Tel Aviv with a lament about where we are now. “It is hard to think of significant poetic or intellectual groups meeting in cafes on a regular basis …” (p. 303). Where these occur it is serendipitous and unlikely to be packaged in the Starbucks formula. But that would be asking a lot.

This is the age of screens and screen time. People like to interact face-to-face and they also like their screen time.  They understand that we benefit from many types of interactions, personal, electronic, near and far. All have their place. We get too pick the blend that works for us.

Elites

Climate change, to the extent that it is human-caused is a global commons. The Prisoners' Dilemma indicates the futility of individual action.  The chart below (from The Economist) shows that in recent years, the U.S. has been an over-achiever reducing carbon emissions. China and India are under-achievers.

Why, then, the California Bullet Train?  Perhaps it will never get built. If it does, it will have huge costs and offer negligible benefits. If it does not, huge sums will have been wasted. The State's public pension commitments are underfunded. The roads are potted. Public spaces are the domain of the homeless.

You do not have to visit the U.K, France, Greece, etc. to see the consequences government by out-of-touch elites. But do read about the  clueless here, there, and everywhere in Martin Gurri's The Revolt of the Public.  Elites are may still think Bootleggers and Baptists but in the age of the internet, locking in legacies the old-fashioned way may not work. When elites get clobbered, they apparently revert to Manchurian-candidate-from-Russia fantasies. Any self-awareness is missing. 

Cronyism

The problem of congested roads is explained by the absence pricing. For some strange reason, most analysts call this a "market failure".  Here is one of many examples.  But the failure to impose a policy is more accurately a policy failure (or government failure). The error shows up in most discussions of road pricing I have seen. 

(A notable exception is the best guide to highway planning I have read in recent years, Bob Poole's  Rethinking America's Highways.)

In this week's Econtalk, Russ Roberts interviews Anat Admati on the causes of the 2008 financial crisis. Both are unhappy that while Ben Bernanke and friends now take victory laps for having "saved us" from financial ruin, these are the people who got us into the mess by accepting low capital requirements and over-leveraging. Roberts and Admati agree that nothing has been learned and over-leveraging is still accepted -- as are "too big to fail" and bail-outs as an option.

Towards the end of the podcast, Admati calls it a "market failure" Roberts chimes in and says "government failure." They leave it at that.

It is both, it is crony capitalism, about which we do not talk enough. I went back to Baumol et al's Good Capitalism Bad Capitalism and found that cronyism is missing from their survey. Randall Holcombe's "Crony Capitalism By-Product of Big Government", as the title suggests, hits the nail on the head.

What to do? How do we get to smaller government? To a less over-reaching government? Both U.S.  political parties are big-government parties. Our third party, Trumpism, has rolled back some regulations but has embraced mercantilism in a big way. Holcombe alludes to the various economic freedom indices as a way to identify the problem. But a better index is needed.

We keep an eye on separation of church and state. An equal devotion is needed to the separation of business and state. No government agency can keep an eye on this. The documentation job awaits some of the bright folks at the various libertarian-leaning think tanks -- of which we now have a few.

Confusion

Socialists avoid confronting socialism's failures (and tragedies) by claiming that the "real" socialism has not yet been tried. The dodge seems to work in some circles. The leftward drift of half of America means ever more of this.

Writing almost 30 years ago, James Buchanan noted that "Socialism is Dead; Leviathan Lives ... The loss of faith in socialism has not been accompanied by a faith in markets. There remains a residual unwillingness to allow the market to organize itself." (WSJ, July 18, 1990).

Jonah Goldberg explores how and why the loss of faith has been avoided (by some) and why Leviathan is still with us. "Modern society's most important divide is between the external impersonal order of contracts, commerce and the personal order of family friends and community. We live in both realms simultaneously, even though the rules for different realms could not be more different ... Humans were not designed to live in the market order of contracts, money or impersonal rules, never mind the huge societies governed by a centralized state." (2018, p. 62). This is a leaf out of Hayek.

The centralized state Goldberg mentions is likely to rely on force and terror because it has no way to win people's minds and heart. But from a safe distance, this awfulness gets a pass via the strange logic mentioned at the top of this post. Goldberg cites "social-ism" the willful and dangerous delusion that the personal order of family friends and community can succeed at any scale.

Voting

Cognitive dissonance (holding two opposing ideas at the same time) is supposed to be stressful. Perhaps and perhaps not.

"Every vote counts" is uttered and repeated an uncountable number of times. But it is not true. At the margin, votes that count (in majoratorian situations) are the ones that tip the outcome. Such results are exceedingly rare to say the least. This means that the odds of my vote having any significance are almost zero.  When I tell my friends that I do not plan to vote tomorrow, most are incredulous. My simple explanations fall on deaf ears -- to be polite about it.

Go to a country that does not have a history of the popular vote and see people line up, often for hours, to cast their ballots. The thought that their integrity is respected to the point where they are invited to cast their vote thrills them. In that way, it thrills me too.

Trouble is that in our secular age, political action attracts those who need to believe and to join. The urge to say and do reprehensible things for "the team" is less than thrilling. 

Philosophers and social scientists

Here is Russ Roberts writing about lonely men with guns. Do read the whole essay.

I don’t think it’s a coincidence that almost all of the acts of mass murder and terrorism are committed by men, mostly lonely men, disaffected, alienated from modern life, alienated from the standard of success our culture aspires to, disconnected from those around them. No one pays much attention to them until people are forced to pay attention at the point of gun. No one pays much attention until the headlines that scream that these lonely men have finally achieved something people are going to have to notice.

Roberts writes about people with no love in their life. This is the real inequality, not the one we hear about so much from politicians and pundits.

We encounter many of the broken as street people in our major cities. Having a loose bill in hand to give them is all I can think of.

Philosophers write about the human condition and often end up wringing their hands via a nihilistic theoretical conclusion.  Desperation and the absence of happiness have been themes at least since the thinkers in Athens BC.  John Gray offers a wonderful and concise tour of many more writers' thoughts -- even including the views of grand nihilist, Marquis de Sade. Many of these thinkers are themselves serious depressives.

Social scientists tend not to be depressives or philosophers and, instead, they dig for explanations (stories) that suggest a "fix". Many espouse "programs". In quotes because the word has become cringy.

But does anyone really know how to confiscate millions (hundreds of millions) of firearms? Does anyone know how to treat the alienation from modern life that Roberts mentions?  Honesty demands that they admit they do not know.  Roberts essay is a good place to start.

Here is Timothy Taylor on kinlessness. Again, no "program" in sight that would make a difference. Offer a hand to the broken people you encounter.

Growth, prosperity, "tech hubs" and Paul Romer

Here is today's NY Times piece on the two new economics Nobelists. In efforts to make their work accessible to the public, much has been and will be written about them. As always, there is much useful material at Marginal Revolution. Alex Tabarrok's video on Paul Romer is clear and on point. Everyone knows about the importance of new ideas and how entrepreneurs scramble to jump on them first -- to be the first to profit from innovative product that implements new ideas.

"Tech hubs," notably Silicon Valley and the many wannabees, that incubate all this by assembling the ideas people with the money people, are written about almost daily.  What took the growth economists so long?  Economists were stuck on the textbook lesson that ideas (that are "in the air") are a "public good" accessible to all at zero cost. How then to profit from developing (let alone investing in) new ideas?  It happens all the time but can we explain in?

Once again, markets get it and demonstrate. The way to overcome the free access problem is to be the first mover. Patents can help but being first to solve all the messy problems of implementation is the key.  There will be copycats and being a first mover only confers temporary advantage but for many that is enough.

One can say that Joel Mokyr solved the problem some years ago by emphasizing useful knowledge. Purposeful action is highlighted in spite of the obvious problem of free riding. Entrepreneurs are the folks who are focused and aware. They actively seek specific knowledge and specific ideas. They want to make the world better -- and they want to profit. They have some inkling of what they are looking for and where they might find it. Hence the tech hubs that so many mayors and development authorities dream of.  Does Nobelist Romer suggest what to do?  I think he would say that Mr and Ms mayor can signal that they are open to the emergence of of spatial arrangements that let people exchange ideas.

Does this mean high densities?  How high? No one knows. Best to let the intricate order happen. Jane Jacobs (1961) knew. "Their intricate order -- a manifestion of the freedom of countless numbers of people to make and carry out countless plans is in many ways a wonder." 

Econ 1 v. the roadblocks

Here is Don Boudreaux referring to Leland Yeager's remarks to the effect that Econ 1 (or Econ 101) is all you really need. The uncountable confusions that we hear from writers and talkers, especially the with reference to trade, are painful.  And the marginal benefits of more advanced econ are marginal (manner of speaking). This underscores the analytic power of the basics.  It also evokes some of the confusions of high-octane theory. "Secular stagnation" anyone?

There are many super-accessible texts that any bright high schooler can easily grasp.  The Economic Way of Thinking, my favorite, is cost-effective: many powerful ideas presented clearly.  So what is the problem?  How can so many smart people remain so confused -- about the gains from trade -- among many other such topics? How many prominent commentators would be laughed out of the room when they expound on "fair trade", free tuition, minimum wages, etc., were the audience not so confused?

Here are my five top roadblocks to greater understanding: First, non-zero-sumness is counter-intuitive to many -- even though cooperative behavior has been observed among primates and other animals. How then to grasp gains from trade among strangers, including those that populate international supply chains? Second, many people trust their own vague sense of "fair" outcomes and are loath to admit that fairness is a very difficult idea mainly invoked as rhetoric. Third, many retain an amazing trust in top-down "solutions", especially ones that are cooked up via a "democratic" process.  Fourth, too many people are ignorant of history. They simply do not know that they are amazingly well off compared to the vast numbers who came before them whose lives were simply "nasty brutish and short."  They also do not know that it is the exchange economy that lifted us to where we are. Fifth, conventional economic instruction can easily fail.  Young (and some less young) professors prefer to talk about the high-brow econ they learned in grad school. They do not grasp its irrelevance to non-economists.

It will be uphill for a very long time.

ADDED

"Many of the recommendations for growth and prosperity found in just about any standard 'Econ 101' textbook are the right place to start ..." (Brynjolfsson and McAdeem 2015, p. 206)

Sunstein's world?

I greatly enjoyed Cass Sunstein's The Cost-Benefit Revolution. I would recommend it to anyone who wants to learn about project and policy evaluation.

Sunstein is optimistic that we have made great progress bringing sober analysis to policy making. The author has spent considerable time in Washington, including the White House, and his judgment is worth listening to.

But there is also (still) considerable nonsense and waste in the policy arena. I take the climate scientists at their word (and note that there are some very smart and notable dissenters). But we also know that while California accounts for approximately 0.2% of U.S. greenhouse gas emissions (a global commons), its leaders and elites want us to make huge sacrifices for further emissions reductions. This is not Sunstein's world.

Today's LA Times includes coverage of yet another religious-fervor summit on climate being held in San Francisco.  I mentioned the California bullet train (weirdly justified by concerns about climate) in the previous post.  Here Tom Rubin notes the substantial on-going waste in Los Angeles transit policy.  Ever more is spent and beneficial effects are negligible or worse. Not Sunstein's world either.

People who claim to be scrupulous about the climate science find a way to be bizarrely wrong about their policy analysis. We say that there are problems and mysteries  Science and faith.  Some people are content to be scientific about one problem but not the other.

Immigration and vetting

What do we know? (1) Immigration expands the talent pool, with potential economic as well as cultural benefits, (2) the accident of birth is the concrete example of "unfairness" ("fair" and "unfair" are otherwise vague and widely exploited rhetoric by politicians everywhere), (3) beyond some unknown tipping point, immigration gives rise to populist backlash. What to do?  The Economist ("Governments need better ways to manage migration") offers various suggestions.

"No country has a perfect system. But four policies can help maximise the benefits of immigration, minimise its costs and boost public support for it. First, the influx should be orderly and legal as well as humanely handled. ... This is not just because the rule of law matters. It is also because the perception of disorder fuels anti-immigrant sentiment. ...  Migrants should be encouraged to work. They should be helped to fit in. And they should be seen to pay their way." 

Good ideas all. But how do we get from here to there?  Better and more sophisticated vetting? How would we do that? The Economist's four-part plan is unlikely via the leaders we have. It also smacks of "getting to Denmark" fantasies. Do we have the right civil service ethos and staffs to make it work?

The good-ideas people seldom ask the question. Surely, politicizing the civil service was the wrong direction. Unionizing the civil service politicized it. Complaints about service at the DMV and the post office are common. Why would any politician ever even try civil service reform as long as a public sector union is involved?

I would like more migration. But I would also like better vetting.  I have no idea how we would get there from here.

Planned obsolescence

When in casual conversation someone mentions "planned obsolescence" it's time to end the discussion.  This was once a favorite of know-things and is evermore silly. There is still enough competition in the world that sellers are compelled to offer better and more durable product.

I well remember the "family car(s)" of the 1950s (and beyond) ones that were not expected to last 100k miles -- and if they did, that was not easily achieved. Many visits to the mechanic. The WSJ includes "Capitalism Fixed My Car ... All kinds of goods are improved by 'trade-tested betterment.'" Exceeding 100k miles is now routine.

I noticed the PBS Evening News reports on the troubles in Venezuela. They cite the drop in the world price of oil!  Occasionally, news people note "economic mismanagement."  They cannot bring themselves to cite the disasters that socialism inevitably bestows -- including what it does to the poor, which seems to be the concern of today's many appeals to "democratic socialism".  What does the qualifier add? More cronyism to what is already endemic?

Don Boudreaux notes that the European Union is hot on the case re "planned obsolescence."

Could it be any other way?

Economics is about human action. It points us away from discussions of inanimate objects and, instead, towards the actors, the real people, doing the choosing.  So better to talk about politicians than government.

Politicians are real people making complex choices and not able to ignore their personal preferences and constraints. How could they? Hubris inevitably creeps in and we hear about "public interest" and "public service" and such.

So drop "publicly provided" in favor of "politically provided."  My good friend Jim D points us to "Subway Ridership Dropped Again in New York as Passengers Flee to Uber" in a recent NY Times report. Could it be any other way?  Look for stories about "budget shortfalls" and "underfunded" which is the only way out if the human action part (famously brought to politics by James Buchanan) is ignored.

Federal government deficits and national debt, and the prospect of their durability, are no mystery. Republicans used to voice concerns. But even that has gone away.

ADDED

Why would this idiotic project NOT move forward?

Trapped?

Austan Goolsbee worries that sellers have found ways to "trap" us. Branding is, of course, the name of the game. As sellers, we want to stand out from the crowd. Some succeed in standing out; others cannot. As buyers, many of us choose to become attached to a brand or a seller. Many choose the closer retailer and a spend few extra bucks. I have driven Toyotas all my life and choose that brand at the car rental desk for the obvious and simple reason that it will be an easier and simpler adaptation.

Albert Hirschman's Exit, Voice, Loyalty makes the point beautifully. When it comes to our shopping, we can complain (voice) or we can walk (exit) or we can choose to hang around -- all things considered (loyalty).  It is always a three-option. game.  What do sellers call the programs that Goolsbee worries about?  Loyalty programs.

Switching away from comfortable brands can be hard. It carries the risk of moving into unexplored territory. Attitudes to risk-bearing, we know, vary tremendously among people.

Tech and platforms make loyalty programs possible. Goolsbee seemingly worries that all of this suggests a decline in competition and consumer choice. Or does he not like the choosing he sees? "Trap" is dramatic. But tech and platforms also give us a world of apps and choices.

How many choices do I have? And are they "good" or not so "good" choices? Do I see them as "good" or "bad". Or are third party observers the unhappy ones?

Most of us have great choices when we shop.  It's not as good when we vote.  Not surprisingly, we shop much more often than we vote.  Shopping is where the interesting choices are. Clinton or Trump anyone?  Feel trapped?

The drift

Below are data from The Economist re public transit's problems in major U.S. cities. This is old news.  Most people prefer their private modes, mainly autos. But people's preferences are a distant second (or worse) when it comes to political allocations. There, Bootleggers and Baptists rule.

Private transit allocations are also in the news. Voluntary investments flow to where there are prospects of demand.  Here are Matt Kahn's musings re The Bird. It (and others that are already on the case and more that will follow) might even be a last-mile option for some would-be transit users. That might slow the long-term decline ("down the tubes") which goes back much further than the chart shows, no matter how big the subsidies.

An all-bus system for LA, including buses on freeways, had been suggested as early as the 1960s. But Manhattan dreams have always been a badge of urbanist sophistication. A great irony. Planners now promise even more of poorly performing rail. The dream (mendacity) goes on no matter decades of poor performance. Costs will continue to escalate and bus service will be cut further.  Policy and reality will keep drifting further apart.

Disruptions describe innovation and competition in the modern market economy. Innovators provide the app and the platform -- and fill in with "gig" workers who, in this case, take care of the refueling and re placing them around town.

Roots

What is the best book I have read (so far) this year?  It is a delightful question as we are fortunate to have so many smart people writing for us. So the question cannot be simple. Let me suggest, however, David Reich's Who We Are and How We Got Here: Ancient DNA and the New Science of the Human Past.

We humans (and others) carry an inherited tribalism. We learned to communicate and to form and sustain teams in order to survive -- and dominate the planet. Dunbar suggests that teams up to about 150 had worked best for our kind. Politicians and others conveniently muddle all this by harping on the idea that we all belong to one nation, one "community", etc. It Takes A Village. But be very careful about the extent of the village.

Demagogues understand all this and fuel convenient myths of tribal identity and origins. Exhibit A might be Hitler's peculiar stories about ancient and Aryan roots of the German "volk". It worked -- to make smart people very stupid and very nasty. But there are many others examples. Name a demagogue who does not follow a similar script.

Along comes David Reich who shows how modern DNA science strongly suggests that stories about "roots" are mainly bunk.  The evidence shows that our ancestors were many, that they moved around a lot and that they bred promiscuously enough to challenge the idea of any simple genetic commonality.

There are, to be sure, cultural commonalities but they are not "blood" bonds. Which, then, are the better cultures? The ones that accept newcomers. Melting pot is still a great idea. Roots is a horrible and a dangerous idea.

ADDED

Here is Arnold Kling re the Dunbar number.

Tallest pygmy

As I was coming home this morning, I noticed a nice young man unload three Bird rentable scooters in front of my building. (There are many other such brands around the U.S.)

How did the company know where and when and how many of them to leave?  It is economists' favorite story. Supply chains are long and complex and in good part impersonal. They also involve entrepreneurs and managers who continuously strive to learn and update probabilities -- and adjust (trial and error) their choices accordingly. Repeated an uncountable number of times, this explains our prosperity.

Will Bird (and the others like it) survive?  I have no idea.  I am not an owner (by choice) and follow them with interest, occasionally cheering them on.

I have mentioned conventional, politically- rather than market-provided transit, many times.  How does it survive?  That has nothing to do with what consumers choose but has everything to do with what politically connected providers and their enablers choose.

In spite of our prosperity, we manage to survive in spite of all this awfulness. We generate ever larger public deficits because we can, because the world still buys and holds U.S. debt. You just have to remain the world's tallest pygmy.

ADDED

How Bird works.  Many eyes on the street.

The only way

Historical grievances are (unfortunately) nearly universal. They can lead to lasting conflict, much of it involving war and genocide.  What makes it all much worse is the practically irresistible temptation for politicians to fan the flames. Grudges are hard to leave behind. Widespread U.S. identity politics is only the latest version.

Obama supporters had hoped for a "post-racial" administration but quite the opposite happened. Here is a panel discussing whether PC elected Trump.  This morning's WSJ includes an editorial about protests at George Mason.  Are Trump supporters sending thank-yous to the protesters?

Here is the story of a race-predicting algorithm used by the Obama administration to identify bias in auto-lending by looking at surnames and addresses. Systematic bias is a problem to be addressed. But base the allegations on such algorithms? Slippery slopes? Is no one embarrassed? Scared? I am wary of allusions to Nazis but the problem of identifying Jews was (still is) resolved by looking for "Jewish-sounding" names.

Political crusades can lead to awful outcomes.  Once upon a time, James Madison and friends saw the threat and wisely concluded that less government meant less politics.  And that this was the only way to go.

ADDED

I am greatly enjoying Jonah Goldberg's Suicide of the West: How the Rebirth of Tribalism, Populism, Nationalism, and Identity Politics is Destroying American Democracy.  We are moving backwards, back to tribalism, via our identity politics. The author reminds us of all we are giving up.

Near and far

California's high-speed rail has nothing to go for it except the typical alliances of baptists and bootleggers that pretty much define large-scale infrastructure project boosterism in the U.S.  So it will go forward.

Large-capacity point-to-point modes (air or land) face a last-mile problem.  How to funnel the crowds to and from each point to and from many origins and destinations? As cities spread out (as they always have and always will), the problem becomes more serious. Where the numbers of passengers involved is large, there are various remedies, including the growing array of private on-demand cab services. Markets and tech are formidable,

Where the numbers are much smaller, as they will be with rail, there are only the default public (also baptists and bootleggers) conveyances. Just as the post office survives long after it has been outclassed by modern alternatives, these will be maintained via the usual political patronage. Here is an update of the post office story. Think about it: why do we still have an old-time postal service?

The spreading out of cities means that there are origins and destinations near and far. This is why the sprawl story is so wrong. This is also why average travel times and distances are so stable (see Alex Anas, 2014)

Even networking and agglomeration occur over a range of distances. We all converse and interact with interested parties near and far. We share ideas (and research) electronically and we also get on airplanes to attend meetings here, there and almost everywhere.

Yin and yang

You could call cooperation and competition the ying and the yang of economics. Donald Trump and other protectionists only see competition whereas the fundamental lesson of economics is cooperation. Buyers and sellers cooperate; both want a deal. Sellers compete with other sellers, not with buyers.

Protectionists, including Fox's Lou Dobbs and many others, confuse the trade balance with a profit-loss statement.  "Nothing, however can be more absurd than this whole doctrine of the balance of trade" (Adam Smith).

The fact that buyers and sellers eagerly seek each other is not changed by the facts of their addresses, whether in the same nation or region or not. The fact that data are reported by geographic units ("trade gap"), mixed with the usual political grandstanding, gives many people the impression that the trade balance idea is useful.

So, as usual, everything is upended by politics. This where public choice economics helps. When sellers in country X fear the competition from sellers in country Y, and if they are politically potent (and economically impotent) they can win political points and elections. Small bands of buyers out-organize and out-vote much larger groups of consumers.

Many people are seemingly worried that China does not abide by WTO trade rules and out-mercantiles the U.S.  Again, some U.S. industries would be impacted. The WTO should police its own rules.  But short of that, China is moving towards greater state control (their crony capitalism); if the U.S. and others do not follow the same path, they will remain the more formidable. Many U.S. people and entities (not "the U.S.") will win.

Timothy Taylor makes a similar point.

Bi-partisan

The post-recession reckoning among economists (and others) is in full swing and will go on. Among my favorites is the very readable Behind the Model: A Constructive Critique of Economic Modeling by Peter Spiegler. My review is forthcoming in the Independent Review.

Beyond all this, I have often mentioned that economic theory of any kind is almost useless if it ignores public choice analysis -- as much of it still does.

Here is news from Washington DC's Metro:

“Uber and Lyft are part of the transit system here, and so they should help pay to fix Metro because they’re benefiting from Metro’s demise,” [D.C. Councilman Jack] Evans told The Washington Post after D.C. Mayor Muriel E. Bowser introduced new taxes on the ride-sharing companies based largely off his advice. (reports Timothy Meads)

This is not an unusual sentiment.  The public schools must be defended and maintained because they are a jobs program.  So it is with public transit, the post office and an uncountable number of public programs and agencies. This bizarre logic is natural to its proponents but under the radar for much of the electorate -- just as public choice analysis suggests.

What else does the theory predict?  These programs will survive even as the red ink (and awful rhetoric) accumulate. The California bullet train will be continue to be funded.  Trump's infrastructure plan will spawn more such projects -- with considerable bi-partisan support.

ADDED

Mike Munger and Russ Roberts discuss the various problems with textbook prescriptions for congestion taxes. They only lightly treat the problem of who will set the fees -- and what will they do with the revenues? That is the elephant-in-the-room highlighted by the Washington D.C. episode mentioned above.

All about demand

"If you build it, they will come" is one of the sillier ideas around. It ignores demand.  The Economist comments on how this idea fared, when tested, in the discussion of "food deserts."  People get awful choices when they prefer awful choices. Poor people are not deprived of healthy food because it is inevitably costly or because greedy capitalists are misanthropic.  Greedy capitalists want to make money -- and will find ways to bring to market whatever it is that willing customers want.  Once again, ideology causes commentators to blunder. Demand is the most important idea in economics. Simple and true.  Supply will follow.

What else do we know?  Implementing the dreams of policy makers (often appendages to crony capitalism) causes more problems than it solves. Politicians' heavy involvement in land use controls has messed up housing in large metropolitan areas.  This has delivered the housing "affordability" mess.  Progessives manage to hurt the poor most. The simple fact has been documented many times by serious research.  Here is the latest.

But when politicians try to fix the problems they have created, they often deepen the whole they have dug.  Finally getting out of the way when builders want to build at higher densities sounds good.  But the social engineers' "solution" does not.  The California legislature now wants higher densities permitted if developed near transit stations.  But most Californians are not interested in public transit.

Stating the obvious makes no difference.  The California "bullet train" continues to waste resources with no end in sight. The folks who preen their scientific with-itness when touting climate change go totally off the rails (sorry!) when they offer their "solutions."  Better to look at demand first.   

Left and right confusion

One wishes that good economics makes good politics but every time politicians reach for protectionist policies, it becomes clear that this is not to be. Short term advantage matters most. The long term damage of economic meddling is nobody's business.

Capitalism means different things to different people. Baumol, Litan and Schramm attempt to explain Good Capitalism, Bad Capitalism. The one we seem to be stuck with is bad crony capitalism. The cronies in politics and in business are always in play and have to be constrained. How? The hope was that with enough education, the fundamental truth that we become prosperous via comparative advantage (clear from logic and history) would matter but these profound lessons have not sunk in. Don Boudreaux at Cafe Hayek hammers at the essentials almost daily.

At the Fox Business Channel, the other day Stuart Varney carefully explained to his colleagues that Trump was for "free, fair and smart" trade. The fact that it is meaningless rhetoric in the service of nothing but crony capitalism dawned on no one in the room. Pro-business and pro-market are not the same. But the confusion goes way beyond Trump and Varney. I fear that it is widely share on the left as well as the right.

"And then what?"

The wise Tom Sowell supposedly (I cannot find the link) summed up what we need to think about when we dream up policy proposals with the simple words: "and then what?"  This makes great sense in light of the many proposals that erupt after each of the awful mass shootings we have experienced.  Little kids being murdered and maimed by the feeble-minded repels and stuns.

People inevitably reach for simple solutions. "There oughta be a law." "Gun control." Even the wise Ross Douthat proposed new regulations for owning AR-15 rifles.

But we also learn the crushing truth that the authorities could have and should have kept a better eye on the murderer. And they fumbled badly. So which gene pool will supply the folks who will enforce any of the new proposals?  It's a serious question.

I am not trivializing but we have all seen various personnel that staff some of our public agencies. Even the FBI is now emerging as more politicized Keystone Cops than Elliott Ness. We are not getting to Denmark.

The Baltimore Metro is closing for one month for repairs. Los Angeles' Blue Line may soon do likewise.  These are not old facilities. "Crumbling" infrastructure is not from lack of funds.  Rather, it is from funds badly administered and spent.

None of this is good news. It suggests that we have deeper problems than agreeing on another new law or regulation. The sanctimony is thick after these shootings. But no one wants to address the fundamental problem of the personnel that we end up with staffing so many of our agencies and bureaucracies. Politicized hiring practices dominate.

ADDED

Craig Newmark send us here.

Networks or supply chains for ideas?

My favorite read of 2018 is Niall Ferguson’s The Tower and the Square: Networks and Power, from the Freemasons to Facebook.

Ferguson is a prominent historian who is readable.  Here he dramatizes well-known historical episodes (who allied to go to war, to build empires, large companies, etc.) by noting the networks and networking that were involved.

We all know that networks and networking are important.  We also know that all of us are keen to find sources of useful information (Mokyr). This is why I prefer to note supply chains for ideas to networking. Ferguson cites the spread of ideologies.  Ideas can be thought of as “in the air” and as they rain down on us. But purposeful action in seeking ideas is more interesting and more descriptive. Supply chains are everywhere. In fact supply chains for ideas accompany many supply chains for things. They can be intertwined. We often learn when we transact. 

In recent work, John Cho and I have looked at pairwise co-locations of industries in the greater Los Angeles area. Using census block groups we estimated 2,991 co-location coefficients.  For all of the industry pairs we also know sales and purchase coefficients from input-output tables.  Using the latter as explanatory variables in a regression, we see that they explain just 3% of observed co-location.  What explains the rest?  There is surely noise in the data but we surmise that much of the rest must be due to the draw of information exchange.

The textbooks teach that information is a “public” good and unlikely to be traded. But only some of this is true.  Because we are keen to find useful information and because so much useful information is tacit, requiring interacting, we choose locations that help us with access specific information. The strong and the weak links are in play.

We network for many reasons to secure goods and to secure ideas. We do all this over many media, electronic as well as face-to-face. Choosing the best location for us to get all of this done becomes important and tricky. It also suggests that “agglomeration” can be many things, near as well as far. Fitting our data to Ripley-k functions shows that non-chance odds of encountering a same-industry firm, increase beyond 5km (the side of a large but square downtown). Near and far.

We agglomerate not just in tight clusters but over many geographic ranges.  New York is a financial hub but one that extends beyond Wall Street. L.A. is an entertainment hub but one that extends well beyond Hollywood (and even the San Fernando Valley). San Francisco is a tech hub that extends far beyond Silicon Valley.  High rents in all of these places suggest supply and demand forces.  Restrictions on supply have been widely noted. Strong demand is what our story is about.

All of  this illustrates once again that spatial arrangements and networks (including the paths we wear over lawns that were never laid out for us) emerge.  Jane Jacobs famously noted all this many years ago. “Their intricate order – a manifestation of the freedom of countless numbers of people to make and carry out countless plans – is in many ways a wonder” (Jacobs, 1961)

Good news, not bad

Over at Marginal Revolution, Alex Tabarrok notes that today's NY Times just misses the opportunity for another "teaching moment".  He refers us to their "Fine Lines ... Inside one of America's last pencil factories."  I am referring to Leonard Reed's I, Pencil, an essential teaching tool re specialization and exchange. No one person can easily make a pencil. But something as mundane as a pencil reaches us at very low cost because large numbers of strangers have come together as specialists, producing pencils for us at low cost.  It's a wonderful lesson in how market signals perform remarkable coordination at great benefit to us all. It thereby explains our material well being.

The same issue of the NY Times includes "Your child's preschool teachers may be the most important educators she'll ever have ... So why do they get paid so little.?" It's another supply and demand opportunity squandered. The essential "The Economic Way of Thinking" by Paul Heyne, Peter Boettke and David Prytchitko includes another simple and incisively useful example. I am looking at their question #9 at the end of Chapter 11 (11th edition).  Why do hairdressers earn more than day-care workers? Does our "society" care more about vanity than children? Pretty awful? Bad news? No. Demand and supply indicate that there are many people who enjoy working with young children. Apparently many more than want to muck around in other people's hair. Good news.

Here are just two simple but profound lessons from very basic economics. It's not about "fake" news. It's about good news, much better than what the "wets" (thank you, Margaret Thatcher) dwell on.

Urban structure, not urban size

Tyler Cowen asks "Why don't cities grow without limit." He comments on (and links to) a Paul Krugman discussion of the same topic.

"City size" as the focus has problems.  What is the boundary of "the city"? And cities are about spatial arrangements. Spatial arrangements involve many trade-offs and are necessarily emergent. Emergent arrangements would bend and displace the (imaginary) marginal benefit and marginal cost functions. This goes on as the "cities" keep spreading out.

But emergent spatial arrangements are up against the durability of physical forms as well as the durability of politicized land use regulations.

All of this sounds like Jane Jacobs v Robert Moses all over again.  But times have changed insofar as people now link up in many ways. People in cities want space as well as access. That alone suggests a trade off. But they want access to many things. They also choose the mode of access to all these things (electronic v. traditional).  "Geography matters more than ever despite the digital revolution ..." And more potential trade-offs than ever.