Monday, October 30, 2006

No golden age

Even the title of the piece is an eye-opener. The May, 2006, QJE includes Xavier Sala-i-Martin's . It's lovely when the work is solid enough to back the claim that it is shutting the door on an ongoing debate. Einstein did it with mathematical proofs; Sala-i-Martin does it with incredibly clever data analysis.

In today's LA Times, Lawrence Summers writes about "The global middle matters." As some of the poorest start to participate in the world economy, they become better off. The rich also get richer. But, Summers writes,

"[e]veryone else has not fared nearly as well. Low-cost labor -- ordinary, middle-class workers and their employers, whether they live in the American Midwest, Germany's Ruhr Valley, Latin America or Eastern Europe -- are left out. ... Just as the GI Bill and domestic housing programs in the aftermath of WW II were crucial parts of the overall policy approach in the U.S. that permitted the Marshall Plan, GATT and international financial institutions go forward, our success in advancing international integration will again depend on what can be done for the great middle class, at home and abroad."

Summers' call for more "international integration" is promising insofar as it limits the damage that local policy makers can inflict -- and makes possible the outcomes that Sala-i-Martin documents. But questions the wisdom of (and the motivations behind) the GI Bill. If he is right, there goes the last of the plausible policy success stories. Perhaps there never was a Golden Age of inspired policy making.

Saturday, October 28, 2006

Urban economics can be fun

The various factors of production are valued at any time according to how productive they happen to be which rests on how efficiently they are combined with the other factors. This applies to land, labor and capital, of course.

But the most highly valued land is in cities. The value of parcels and sites comes from competitive bidding for each location. The bids have a lot to do with what is going on at all of the other proximate locations.

This is complex and requires smoothly functioning land markets to sort out. There are inevitable externalities but their dollar value depends on realization, i.e., location. Does the laundry end up next to the soot-producer? Profit-seeking land users can be expected to locate so that the externalities that are realized end up bestowing the largest possible net effect and benefit.

This is some of the story of how cities come to be the engines of economic growth and the places where human creativity is most likely to flourish.

Matt Kahn's new is good background for thinking about cities. It is refreshingly fact-based.

Cities are exciting but most urban economics texts are bone-crunching boring. Matt's book, on the other hand, is fun.

Tuesday, October 24, 2006

Agglomeration in the news

Agglomeration economies come in many flavors. In Forbes (Oct 30), columnist John W. Rogers Jr. writes about . He cites an academic paper that confirms that investors do best if they invest in companies that are close to home (within 62 miles).

"Since my days as a hot dog vendor at Chicago's Comiskey Park through my years on Princeton's basketball team, I have always been fascinated by the theory of the home team's advantage. Many studies have found that athletic teams tend to win more home games than away games. For the Big Ten Conference in men's basketball last year, home teams won 70% of the games.

"Why? The home team has a certain confidence. It knows the feel of the court and the give of the rims. And, of course, the fans are on its side.

"Similarly, the home court can make a big difference to an investor. Living in Chicago gives me an informational advantage with businesses headquartered here because I encounter them all the time. I buy their products, cross paths with their executives and employees, and talk to their customers and competitors.

"There's academic support for my beliefs about the home advantage. Tobias J. Moskowitz, a finance professor at the University of Chicago's business school, has conducted extensive research on the geography of investing. His conclusion: One way to beat an investment benchmark over the long haul is to buy stocks close by--which he defines as businesses headquartered within 62 miles.

"Managers' home-area portfolio holdings outperform their faraway holdings by 2.7 percentage points per year. Let me explain just what is meant by that. Of course Moskowitz is not claiming that each town's corporations beat the national average. Rather, he's saying that a money manager has a superior ability to sort good companies from bad when the companies in question are nearby. Those stock pickers with strong convictions about neighboring businesses do particularly well. According to Moskowitz's research, which spanned 1975 through 1994, money managers who committed 20% or more of their assets to proximate companies' stocks did four full percentage points a year better with them than with the rest of their portfolios."

Likewise, the NY Times recently ran

"If you have a brilliant idea for the New New Thing and want Sequoia to provide its funds and blessing — using the same golden touch provided not long ago to Google’s founders — you would be much better off in Beijing, where Sequoia has an office, than in Boston, where it does not.

"It’s convenient for venture capitalists to have entrepreneurs close by, but the reverse is true, too, said Allen Morgan, a managing director of the Mayfield Fund, which manages $2.3 billion in venture capital and is also on Sand Hill Road. Mr. Morgan made the case by pointing out that a prospective entrepreneur would, on average, need to have three to eight meetings with a venture fund before he or she was successful, but would have to go through a similar process with 5 to 10 firms before finding the one that approved the funding request.

"Even if the process goes smoothly and requires only 15 meetings — the fewest possible, given the lowest range of possibilities — and even if most of those meetings are set up in advance, the time consumed in getting to Sand Hill Road, even using local highways, can be significant. The problem is that much worse when, as often happens, a meeting is called with just an hour or two of notice. 'If you live in Santa Clara, it’s doable,' Mr. Morgan said. 'If you live in Dubuque, it’s not.'

"Entrepreneurs who live in Silicon Valley also find the technical talent they need faster than they can in any other place; they pay more for that talent, but speed is the sine qua non for success. Seth J. Sternberg, the chief executive of Meebo, an instant-messaging company in Palo Alto that is backed by Sequoia, described Silicon Valley with the fervent appreciation of a recent transplant from New York, where he had suffered three separate bad experiences with start-ups, none of which had attracted venture funding.

"The ecosystem in Silicon Valley, Mr. Sternberg said, includes “incredible techies, who live here because this is the epicenter, where they can find the most interesting projects to work on.” The ecosystem also includes real estate agents, accountants, head hunters and lawyers who understand an entrepreneur’s situation — that is, emptied bank accounts and maxed-out credit cards."

Monday, October 23, 2006

Fat city

Ben Dachis points us to the University of Toronto working paper (by Jean Eid, Henry G. Overman, Diego Puga and Matthew A. Turner) . .. Our results indicate that current interest in changing the built envornment to counter the rise in obesity is misguided."

These results should not surprise anyone. Yet, serious people publish papers that link "urban sprawl" with obesity. Google scholar brings up almost one-thousand papers with keywords "sprawl" and "obesity." I sampled and all the ones that I found argued for a positive link.

But I did not find this stuff on the . Well, the cited paper is a nudge in that direction.

Sunday, October 22, 2006

Assimilation on steroids.

In their of their on-air coverage of the 300-million mark reached by the U.S. population last week, the editors of The News Hour did not highlight what may have been the most important point of all.

They did have the good sense to interview Brookings' Bill Frey and he had many interesting things to say. Among them was the thought that when we reach 400-million (in as little as 37 years), inter-ethnic marriage and coupling will likely have become so extensive as to wipe out (not his words) today's obsessions with race. How lovely.

do the usual fine job of weighing the many sides of population growth. But they too miss Frey's big point. Politics alone creates many problems but it becomes poison when it mixes with race.

Most countries have their own peculiar histories of racial strife and the U.S. is no exception. But assimilation has always been the most promising antidote -- and intermarriage between the races and ethnicities on a scale where the tired old categories fade is assimilation on steroids.

Wednesday, October 18, 2006

Expanding universe

Brookings demographers have been mining 2000 census data re To paraphrase a former U.S. president, "it depends on what you mean by exurbia."

Dr. Soojung Kim and I have been looking at employment, population and income growth throughout the U.S. counties, using the 35-year REIS file from BEA. Interestingly, the outward trends are dominant but there are cycles.

The "micropolitan" areas can be categorized as adjacent to large or small metros or nonadjacent. Their performances vary from region to region. They do best in the west -- even though counties tend to be larger and this region's micropolitan counties tend to be more remote than those in other regions.

Rural counties (those that do not qualify as core-based [micropolitan or metropolitan]) can also be grouped by whether they are adjacent or nonadjacent to any of the two core-based groups. In years when there is an outward impetus, the latter also do well. The pulses push further than anyone had thought.

Today's WSJ reports this:

"Seeding Sprawl"
October 18, 2006; Page B4

"The American "exurbs" are growing twice as fast as the overall metropolitan areas from which they sprawled, according to a new report by the Brookings Institution.

"These areas, on the far fringes of cities, still house relatively few people -- an average of about 6% of the population of 88 large U.S. metropolitan areas, as of 2000. But the exurbs' rapid growth, about 31% in terms of population during the 1990s, poses a big challenge to developers, regional planners and conservationists.

"'The question for all exurbs is are you going to remain the fringe of a metro area, or in 20 years are you going to be a conventional suburb, which means you will lose more and more rural land and the congestion will be worse,' says Alan Berube, the study's head author.

"The Brookings study defines exurbs as communities with relatively low housing density where at least 20% of workers commute to jobs in urban areas. In cities such as Cleveland and Detroit, the exurbs have become havens for wealthier people escaping more impoverished cities and inner suburbs. In higher-priced Boston, New York, the San Francisco Bay area and Washington, D.C., residents are being forced farther outside cities because they can't afford housing.

"In the long run, Mr. Berube says it will be less expensive to encourage development nearer the center of a metro area because communities won't need to spend money creating infrastructure to support residents on the fringes. But residents' conflicted views complicate matters, he adds. "People want a single-family home and a bunch of bedrooms, but at the same time they want to be able to walk to things and commute less than 45 minutes each way.

Sunday, October 15, 2006


Unlike conservative talk radio, left-wing is in financial trouble. And William Safire's "On Language" in today's NY Times writes about the etymology of .

It seems that right-wing rants have an audience and left-wing rants less so. Yet about as many Americans vote for Democrats as Republicans. So what gives?

I am currently enjoying Eric Beinhocker's . Like so many other recent books that feature discussions of economics (David Warsh's , for example), it reminds us that serious people now take property seriously. It was not always so and property is still thought be exotic and/or sinister in many circles (NPR, Dan Rather, Bill Maher, many precincts of U.S. universities, etc.).

Most Americans now own property -- most auspiciously, their own homes as well as 401k's and the like. To most people, the idea of property is coherent while the socialist critique is exotic and/or sinister.

Rants, seemingly, go down better when coherent. What has the left to offer? According to Brad Hill, their remaining trade is critique when the right misfires. It seems that this can win frustrated voters and even elections but it cannot sustain a regular large audience.

Friday, October 13, 2006

Glass half-full

What do we know? In less than a week, there will be 300 million of us (and ever fewer Europeans). The Dow has been hitting record highs. And the housing "bubble" is no longer expaning. In fact, it is slowly deflating.

Economists are still divided on whether the housing contraction means sharp brakes on consumer spending. The pro and con views are nicely summerized in The Economist's .

Interestingly, the coverage compares two types of mortgage-equity withdrawals, active and passive. The former includes home-equity loans while the latter includes cashing in equity for retirement. The two do not move in tandem.

As usual, demographic context sheds new light. The article also mentions that home-equity cash is being used by many to pay off credit card debt.

When it comes to the U.S. economy, it is very hard work being a steady gloomster/doomster.

Tuesday, October 10, 2006

New blog on cities

Fred Siegel usually has interesting things to say. And he has al lot to say about cities. And two of his favorite cities are New York and Los Angeles, about which he knows quite a lot.

Now he has teamed up with his son Harry to maintain a blog, , to inform the rest of us re their views.

I learned a lot about New York City from Fred's . Over the years, he has been prolific and wise. Now we have the good fortune of hearing from the Siegels on a regular basis.

Thursday, October 05, 2006

The 0.63 percent solution

Sprawl is wasteful. That's the mantra that has launched a thousand papers, editorials, speeches, conferences, books, etc. Too bad that no one bothers to define sprawl or waste.

Some relief is offered by Marcy Burchfield and her co-authors in the where they write about the "Causes of Sprawl: A Portrait from Space."

From their abstract: "We study the extent to which U.S. urban development is sprawling and what determines the differenecs in sprawl across space. Using remote-sensing data to track the evolution of land use on a grid of 8.7 billion 30x30 meter cells, we measure sprawl as the amount of undeveloped land surrounding an average urban dwelling. The extent of sprawl remained roughly unchanged between 1976 and 1992, although it varied dramatically across metropolitan areas. Ground water availability, temperate climate, rugged terrain, decentralized employment, early public transport infrastructure, uncertainty about metropolitan growth and unincorporated land in the urban fringe all increase sprawl."

If one is going to quibble about endogeneity, then decentralized employment would come first.

That aside, their data show the state-by-state increase in nonurban land urbanized; for all of the U.S., it was 0.63 percent over the period studied.

Wednesday, October 04, 2006

Another lesson

High gasoline prices boost transit use -- .

But the has just published results of its -- and transit commuting for the U.S. was 4.7% -- the same as in 2000. Yet, the inflation-adjusted price of gasoline (average U.S.) was about 20 percent higher in . In the period, subsidies per rider had also increased.

It's been the perfect storm for public transit. There must be lesson here.

Sunday, October 01, 2006

Winning coalition

Los Angeles' three light rail lines account for 55 miles of bi-directional guideway that get approximately 126,000 boardings per day. Construction has just begun on another 8.5 mile line that . In other words, the new line will have double the per-mile ridership than the three existing lines.

This is an old story and I have been beating this dead horse for many years. Some proponents are liars and others are ignorant. For good measure, some also pose as high-minded environmentalists.

It adds up to a winning coalition.
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