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Monday, March 27, 2017

Cities too big?

The usually sharp Ross Douthat of the NY Times has recently been writing about "implausible" or "ridiculous" (his words) policy proposals. What to do in the early days of a Trump administration?

Yesterday's version was ... Cities as conspiracies against the public good." Douthat wants to treat the cities "as trusts that concentrate wealth and power and conspire against the public good."

He seems to confuse the city (the place, the economic entity) with city government.  When you say "Los Angeles" (or any other), be clear if you mean the place or the government.  Too bad that many people use them interchangeably.

What do we know about the place? (1) There are many flavors and sizes of cities; (2) The big cities like New York are complex jig-saw puzzles with many interlocking pieces (people); they are not uniformly "liberal"; (3) The cities (actually metropolitan areas that include city hinterlands) that grow (attract capital and labor) do so because they offer a winning combination of attributes and opportunities; (4) Cities are where interactions occur; new ideas are spawned, which is how and why they make labor and capital productive; this is why they are "engines of growth"; (5) The "breaking up" part is typically overdone in anti-trust actions anyway; lawyers and judges cannot easily tell who is "too big"; do prices fall? is innovation proceeding? That is the only relevant test. Amazon and Google are not (yet) "too big".

What do we know about city governments? Yes, too large and, therefore too awful. The scale diseconomies are clear.  Did post-war public school consolidation into large districts do any good?

There was a time when many preached the benefits of regional government. Too many small cities!  That would remove what choice there is and entrench all the wrong people. Extend the power and reach of big city governments into the suburbs? I think that Douthat is suggesting the very opposite.

Saturday, March 25, 2017

New exit

Perhaps the most insightful work on political economy is Albert Hirschman's Staying clear of anarchy, we are stuck with governments and politics. These present problems that complicate our lives and our well-being. Perusing each day's news (newspapers) makes the case.

In any market economy there are inevitably forces that push towards the wrong capitalism, crony capitalism. What can be done? Exit and voice are two possibilities. Neither is without cost but in modern American life, exit is the more plausible option. Exhibit A is the lower schools. In most cases, real improvement is hard to achieve and parents have decided that vying for places in charter schools or competing for vouchers (where that is an option) is the best use of their time. "Fighting city hall" is far less promising.

We look to tech to disrupt monopolies. Uber and Lyft are the favorite examples but I expect that many more will soon emerge.

This morning's WSJ includes a review of How Floating Nations Will Restore the Environment, Enrich the Poor, Cure the Sick and Liberate Humanity from Politicians (which I have not yet read). The essay by suggests that technological advances (getting food and energy from the sea) are coming our way. These could make the seasteading idea plausible for some.

The San Francisco Bay Area is attractive to large numbers of tech workers and entrepreneurs (and many others).  But the combination of high attractiveness and local NIMBYISM has elevanted housing costs into the crazy realm.  Development is now being pushed to of the Bay Area. Can seasteading in the mild waters off the California coast be another option? Can some tech (or other) firms set up shop off shore? Recall that California and Bay Area politicians get fat from the "sun tax": they get to do dumb things as long as California remains so attractive to so many. 

Off shore settlement beyond the but within ferrying distance of SF Bay (there are already 15,000 commuters who ferry across the Bay) may be a check on some of the taxing and regulating. It's still a long shot but perhaps a way to get the benefits of California without all the costs. Mark Twain was wrong about land. "They're not making it any more." He should have mentioned location. There may soon be good enough substitutes for some land (at some locations).

Monday, March 13, 2017

Good old days?

Whenever someone evokes "the good old days," I answer with two words: "medical science." The ailments that we have experienced (or will experience) are best treated by today's (or tomorrow's) medical science, not that of 10, 20, 30, 50 years ago.  The long run longevity improvement trends are clear.

The other trend I celebrate is the rise in . It and the mixed heritage offspring are the best antidote to ancient tribalisms that are our heritage -- and often our plague.

I'll take this year over any other.

But the arc of human progress is not easy to fathom up close. Numerous declinist essays and arguments have been floated in recent years. writes about "Our Miserable 21st Century: From work to income to health to social mobility, the year 2000 marked the beginning of what has become  a distressing era for the U.S." in the recent Commentary.

Tyler Cowen makes similar arguments in his widely reviewed and well received . To be sure, Cowen tempers his pessimism. 

Re Ebertstadt, be careful suggesting a uniquely U.S. predicament. Has not most of Europe also experienced a productivity and economic growth slowdown? Do not both, the U.S. and Europe, have to cope with an aging population that works and invents less? Are not both afflicted with sclerotic politics and bureaucracy?  Have not both gone through a financial crisis brought on by a concocted housing boom? Is not catch-up growth (unlike China's) no longer an option for both?

Re Cowen, its more complicated.  He cites similar outcomes as Eberstadt but he devotes his argument to the idea that Americans have lost the adventurousness that characterizes their history.  Thus the title of the book. How and why did mass complacency happen? "Ultimately America decided it didn't want a redo of the turmoil of the 1960s and 1970s, and it did what was needed to stop that from happening" (p. 11). Cowen believes in cycles.  Economic models that include demographics will give you cycles but the models are not so useful when it comes to the specifics of durations and amplitudes.

One of the many recent U.S. trends that Cowen studies involves improved matching capabilities and opportunities (including which has a been written about a lot). These are mixed blessings. The author elaborates in Chapter 3 of the book, "The Reemergence of Segregation".  "Reemergence" does no suggest Jim Crow forced segregation -- and the painful efforts to overcome it; it is not I-have-a-dream integration but it is not Jim Crow either. Consider a recent LA Times about Leimert Park, a middle-class mainly black LA neighborhood. There is apparently a backlash against "too many" white families moving in. Not that many years ago, few would have thought that any integration would be protested by blacks. The fact that people, like many in Leimert Park, prefer voluntary segregation may be an unpleasant surprise for 1960s freedom riders. Improved matching opportunities makes sorting (and segregation) in many activities easier. Mixed blessings.

My other caveat re Cowen is over his treatment of upward mobility. He writes that it has been been "outsourced": most of it is now by the immigrants. "Any country with a lot of immigration will have much more upward mobility than its published numbers indicate" (p.150). Of course. The original status of immigrants is by definition absent form the data that mobility researchers rely on. But you can also put this in the good news column. Ambitious people (to the extent that they can get here) have the U.S. as a place to go and thrive.  We get external benefits -- and economic growth prospects. Much has been written about the entrepreneurial spirit of immigrants -- high tech as well as low tech. Cowen would like to see more upward mobility by the U.S.-born. While we wait for that, the more that can come here, the more upward mobility in the U.S. (however measured) and the world.

We cannot have open borders but we can work to discover how to do better vetting to reduce the Type I and Type II errors. Make that a priority. Let more people in and get more of that "outsourced" upward mobility.  This may seem like a stretch but so are Cowen's favorite fixes (p. 194-196).

Back to Eberstadt who makes much of the shock that many felt at the Trump win in November. Many blue-state residents were indeed comfortable inside their own bubble -- from which they could not grasp the world view of the left-behind. Eight years of Obama-Clinton elitist moralizing hardly assured these people. But (pace ) Charles Murray deserves all the credit here. He did great work in his -- and the "bubble test" he included. All this was written well before the Trump election. Murray showed that most of us spend too much time inside comfortable bubbles.  Murray wants us to get out more -- even beyond our comfort zone(s).

Diversity of thoughts and ideas, amicably and thoughtfully exchanged, are the ideals. All three of the cited writers want that.  Many more of us, including  "The resistance", ought to take up the banner.

Wednesday, March 08, 2017

Sausage factory rules

Conor Dougherty writes abut NYC street traffic in today's NY Times.   There is congestion because there is no pricing. Take one rationing method off the table and another becomes the default. This has been the relevant economic insight for as many years as economists have looked at the problem. While textbooks speak of congestion as a "market failure," the failure to price is actually a failing of policy makers and politicians.  Transactions costs have been removed as an obstacle by modern technology and the arrival of easy, fast and cheap scanning and billing.  These have been implemented and tested in various parts of the world, in particular where there are bottlenecks such as at bridges and tunnels.  The remaining objection has been over the regressivity ("fairness") of pricing. But Uber's "surge pricing" has been seen as entirely sensible by most people.  Matinee pricing, early bird specials and similar time-of-day or season-of-the year demand-responsive pricing have been around for a long time. It's when prices emerge via the political sausage factory that the predictable positions are wheeled out.

Sausage factory rules also explain why the regressivity of taxing people (often via sales taxes) to pay for enormously expensive and often underused subways and similar transit is usually ignored.
 
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