Saturday, March 06, 2004
BOWLING ALONERobert Putnam's Bowling Alone arouses interest in many circles. He seems to be everywhere these days, recently spotted at 10 Downing Street by The Economist, reportedly discussing growing demographic diversity and the resulting decline of social capital. Critics of the book, while respecting the research, have noted that the author had been looking in all the wrong places. Old social networks decline (and this can be documented) but new ones emerge -- ones that are hard to find when only the old ones are examined. Putnam does not like urban sprawl and alleges that as suburbanites spend more time commuting (wrong), they have less time to be social. The trip survey data from the NPTS/NHTS show that travel choices and consequences between central city and suburban residents in the U.S. do not differ. Suburbanites take about as many "social" trips -- of approximately the same duration -- as their central city fellows.
As always, it is the supply and demand of/for news that matters. All news are sorted in the marketplace and some messages get more play, etc. The market-clearing price this year, if high enough, prompts extra supply next year, etc.
On the bright side, supply responds to other signals too.
Thursday, March 04, 2004
SOCIAL ENGINEERING LAND AND HOUSING MARKETSEvoking this topic (again) may be like shooting fish in a barrel but it involves large amounts of our money. So, here we go again.
Many people worry about urban sprawl and dream of a transit revival. They put these together and argue (successfully) for large public subsidies to “get people out of their cars,” onto transit and into “transit oriented development”. Cities will then become “liveable”, etc.
Some $400 billion in public transit subsidies since the mid-1960s plus uncounted subsidies to various favored builders have not turned the trick, so the Smart Growth advocates cast an ever wider net.
Visiting the EPA website is sobering; it cites 207 Smart Growth programs and policies in place around the country. I expect that many more are virtual SG insofar as they are implemented on the wings of SG rhetoric.
Here is one. A recent federal housing finance innovation is the Location Efficient Mortgage or Smart Commute Mortgage. No kidding. Low-income home buyers are presumed to have more disposable income if they locate near transit – and, perhaps, use it in place of driving a car. They should, therefore, qualify for home loans that they might not otherwise get, given their actual income. This is all calculated in great detail -- in terms of likely dollars saved and made available for home payments.
A recent generally favorable review of the program (by Kevin Krizek, Housing Policy Debate, 14:4) mentions that, “to date there have only been a few dozen closings nationwide.” And, “they are likely to offer only marginal respite for problems related to regional growth management.”
Wednesday, March 03, 2004
WHAT WOULD OCCAM SAY?Everyone (almost) espouses interdisciplinary work in the social sciences and a few actually do something about it. Daniel Kahneman's Nobel lecture is in the Dec., 2003, American Economic Review. The piece is a wonderful exposition of significant progress at the intersections of economics and psychology. Offshoot behavioral economics is hot right now.
It even made the NY Times Magazine on June 8, 2003. One of the article's punchlines is reprinted in Bernard Saffran's "Recommendations for Further Reading" in the Fall, 2003 Journal of Economic Perspectives, under "Discussion Starters": "Interestingly, irrational- and rational-market experts provide much the same advice for investors: buy index funds that are pegged to broad swaths of the market rather than trying to play selected sectors. Then hold. You might expect that advice from efficiency mavens, but how do the behaviorists -- who say you should be able to exploit the crazy market players -- square the conservative circle? 'While behaviorists think that it is theoretically possible to beat the market,' Richard Thaler says, 'individual investors do not have the time or training to do that on their own, and finding superior skills among active mutual fund managers is not easy, either. So a reasonable strategy to adopt is to settle for average returns and low fees offered by index funds.'"
Behavioral economics pioneer Thaler applies old-fashioned Economic Thinking when it counts.
Tuesday, March 02, 2004
THINKING AND PLANNING OUT OF THE BOXPerhaps the most auspicious migration within the U.S. today is the one into private communities. More than 50 million Americans are now living in various such arrangements, where most of the rules of property come from private associations. The rules (CC&Rs) are typically drafted by developers and are subject to a market test. A small number of commentators have been tracking this trend (some included in The Voluntary City). Robert Nelson's soon-to-be released Private Neighborhoods: A Revolution in Local Government promises to be the latest word.
There are all sorts of parallel privatizations spontaneously emerging; many denote novel public-private arrangements. In a setting of flexible institutions, these will also be subject to market tests and the best will spread. One example, noted in this morning's LA Times, is Pasadena's revived business district where the parking meter revenues go back to the district, not the city, to be used to upgrade local facilities. Common sense parking arrangements, like this one, have been written about by Don Shoup for some years.
Given a chance, good ideas will drive out the bad ones.
Monday, March 01, 2004
IT'S NOT EASY BEING GREEN IIJane Shaw demonstrates that suburbs and nature are encroaching on each other. It is not a one-way thing; the re-forestation (as farmers grow more on less land) of America occurs simultaneously with suburbanization. The Smart Growth platform, factually wrong about almost everything, missed this one too.
Whenever people presume that they are on the side of the angels, they can rationalize their own bad behavior. Ignoring inconvenient facts is just one of them. Arson and other crimes have been committed in the name of greenery, which has become a religion that thrives in this "secular age", including widespread allusions to the spiritual primacy of nature and tacky bumper stickers.
So far, the state promotion of greenery has not been challenged on First Amendment separation of church and state grounds. Enforcement zeal is, again, highly selective.
Sunday, February 29, 2004
SOCIAL ENGINEERING IS HARD WORK -- AND SO IS ECONOMIC ENGINEERINGWriting about the Law of One Price in the Fall, 2003, Journal of Economic Perspectives, Owen A. Lamont and Richard H. Thaler remind their readers that it’s all about arbitrage. They cite Steve Ross’ quip, “to make a parrot into a learned financial economist, he only needs to learn the single word ‘arbitrage.’” The LT piece qualifies all this; they also want the parrot to learn “short-sale constraints,” among other things.
The Economist (Feb 28) reports that the current U.S. economy is going through A phoney recovery because consumer spending is driven by asset price growth rather than by real income growth --and that asset prices reflect a cheap-money-induced bubble – and that the FRB should prick the bubble by tightening credit. The Economist articled cited a recent WSJ op-ed by European Central Bank chief economist Otmar Issing where the writer warned Alan Greenspan not to ignore asset prices. I remember the piece and recall that Issing was remarkably unclear about exactly what AG should actually do about asset prices, besides keeping an eye on them.
Bubbles are defined as price rises that reverse sharply (pop) rather than deflate smoothly -- those cases where short-sellers “lose their nerve” too soon.
Just another hindsight-guided fudge? Wherever asset price appreciation continued unabated, it was because market foresight worked as expected. Where it reversed sharply, short-sale constraints kicked in because (among other things) short-sellers lost their nerve. Is this a thin reed to rest on when making predictions and forming policies? Short-selling is one of those hazardous speculative activities that people in a market economy self-select into, when they choose it as an endeavor. Only the best survive to do it again. As with all speculation, those of us on the sidelines benefit when the players get it right. Sometimes, they will fail. That’s life.
Social engineering is hard work and, therefore, to be avoided. The same applies to economic engineering. Yet, Milton Friedman, of all people, recently wrote that the FRB under AG is finally getting it right. If so, can he please bottle it?
