June 23, 2008
Clear thinking to begin the week
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June 13, 2008
Cool Graph Friday
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April 29, 2008
Fueling food riots
Peter Gordon observed the other day that "politicians are better at creating problems than addressing them. Schools, housing, health care, transportation and others suffer from too much political attention."
Echoing that idea, Clear Thinkers favorite James Hamilton writes about one of the underlying economic reasons for food riots that are occurring in developing nations in some parts of the world:
As a result of ethanol subsidies and mandates, the dollar value of what we ourselves throw away in order to produce fuel in this fashion could be 50% greater than the value of the fuel itself. In other words, we could have more food for the Haitians, more fuel for us, and still have something left over for your other favorite cause, if we were simply to use our existing resources more wisely.
We have adopted this policy not because we want to drive our cars, but because our elected officials perceive a greater reward from generating a windfall for American farmers.
But the food price increases are now biting ordinary Americans as well. That could make those political calculations change, and may present be an opportunity for a nimble politician to demonstrate a bit of real leadership. I notice, for example, that although Senator Barack Obama (D-IL) was among those who voted in favor of the monstrous 2005 Energy Bill that began these mandates, Hillary Clinton (D-NY) and John McCain (R-AZ) were among the 26 senators who bravely voted against it.
Wouldn't it be refreshing if one of them actually tried to make this a campaign issue?
Sigh. Read the entire post.
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April 13, 2008
The block of the chip passes away
Arnold Kling of EconLog has long been a Clear Thinkers favorite, particularly in the area of health care finance. That was the subject of this recent post regarding Arnold's coordination of health care for his elderly father, Merle Kling, who passed away on Tuesday.
Take a moment to read Arnold's touching post on his father, who was quite a remarkable fellow. Arnold is a chip off a very solid old block.
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March 27, 2008
Thinking about Bear Stearns
Michael Lewis -- author of Moneyball and The Blind Side: Evolution of a Game (previous post here) provides this particularly lucid Bloomberg.com op-ed regarding the implications of the Bear Stearns affair to investors generally:
All of this raises an obvious question: If the market got the value of Bear Stearns so wrong, how can it possibly believe it knows even the approximate value of any Wall Street firm? And if it doesn't, how can any responsible investor buy shares in a big Wall Street firm?
At what point does the purchase of such shares cease to be intelligent investing, and become the crudest sort of gambling? [. . .]
To both their investors and their bosses, Wall Street firms have become shockingly opaque. But the problem isn't new. It dates back at least to the early 1980s when one firm, Salomon Brothers, suddenly began to make more money than all the other firms combined. (Go look at the numbers: They're incredible.)
The profits came from financial innovation -- mainly in mortgage securities and interest-rate arbitrage. But its CEO, John Gutfreund, had only a vague idea what the bright young things dreaming up clever new securities were doing. Some of it was very smart, some of it was not so smart, but all of it was beyond his capacity to understand.
Ever since then, when extremely smart people have found extremely complicated ways to make huge sums of money, the typical Wall Street boss has seldom bothered to fully understand the matter, to challenge and question and argue.
This isn't because Wall Street CEOs are lazy, or stupid. It's because they are trapped. The Wall Street CEO can't interfere with the new new thing on Wall Street because the new new thing is the profit center, and the people who create it are mobile.
Anything he does to slow them down increases the risk that his most lucrative employees will quit and join another big firm, or start their own hedge fund. He isn't a boss in the conventional sense. He's a hostage of his cleverest employees.
As noted in this earlier post, nothing is wrong with having compassion for Bear Stearns employees who lost much of their net worth as a result of the firm's demise. But the reality is that the ones who suffered large losses in their nest egg when Bear Stearns failed were imprudent in their investment strategy. They should have diversified their holdings or bought a put on their shares that would have allowed them to enjoy the rise in the company's stock price while being protected by a floor in that share price if things did not go as planned. Even though most of those Bear Stearns investors carry insurance on their homes and cars, relatively few of them elected to hedge the risk of their more speculative Bear Stearns investment. Most likely, many of these investors simply did not understand how Bear Stearns created their wealth in the first place. Absent a better understanding of investment risk and how to hedge it, such investment losses will continue in the future, regardless of whatever ill-advised regulations are devised in an attempt to prevent them.
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March 20, 2008
The ignorance of costs
I don't particularly like the distraction of talking on a cell phone while driving, so I avoid it as much as possible. It's also not enjoyable avoiding other drivers who are not paying full attention while chatting on the cell phone.
However, I also recognize that cell phone usage while driving has facilitated beneficial communication exponentially. Thus, whenever I see creeping paternalism such as this, it gets my attention:
West U. eyes ban on calls while driving
Cell phones in school zone lead to 'near misses'Houston-area officials are watching West University Place as elected officials there consider banning cell phones in the school zone near the community's lone elementary campus.
The move would put the affluent suburb on the map as the first Houston-area municipality to take a stand against drivers talking on their phones as children travel to and from school. The community is following in the footsteps of Dallas and several North Texas suburbs that have recently approved bans. [. . .]
West University proposed the ban earlier this month after conducting a study to determine how often drivers were spotted chatting on their cell phones in active school zones. Over three weeks in February, police counted 297 drivers on their phones.
Six of the drivers violated traffic laws by creeping into intersections while children and crossing guards were present, West University police Lt. Thad Olive said.
Although neither Olive nor HISD police officials could recount an incident when a child was seriously injured in a school zone because of a driver on a cell phone, they said this type of ordinance could prevent tragedy.
"There's been a lot of near misses," Olive said. "It definitely has distracting effects. If I can take one element of risk away from the children in that school zone, then it's a good thing." [. . .]
Kenneth Jones, who oversees HISD's crossing guard department, said he'd love to see the ban enacted citywide.
"If you've got that phone in your hand, I don't think you have your mind 100 percent on driving," he said.
Kelli Durham, an assistant superintendent in the Cypress-Fairbanks school district, was one of several educators to suggest widening the ban to include all drivers, regardless of whether they're in school zones.
"If cell phones shouldn't be used for safety reasons in school zones, should they be used anytime on our streets and highways?" Durham asked. . . .
So, if "one element of risk" can be taken away from children in a school zone, then that's sufficient justification for regulation of a hugely beneficial communication device? Does this mean that the next initiative will be to ban conversation between a driver of a car and a passenger while in a school zone? That's also distracting, perhaps even more distracting than talking on a cell phone. Should we also ban distracting billboards, signs, automobiles and lights while we're at it?
What is most disturbing about all this is the utter ignorance of the bureaucrats proposing these regulations of the cost of the regulation relative to the benefit. Wouldn't it be prudent at least to perform a meaningful cost-benefit analysis of the probable impact of outlawing a valuable improvement in communications before foisting yet another regulation on the public?
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March 17, 2008
"America’s booming opportunity city"
Each time local politicians in Houston engage in bad policy initiatives such as the ones noted here, my wish is that they would be required to read this fine Joel Kotkin/The American op-ed entitled Lone Star Rising -- How a combination of ambition, entrepreneurship, trade, and tolerance made Houston America’s booming opportunity city. Kotkin has been studying Houston over the past several years and he provides a perceptive outsider's view on why Houston grew into such a vibrant place:
First appearances—then and even now—often didn’t help. Early visitors were struck by the settlement’s largely shack-like housing. And in those days, long before air conditioning, there was the Houston weather, which often combined scalding temperatures with soupy humidity. . . . Yet the Allen brothers had not really chosen so badly. Houston possessed powerful assets. It sat on an enormous fresh-water aquifer, which today guarantees a water supply in a way that other growing cities, such as Phoenix and Las Vegas, can only dream about. The area also abounded in natural resources such as timber and rich soil that was ideal for growing cotton. And when oil drillers hit a gusher in Spindletop, about 90 miles from Houston in East Texas, in 1901, Houston suddenly found itself positioned as the nearest city to some of North America’s richest oil and gas reserves.
None of this, however, adequately explains Houston’s ascendancy. Other cities enjoy better locations for shipping, richer agricultural resources, or similar proximity to oil fields. The answer, I have come to understand as I have worked in Houston as a reporter and consultant, echoes something that the late Soichiro Honda once told me: “More important than gold and diamonds are people.” This critical resource, more than anything, accounts for Houston’s headlong drive toward becoming not only the leading city of Texas and the South, but also a player on the global scene: it is emerging as one of the world’s great cities.
Read the entire op-ed and learn a lot about what makes Houston such a special place to live.
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February 27, 2008
Dick Armey on immigration
I must admit, I never thought that former House Majority Leader Dick Armey would sound like a statesman to me. I was wrong. Watch the video to find out why.
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February 25, 2008
Rate Congress on free trade
Check out this excellent Cato Institute website that allows you to evaluate the voting record of each member of the past six sessions of Congress on free trade issues.
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February 21, 2008
Hope for a hog solution?
Texas' feral hog problem has stymied many a smart scientist over the years, but it appears that the Aggies may have discovered a possible solution(H/T: Craig Malisow)
If you're a land owner and animals such as coyotes or wild pigs are driving you hog wild, help may soon be on the way to control their numbers in a humane way - in the form of a birth control pill for animals being developed at Texas A and M University's College of Veterinary Medicine and Biomedical Sciences. The concept would be to get it to wild animals through baited food, researchers say. [. . .]n Texas, feral hogs have become a severe nuisance to farmers and ranchers, and the state has an estimated 3-4 million feral hogs, by far the most in the country.
Gig'em Ags!
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February 4, 2008
A birthday wish
Don't miss Greg Mankiw's birthday wish:
My birthday wish is for all of us to stop asking what the government can do for us today. Instead, we should focus on what we can do together to prepare the economy for our children and grandchildren. That means getting ready to care more for ourselves in old age, perhaps by retiring later, perhaps by saving more. I hope that when I celebrate my 100th birthday in 2058, my descendants won’t look upon Grandpa and his generation as the biggest economic problem of their time.
Read the entire op-ed. Salient thought for a political season.
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January 22, 2008
Birds of a feather?
Perhaps coincidentally, I came across the following two news reports consecutively yesterday morning. First from this BBC article:
Venezuelan President Hugo Chavez has threatened to nationalise farms, in an effort to tackle food shortages.Government controls keep food prices low in shops to help even the poorest Venezuelans feed themselves.
But some farmers prefer to sell their produce in neighbouring countries where prices are higher, leading to shortages of bread, milk, eggs and meat.
In his weekly television show, Mr Chavez said farmers doing this should have their farms "expropriated". [. . .]
On Saturday, Mr Chavez threatened to nationalise banks which did not give enough low-interest loans to farmers.
Banks are not allowed to charge farmers interest higher than 15% - even though inflation last year ran at 22.5%.
"The bank that fails to comply must be sanctioned, and I am not talking about a little fine," he said. "The bank that does not comply must be seized." [. . .]
Critics say complying with government policy could drive some businesses into bankruptcy.
Then, a little closer to home, came this NY Times article on Democratic Party Presidential candidate Hillary Clinton's views on government control of the economy:
Senator Hillary Rodham Clinton said that if she became president, the federal government would take a more active role in the economy to address what she called the excesses of the market and of the Bush administration.. . . Mrs. Clinton put her emphasis on issues like inequality and the role of institutions like government, rather than market forces, in addressing them.
She said that economic excesses — including executive-pay packages she characterized as often “offensive” and “wrong” and a tax code that had become “so far out of whack” in favoring the wealthy — were holding down middle-class living standards. [. . .]
“If you go back and look at our history, we were most successful when we had that balance between an effective, vigorous government and a dynamic, appropriately regulated market,” Mrs. Clinton said. “And we have systematically diminished the role and the responsibility of our government, and we have watched our market become imbalanced.”
She added: “I want to get back to the appropriate balance of power between government and the market.” [. . .]
“We’ve done it in previous generations,” she said, alluding to large-scale public projects like the interstate highway system and the space program. “But we’ve got to have a plan.” [. . .]
“Inequality is growing,” Mrs. Clinton said. “The middle class is stalled. The American dream is premised on a growing economy where people are in a meritocracy and, if they’re willing to work hard, they will realize the fruits of their labor.”
So, on one hand, Chavez is demonstrating that, even with the economic benefit of having high-priced oil to export, a government can still lower the living standards of its citizens if it tries hard enough.
On the other hand, Hillary does not appear to recognize that her proposals are quite capable of accomplishing the same thing within the world's most dynamic economy.
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The Thompson plan
Last week, Ironman over at Political Calculations reviewed the Giuliani income tax simplification plan. This week, he tackles the even more impressively simple tax simplification plan advocated by GOP Presidential candidate, Fred Thompson.
Of course, as if on cue, Thompson dropped out of the GOP race today.
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January 16, 2008
What's missing in the tax debate
Wouldn't it be nice if at least one of the Presidential candidates would embrace the basic reform that is really needed in the U.S. tax system? Simply simplification. Previous posts on tax simplification issues are here. Interestingly, one of my least favored Presidential candidates -- Rudy Giuliani -- has the best tax simplification proposal that I've seen so far during the campaign.
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January 14, 2008
More costs of prohibition
Geez, could legalization and regulation really be worse than this?
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December 19, 2007
The pixie dust theory
It has something to do with subsidies for ethanol.
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December 13, 2007
Putting $14 trillion in perspective
Mark Perry provides this creative map that places the enormous size of the U.S. economy in a useful perspective.
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December 12, 2007
It could happen here
This earlier post noted that a not very flattering analysis of the economic debacle that is the San Jose, California light rail system might very well describe Houston's light rail system in a few years if we don't come to our senses. Following up on those thoughts, this Randal O'Toole post reviews a San Jose Mercury News newspaper article that reports on the state of the San Jose transit system on the 20-year anniversary of light rail there. It's not a pretty picture:
Santa Clara County taxpayers pay as much or more for transit, yet their transit system carries fewer riders, than almost any system with light rail in the country. “The heavy tax commitment to transit,” the article notes, “means fewer dollars for road upgrades.” Especially since a half-cent sales tax that voters approved of for roads was hijacked by the transit agency in 2000. [. . .]“The light-rail system should be considered a 100-year investment,” says San Jose’s director of transportation planning. That shows how shallow planners are: within another 20 years, that investment will be completely worn out and San Jose will have to decide whether to scrap it or spend another few billion replacing it.
. . . [the] Silicon Valley, with its jobs spread out more thinly than almost anywhere else in the country, was unsuited for large-bus transit service. So to go from buses to light rail, which requires even more job concentration to work, was a mistake. Having made that mistake, VTA now wants to build BART, which requires even more job concentration. . .
Light rail was the wrong solution for San Jose in 1987, it is the wrong solution today, and it still will be the wrong solution in 2027. We can only hope that San Jose’s leaders and opinion makers, including the Mercury-News, come to their senses by then and decide to junk the whole thing.
Meanwhile, in Houston, as our local "leaders" continue planning to spend upwards of $4 billion on expansion of a light rail system that relatively few citizens of the area will use, alternative transit projects that make much more sense are relegated to discussion in the blogosphere.
The Houston area is a big place with a vibrant and resilient economy. But Metro's light rail system is the one urban boondoggle going right now that has the potential to become a serious economic drag on the local economy in the not-to-distant future. It's far past time that our local leadership noticed and started taking actions to hedge this risk.
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November 20, 2007
A real insurance fraud
I've been meaning to pass along this James Q. Wilson/WSJ ($) op-ed that lucidly describes the crisis that has developed in property insurance markets along the Gulf Coast as a result of the litigation risk and attendant cost of clearly inapplicable claims being asserted against property insurance policies:
When Hurricane Katrina hit our southern coast, it was the worst natural disaster in American history, killing 1,800 people, forcing more than a million to evacuate the area, and putting four-fifths of New Orleans under water. In the struggle to recover from this event, people turned to their insurance companies for help. Thousands of claims were handled, but for some people there wasn't any coverage. The problem was they were not insured against flooding.Insurance companies' policies are quite clear on this, and state insurance departments, including the ones in Mississippi and New Orleans, have approved these rules. The homeowners' policy issued by State Farm, for example, says that water damage from a flood, waves, tidal waves, or a tsunami are not covered. . . .
The reason for the exclusion of water damage is quite clear: Hardly any insurance company wants to encourage people to build or occupy structures in places where such damage is likely. If they did allow this, either the company would go bankrupt from losses it could not pay or it would have to charge a premium so high that hardly anyone could afford the insurance. Even without water-damage coverage, insurance companies paid out around $40 billion to Katrina victims. [. . .]
Not content with these policies and rules, trial lawyers and politicians in Mississippi demanded that insurance companies should be required to pay for flood losses even though they were not covered by the policies. Richard "Dickie" Scruggs, a veteran of class-action suits, and Mississippi Attorney General Jim Hood worked together to create a lawsuit that would retrospectively ban the flood exclusion rule. (Mr. Scruggs was a major source of campaign money for Attorney General Hood.) At the same time, Rep. Gene Taylor from Mississippi urged Congress to require a retroactive payment of flood insurance. Never mind what the homeowners' insurance policies said or what their coverage was, demanding money to which they were not entitled became "good public policy." [. . .]
In time some measure of sanity was restored. A federal district court judge upheld the flood exclusion in insurance policies, a view that was affirmed by the Court of Appeals for the Fifth Circuit. More recently, the Fifth Circuit has affirmed that there is no coverage when an excluded peril (such as flooding) and a covered one (such as windstorms) both contribute to the same damage. A Louisiana state judge agreed that policies not written to provide flood insurance did not, in fact, provide it. . . .
But the return of sanity was of short duration. In June Mr. Scruggs filed a lawsuit against State Farm saying that it engaged in racketeering, and Attorney General Hood filed a new civil lawsuit -- and then followed up with another grand jury investigation contrary to his prior agreement with State Farm. One wonders how its claims adjusters feel when they are told that they are no better than members of the Mafia.
In light of all this, State Farm announced earlier this year that it would no longer sell new homeowners' policies in Mississippi, not to punish people there but because politicians had made it impossible to do business in an orderly way. In response, Attorney General Hood demanded that the governor order State Farm to write new policies. Gov. Haley Barbour replied, quite reasonably, that he does not have the authority to tell a private company that it must do business in his state. There will no doubt be congressional investigations of the insurance business because it did what it told people it was doing.
And Hood calls himself a public "servant" (see earlier post here)?
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November 19, 2007
Transit survey raises more questions than it answers
Isn't it interesting the different reactions that Anne Linehan, Charles Kuffner and Tory Gattis had to the 2007 Houston Area Survey regarding transit options? The Chronicle and other light rail enthusiasts immediately seized upon the survey as evidence that Houston-area residents want to dump more money into the light rail money pit.
But the problem with such surveys is that they generally ask people questions in a vacuum and do not address Peter Gordon's three elegantly simple questions regarding economic choices:
1) At what cost?
2) Compared to what? and
3) How do you know?
For example, assume for a moment that the persons surveyed were informed of the fact that the average urban freeway lane costs about $10 million per mile and that the average light rail line costs about $50 million per mile while carrying only one-fifth as many people as the freeway lane. And these are only average figures -- as Randal O'Toole recently pointed out, Seattle's recently rejected light rail expansion was projected to cost $250 million per mile, a whopping 125 times more expensive at moving people than a freeway.
Moreover, let's also assume that the persons surveyed are informed that the expenditure of a billion or so of public money on expanding a poorly-used light rail system has real consequences, such as leaving inadequate funds to make improvements to Houston's infrastructure that would dramatically decrease the risk of death and property damage from flooding. Or whether the billion or so being flushed down the light rail drain would be better used to fix various area traffic "hotspots" where accidents or bottlenecks occur with high frequency.
No one knows for sure, but my bet is that the survey results would be dramatically different if the foregoing costs and alternatives were included as a part of the survey. It's a shame that neither the City's current leaders nor the mainstream media are asking the simple questions set forth above that would generate a meaningful cost-benefit analysis and ensuing well-informed debate regarding continued investment in expensive public works projects such as Metro's light rail system.
Instead, we get this:
Metro executive vice president John Sedlak led off [a presentation to the Transportation Policy Council, a group of elected officials and agency staffers that sets priorities for transportation spending in the 13-county Gulf Coast planning region] with a slide show describing the [proposed Metro University light rail line] project and told the panel its approval was needed so Metro could get federal funding and start engineering work.If there was a short delay, Holm asked, "What would be the consequence?"
Sedlak replied that the project is on "an aggressive schedule" and that a delay "would send a message to Washington that there are issues with our overall program."
Holm asked why Washington would think there were issues and not just loose ends to tie up.
"They watch every activity that takes place very carefully," Sedlak said. "The federal government is aware we are having this meeting today."
Holm asked what the application deadline was. Sedlak said it was "in the month of December."
"If the delay was just a few days, would it jeopardize the funding of the entire program?" Holm asked.
"I truly believe it could," Sedlak replied.
Kemah Mayor Bill King had questions, too.
How many more passengers would the rail carry than the buses on Richmond do now?
Sedlak said he did not know, but Metro could get him the answer.
King asked how the line would impact traffic on Richmond.
Sedlak said there would be some negative effects, but the finished line should "take vehicles off the street." Numerical estimates are in the line's environmental impact document, he said.
Holm spoke again, her voice a little shaky.
"There are cities," she said, "that have never been turned down for a funding request. It's not because they agree on everything they want. It's because they do their due diligence and they do their battles at home.
"We need to still build consensus in this community. We need to be able to walk hand-in-hand in supporting a project," she said.
Update: As usual, Tory Gattis has additional insightful thoughts.
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November 16, 2007
The nation's worst-managed transit system
Tom Rubin is an accountant who has audited many transit agencies and is an expert in transit system accounting. Randal O'Toole channels a Rubin presentation in describing the nation's worst-managed transit system:
Participants in the Preserving the American Dream conference were encouraged to ride [the] light-rail line to one of the conference events. What they saw was not a pretty picture. Trains were infrequent (one of the supposed advantages of rail is that they run so frequently that riders don’t need to consult schedules), the in-street tracks are dangerous (one conference goer slipped on a rail and fell into a curb), and the fellow patrons are not always people you want to be around (several conference goers were treated to the scene of someone becoming violently ill on board, leading one of our members to say, “So that’s what they mean by ‘vibrant streets’”).Beyond these impressions, Rubin observes that [the light-rail system] has “the worst operating statistics of any American transit operator.” The reason for this, he says, is that [the area] — being built mostly after World War II — is one of the most spread-out urban areas in the country. Not only are people spread out, but jobs are spread out, with no job concentrations anywhere.
This makes large buses particularly unsuitable for transit because there is no place where large numbers of people want to go. So what was [the transit system's] solution when its bus numbers were low relative to other transit agencies? Build light rail — in other words, use an expensive technology that requires even more job concentrations.
Now it has one of the, if not the, poorest-patronized light-rail systems in America. So what is its solution? Build heavy rail, a technology that requires even more job concentrations.
What transit system are O'Toole and Rubin describing? Well, it sure sounds like it could be Houston's, but it's not. They are talking about San Jose, California's system.
But how long do you think it will be until Houston's light rail system is in similar shape?
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October 22, 2007
Continuing to rationalize a boondoggle
The big transit news in these parts last week was the announcement that the Metropolitan Transit Authority's board Metro's board approved the final route for the east-west University line and decided to deploy the much more expensive light rail rather than bus rapid transit in four other transit corridors. Kevin Whited, Lou Minatti and Tory Gattis were among the local bloggers commenting on this development.
What is perhaps most galling about all of this is the sheer lack of any perspective from the local mainstream media regarding the dubious nature of Metro's urban economics. The Chronicle article on Metro's announcement is typical of the vacuity of media coverage of Metro -- the fact that light rail systems are notoriously uneconomic and underused relative to cost is not even mentioned. Meanwhile, Metro continues to insist upon investing billions of tax proceeds in an inflexible light rail system that will cost millions in additional annual tax proceeds to subsidize. To make matters worse, the money that Metro is throwing away on what will be a underutilized and expensive light rail system would go a long ways toward dramatically ameliorating the Houston area's flood control problems and traffic hotspots, two public works projects that would provide far more benefit for far more Houston area residents than the light rail project. In short, wasting huge amounts of public funds on a boondoggle simply does not occur in a vacuum. Such waste will negatively impact more pressing public works projects in Houston for decades.
Transit expert Randall O'Toole recently published this Cato Insitute policy analysis, Debunking Portland (related blog posts here and here), on the failures of Portland’s light rail system, which was built in a far more densely-populated area than Houston and is often touted by light rail advocates as an example of one of the rare successful systems. As O'Toole points out, the Portland system has not been a success. 9.8% of Portland-area commuters took transit to work before the region built its light rail system, while today, just just 7.6% of the area commuters use the system. The fact that Portland’s light rail system led to billions of dollars in economic development is largely a ruse -- such development received billions of dollars in subsidies and, before the city started offering those subsidies, not a single transit-oriented development was built along the Portland light rail line. Finally, light rail cost overruns forced Portland to raise bus fares and reduce bus service.
As O'Toole observes, that’s considered a success?
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October 18, 2007
Kling on GMU Economics
Arnold Kling provides this interesting TCS Daily op-ed on the innovative George Mason University Economics Department, whose members have done a remarkable job over the past several years promoting the understanding of economics issues through the blogosphere. As Kling noted earlier here:
I like to put it his way: at [the University of] Chicago, they say "Markets work well. Let's use markets." At MIT, they say "Markets fail. Let's use government." At GMU, they say "Markets fail. Let's use markets."
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September 25, 2007
Selling a house?
University of Chicago economist Austan Goolsbee provides common sense advice on sellling a house:
So by being hung up about whether your condominium will sell for what you paid for it, you aren’t just driving yourself crazy trying to get a buyer. You may be threatening the very performance of the economy and driving up the unemployment rate — provided that many others behave in a similar way.What is to be done? Well, if you are holding out for an above-market price to recoup your losses, perhaps you would do well to hear the advice that Professor [Christopher] Mayer gives his own family members.
“If you want to sell your house then you list it at the market price and you sell it,” he said. “If you don’t really want to sell then don’t put it on the market. But don’t say you want to sell and then set the price so high that you spend the year cleaning up every morning, having people walk through your living room and look in your medicine cabinets and reject you. That’s just painful — and expensive.”
His research offers a simple lesson for everyone out there waiting for a high price to push them back into the black: Get real.
The folks over at Political Calculations take Goolsbee's advice one step further and provide a handy calculator for determining the true value of a house.
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September 4, 2007
DeLong on the rise from poverty
Yeah, things might be a bit testy lately in the credit markets, but Brad DeLong does a magnificent job of reminding us just how much better we have it than folks who lived not all that long ago:
. . . in 1905 an anonymous American college professor--"G.H.M."--wrote a four-page article for the Atlantic Monthly in which he pleaded for more money for college professor salaries, and claimed to be vastly underpaid. The first thing to note is his salary: he claimed that the "average college professor’s salary"--the salary that he saw as clearly inadequate and unfairly low--"is about $2,000" in the dollars of that day, 1900. Yet Stan Lebergott's estimates in the Historical Statistics of the United States are that the average annual earnings of an employee in America in 1905 were $490 dollars if employed for the entire year (or $451 taking account of the hazards of unemployment): $2,000 was four times average of GDP per worker at the turn of the century. In order to match turn-of-the-century professors in terms of income relative to the national average, a professor today would have to make an academic salary of $300,000–a height rarely attained, and far above any average.
There is much more, so don't miss it. DeLong's chapter is a vivid reflection of the power of compounding economic growth. Sort of makes you wonder about those folks who advocate shaving a bit of economic growth here and there to promote some special interest. Over a century, compounding that small loss of economic growth can have a huge impact.
Posted by Tom at 12:15 AM | Comments (0) | TrackBack (0)
You don't say?
This NY Times article reports on more research that goes into the "who needs a research project to prove that?" category:
. . . the broader question — whether police officers in some towns are motivated by fund-raising as well as safety when writing traffic tickets — has been examined systematically by others. Michael D. Makowsky, a doctoral student in economics, and Thomas Stratmann, an economics professor, both at George Mason University, studied the issue in a recent paper, “Political Economy at Any Speed: What Determines Traffic Citations?”They examined every warning and citation written by police officers in all of Massachusetts, excluding Boston, during a two-month period in 2001 — over 60,000 in all. Their conclusion wasn’t shocking to an economist: money matters, even in traffic violations. They found a statistical link between a town’s finances and the likelihood that its police officers would issue a speeding ticket. The details are a little sticky, but they show that tickets were issued more often in places that were short on cash, and that out-of-towners received tickets more often than drivers with local addresses.
Posted by Tom at 12:00 AM | Comments (0) | TrackBack (0)
August 31, 2007
On the Billable Hour
A couple of interesting posts recently on the scourge of the business community -- the billable hour -- gives me the opportunity to pass along the cartoon on the left from the always-insightful Stuart M. Rees of Stu's Views.
First, local law school blawger Luke Gilman provides a compendium of links and analysis to his comprehensive review of the state of the billable hour. Meanwhile, Peter Lattman over at the WSJ Law Blog provides this post on the breaking of the heretofore sacrosanct $1,000-an-hour billing rate, which includes local attorney Steve Susman's classic observation that he charges in excess of a grand per hour "to discourage anyone hiring me" on an hourly basis.
Me, I continue to subscribe to the theory that I won't charge an hourly rate that is higher than I could afford to pay if I need to hire an attorney. ;^)
Posted by Tom at 12:15 AM | Comments (0) | TrackBack (0)
Property rights, economics and AIDS
Peter F. Schaefer explains how economics and property rights in African nations combine to facilitate the proliferation of the AIDs virus:
However no one in the US government and few in the anti-AIDS community are dealing with a major issue in the transmission of AIDS called "property stripping." Since the cure for property stripping is cheap, technically quite easy and would have an enormous secondary impact on economic growth (poverty is a hidden vector of AIDS) it would seem like a sure thing for attention. But it is virtually ignored.On World AIDS Day two years earlier Dr. Jim Yong Kim - [head of World Health Organization's HIV Division, Kevin] De Cock's predecessor - said,
"In sub-Saharan Africa almost 60 percent of AIDS sufferers are women [and] in some settings ... we are finding ... that the number one risk factor for women in becoming infected with HIV is marriage. [And] married women have the highest rates of HIV infection. We have to take on some of the most fundamental and difficult cultural and social issues that are definitely affecting the way this epidemic is spreading. And ... if we can take on things like for example, property rights [so] women can inherit the property of their husband if [he] dies, that really reduces the likelihood of them getting into sex work for example. If we can ... change laws, change fundamental beliefs and culture by [getting] people the right kinds of prevention messages we will have done a lot not just for HIV AIDS but for issues like gender equity that have been with us forever."In the scholarly literature, the traditional practice of the husband's family inheriting all his property after he dies is called "property stripping." In normal times, this had some logic; the husband's family had responsibility for the widow and her children, a brother often taking her as a second wife and so assuming responsibility for his nieces and nephews.
But things have changed. In the time of AIDS, the widow is likely also infected with the HIV virus, though not yet sick since her husband often gets it first and the disease is less advanced in her when her husband dies. So even if her brother-in-law hasn't died from AIDS himself, he is not willing to marry someone infected with HIV. And often the brother-in-law himself is sick or dead. Nevertheless, the family often still follows custom and seizes her house and farm and so she has no recourse but to turn to menial jobs, begging or prostitution. And since she was infected later, she may have years to spread her illness to her sex partners which are commonly many a day.
[A] Washington Post editorial by Richard Holbrooke . . . noted that increased testing and detection efforts was the "only effective prevention strategies can stop the spread of AIDS." He goes on to point out that "...monogamous women [are] thrown out of their homes for a disease they got from their husbands."
Read the entire article, which is another reminder that there are few simple solutions to this terrible disease.
Posted by Tom at 12:05 AM | Comments (1) | TrackBack (0)
August 9, 2007
An easy prediction
Buried in the Chronicle's article on the Metropolitan Transit Authority's latest propaganda release regarding the proposed University light rail line is the following snippet:
The study estimates say the Cummins-Wheeler-Elgin combination is the least expensive of the routes considered, at $715 million, compared with $836 million for the Southwest Freeway-Alabama combination.
Prediction: Both routes will cost substantially more than the estimates and the revenue generated from the ridership will not come close to meeting the operating expenses of the line.
Posted by Tom at 12:00 AM | Comments (0) | TrackBack (0)
August 6, 2007
In praise of credit snobs
Earlier posts here and here noted Alex Tabarrok's clever characterization of folks who criticized development of new lending vehicles for folks with low incomes or bad credit. Thus, this Economist article about a recent study on making loans to the poor caught my eye. Check out the conclusion of the study:
Contrary to the fears of the credit snobs, the readier access to credit did not tempt the new customers into a debt trap. Over 15-27 months, those reconsidered for a loan were more likely to have a formal credit score. And this score suffered no harm as a result of their easier borrowing.Overall, the study suggests that profit-seeking lenders do not deserve the fate Dante reserved for them. Far from tempting the poor into unpayable debt, they help them keep their jobs, put food on the table, and build up a credit history. The authors show that poor people can make good use of borrowed money, even if they sometimes struggle to demonstrate this creditworthiness to lenders. If not hell, that is a kind of purgatory.
Read the entire article.
Posted by Tom at 12:05 AM | Comments (1) | TrackBack (0)
August 4, 2007
Latest on the Las Vegas Monofail
With the crunch worsening over the past several weeks in the credit markets, the bankruptcy reorganization forces are gearing up and eyeing potential debtors. Well, in this Heartland blog post, Thomas A. Rubin predicts one of the probable debtors that will need serious reorganization -- the Las Vegas Monorail Company (prior posts here):
In short, the Las Vegas Monorail appears headed straight down the path to bankruptcy by approximately the year 2010 with nothing on the horizon that could prevent it – other than, perhaps, an ill-conceived government bailout or the absolute dumbest group of investors/suckers in recent financial history.This result should come as a surprise to no one. Over the last several decades, I know of only one U.S. rail transit system, or quasi-transit system, that has come remotely close to covering its operating costs out of fares and other operating revenues (the Seattle Monorail), and none that have made any contribution what-so-ever to capital costs. However, the Las Vegas Monorail promoters assured everyone that operating revenues would not only cover operating costs, but would also cover all the debt service costs of the bonds sold to pay for the construction of the Monorail. [. . .]
One hopes that someone, somewhere, in a public sector decision-making capacity will tell the various casinos along the right of way that, if they want to see it continue to operate, well, it is all theirs.
Read the entire post, which lays out the public risks involved in even a privately-financed boondoggle of this nature. Meanwhile, this clever Political Calculations post comes up with an entertaining solution to achieving the same benefits of a light rail system at a far cheaper cost.
Posted by Tom at 12:26 AM | Comments (0) | TrackBack (0)
July 16, 2007
Fair tax?
Greg Mankiw provides this particularly lucid analysis of the current status of the progressive U.S. income tax system. Keep it handy when listening to the demagoguery over tax rates that will take place during the upcoming 2008 Presidential campaign.
Posted by Tom at 4:05 AM | Comments (0) | TrackBack (0)
July 15, 2007
Katrina evacuees and the enduring nature of poverty
In the summer of 2005, tens of thousands of citizens from the New Orleans area relocated to Houston and other cities in the aftermath of Hurricane Katrina, most of whom never returned to their former home. A substantial number of those evacuees were poor and largely unemployed in the depressed New Orleans-area economy that existed even prior to the destruction of Katrina. Thus, the hope was that those evacuees would be able to improve their living standard by starting anew in economically vibrant areas such as Houston.
Unfortunately, that has not been the case. As this Jacob Vigdor post notes, research on the Katrina evacuees is indicating that the syndrome of poverty is extremely difficult to change:
Should governments help residents of depressed regions move towards more prosperous areas? Evidence from Katrina evacuees suggests that such efforts are likely to fail. The fortunes of long-term evacuees are almost completely unrelated to the characteristics of the cities to which they relocated. [. . .]What can the world learn from the experiences of Hurricane Katrina evacuees? As indicated in other recent research carefully examining the impact of residential location on employment, moving a poor, undereducated citizen from a declining urban area to the middle of a vibrant economy is not likely to be a quick, cheap way to find him or her a job. While participants in a voluntary relocation programme would almost certainly be exposed to less personal trauma than Katrina evacuees, the survival instinct alone appears to be insufficient to guarantee success. Particularly in nations with social welfare systems more generous than the American model, the result of any such programme seems quite likely to increase, rather than assuage, drains on the public budget in the short-to-intermediate term.
Posted by Tom at 12:41 AM | Comments (3) | TrackBack (0)
July 6, 2007
The Absorption Nation
In this TCS op-ed, Don Boudreaux points out an incongruity in the current political debate over immigration:
In the Declaration of Independence, Thomas Jefferson complained that King George III "has endeavoured to prevent the population of these States; for that purpose obstructing the Laws for Naturalization of Foreigners; refusing to pass others to encourage their migrations hither, and raising the conditions of new Appropriations of Lands."
In a related blog post, Professor Boudreaux asks the following:
Why is it that today, the wealthiest time in our history, so many Americans fear immigration? Why do so few Americans today share Jefferson's understanding that more free people in America mean an even more prosperous America?
Read the entire op-ed.
Posted by Tom at 4:20 AM | Comments (3) | TrackBack (0)
July 5, 2007
EZ-Tag, EZ-Increase
So, according to this NY Times article about MIT economist Amy Finkelstein's research, EZ-Tags for electronic payment of tolls along tollroads makes it easier for government to increase the tolls (Tyler Cowen provides further analysis).
Everywhere but Houston, that is.
Posted by Tom at 4:15 AM | Comments (0) | TrackBack (0)
July 2, 2007
Will Houston learn from L.A.'s mistakes?
As noted earlier here and here, the Houston metropolitan area shares many of the same characteristics of the Los Angeles metro area, albeit with far lower density of population. Although rail transit is typically inefficient in areas of relatively low density of population, that has not stopped Houston's Metropolitan Transit Authority from spending enormous sums on inefficent light rail for Houston and proposing even more. One of the common rationalizations used by Metro for such boondoggles is that the transit lines will promote development of more densely-populated housing around the rail lines that will ultimately generate enough mass transit users to justify the enormous cost. Someday.
So, given the L.A. region's greater density of population, has rail transit generated such housing along the rail lines there? Well, not according to this front page Los Angeles Times article entitled "Near the rails but still on the road -- Research casts doubt on the region's strategy of pushing transit-oriented residential projects to get people out of cars":
In Los Angeles alone, billions of public and private dollars have been lavished on transit-oriented projects such as Hollywood & Vine, with more than 20,000 residential units approved within a quarter mile of transit stations between 2001 and 2005.But there is little research to back up the rosy predictions. Among the few academic studies of the subject, one that looked at buildings in the Los Angeles area showed that transit-based development successfully weaned relatively few residents from their cars. It also found that, over time, no more people in the buildings studied were taking transit 10 years after a project opened than when it was first built.
To which USC urban economics professor Peter Gordon replies:
I could not have said it any better. Well actually, some of us did -- over 30 years ago.Yes, it is not pretty to say I-told-you-so. But the arrogant know-nothings inside LA's beltway (including LA Times writers and including some who still hold public office) have been confused on this issue for years. Their plans have cost billions and, along the way, made traffic much worse. It was exactly the sort of fatal conceit that Hayek wrote about many years ago.
Yesterday, the same newspaper (front-page, below the fold) included "Will traffic-weary L.A. heed the toll call? ... The land of the freeway is poised to become a little less free ..."
What will they think of next?
Will Houston's leaders listen? Incidents such as this do not make me optimistic that they will.
Posted by Tom at 4:45 AM | Comments (0) | TrackBack (0)
June 21, 2007
Want a season ticket? Take out a mortgage
Conde Nast's Megan Barnett reports on how the lion's share of the new Yankee Stadium is apparently going to be financed. The idea is that the seats in the new Yankees Stadium will be sold in advance to investors who will own them in perpetuity. Morgan Stanley and its partner, a start-up entity called Stadium Capital Financing Group, are hoping that their structure becomes the accepted way of privately-financing sports stadiums. They have even applied for a patent regarding the concept, which seems like a stretch. Here's how it would work:
Fans would buy seats for a designated period of time and finance them much like a mortgage. Pricing mechanisms can vary, but the most appealing option for buyers might be a 30-year loan with an annual payment equal to the current price of a season ticket. In exchange, the seat becomes real property, equivalent to, say, a condominium. The team (or university or other owner) receives the principal amount of the loan up front, to put toward construction costs. This arrangement is different from seat licensing, which gives the holder the right to buy a season ticket for a specific seat. . . . Under [the] system, people own seats, not shares of a team. Say, for instance, the current price of a season baseball ticket is $3,240. A 30-year loan at 6 percent interest with an annual payment of $3,240 results in a principal amount of $45,000. Even if the price of the seat doubles in the next 20 years, the seat owner still pays $3,240. Investors will have the option of making annual payments over 30 years, paying the entire amount up front, or something in between. Owners can also sell their seats at any time for market value, but rest assured—the team will get a cut of any profits.
At least one expert on financing stadiums, though, does not believe the financing technique will be all that earth shattering:
Roger Noll, a Stanford University economics professor who has written extensively about stadium financing, says that such an approach might make a dent in required public funding but will never replace it. Noll points out that most teams can't afford to sacrifice future revenues in order to pay for their ball fields. "At the end of the day, stadiums are not good investments," he says. "This isn't going to be a revolution."
H'mm, think this might work to defray the cost of this proposed boondoggle?
Posted by Tom at 4:15 AM |