Monday, August 31, 2009

The dilemma of classical music

Thanks to the urging of my daughters, I went to see Modest Mouse in Anaheim on Saturday. They were very good, and I had a lot of fun.

Two things I care about are demographics and music. The only genre music I don't like is country-western (although I like Willie Nelson). At Modest Mouse's show at the Grove of Anaheim, I was (I would guess) in the top decile of the age distribution. When I saw Jethro Tull at the Greek last year, I was about median. When I see the LA Phil (or any other symphony orchestra), I am in the bottom decile (or at least quintile). I worry about its audience dieing.

I am convinced that part of the problem is that when one goes to hear classical music, he is expected to keep a stick up his butt. Yet classical music is full of dances. Bach wrote loads of Gigues, Sarabandes and Courantes; Wagner called Beethoven's 7th "the apotheosis of the dance;" Stravinsky's music was commissioned by Diagolev.

So maybe classical music concerts need to change so that people can move while listening. But as Jan Swafford notes, part of what makes classical music great is silence. I don't know the answer.

How much revenue would scaling back the Mortgage Interest Deduction raise?

Less than static analysis would suggest. Even in the absence of the mortgage interest deduction, homeowners get a tax preference because imputed rent goes untaxed. If the MID were scaled back or eliminated, some households would sell assets with taxable returns to pay down their mortgages, thus reducing the net tax revenue arising from the policy change.

Jim Follain was the first (I think) to arrive at this insight, and Pat Hendershott and I found that people in Australia (where there is no MID) pay off their mortgages faster than Americans. The reduction in leverage is probably a good thing, and I know of no compelling argument for the mortgage interest deduction (it does almost nothing to encourage homeownership), but we should not delude ourselves into thinking that its elimination would produce a great revenue windfall.

From Ken Harney: Ideas to cut the federal deficit could cost homeowners billions --

Ideas to cut the federal deficit could cost homeowners billions --

Posted using ShareThis

This makes sense to me. Base broadening (particularly in a progressive manner) is better that rate raising. Those whose marginal tax rate is 15 percent of less would be basically held harmless.

Sunday, August 30, 2009

Housing inside the Beltway seems to be different

IAS 360 puts out data on house prices at the county level for 360 counties around the country. I am in the process of finding out more about how their data are put together, but one thing in their data really stood out for me: all but two places covered on their home page have seen house price declines since 2006.

Those two places are Will County, IL and the District of Columbia. House prices in DC are 30 percent higher, by the IAS 360 measure, than they were at the national peak in 2006. I find this plausible, because my GW colleague Paul Carrillo showed me hedonic regressions that demonstrated that prices in DC remained flat in 2008, while prices were falling rapidly elsewhere in the region.

Why is DC different? Part of it may be that transportation infrastructure within DC is pretty good (lots of public transportation and taxis), while in the suburbs, particularly the far flung ones, it is bad. Part of it is that its amenities continue to improve. I am sure it helps a lot that Michelle Rhee seems intent on making the schools better. But for it to be such an outlier? That is still a mystery.

Thursday, August 27, 2009

Should we be excited about the July new home sales number?

The short answer is no. The July number was the worst July number since 1982; it just wasn't as bad as the June number, which wasn't as bad as the May number.

Everybody wants to know if we have hit bottom. There are three indicators suggesting we have--and three suggesting not. The good: prices in many markets have fallen below replacement cost (which is a pretty robust fundamental in the absence of population declines). Morris Davis at Wisconsin has shown that rent to price ratios have returned to be more in line with long term ratios, and given how low mortgage rates are, this is comforting. And resale inventories in California have dropped to under 4 months.

On the down side, we may have a lot of foreclosed houses coming at us in the next year. The employment picture is still atrocious. And if rents keep falling, prices will follow.

I would also guess that the first-time homebuyer tax credit is time-shifting sales, rather than raising them for the long term, but we shall see. On the other hand, the nature of investor sales is actually a positive indicator: investors are buying with cash and renting out units at decent rates of return. This is very different from the borrow, buy and flip model from the earlier part of this decade.

FWIW, I would assign a subjective probability of .7 that we are at bottom. On the other hand, around 2005, I assigned a .35 probability that we were about to face serious trouble.

Monday, August 24, 2009

Maybe pigs can fly

If I am forced to bet on who is correct in an argument, and all that I know is that Paul Krugman is on one side of it, and Robert Samuelson is on the other, I will pick Krugman. I am guessing that the net expected value of an even money $1 bet would be something like $0.95.

I also happen to like trains. For the semester I commuted from Washington to Philadelphia, I was very grateful that I had Amtrak, for driving up I-95 several times a week would have been stressful. When I lived in Washington, Metro allowed me to keep my car at home on all but the rarest occasions. When I go to Atlanta, I use MARTA to get to downtown from the airport; when I go to San Francisco, I take BART, etc. I even try to take transit one day a week to get to work here in LA, because I feel that I should (although it takes a lot more time than driving).

All that said, I think Samuelson is correct that high-speed rail in the United States would a be wasteful expenditure. He makes the argument that because the US is less dense the Europe and Asia, rail makes less sense for intercity travel. I am sympathetic to this argument, as I have made it myself. Krugman replies that the Northeastern United States has density similar to Europe, and that Samuelson's comparison is therefore spurious. I noted this as well.

Krugman's argument has two problems. First, Obama's high speed rail plan includes several places outside of the Northeast, including the South, Texas, Chicago-St. Louis-Kansas City, where densities are considerably lower than in Europe, let along Asia. Second, even in the Northeast, cities are considerably less dense than in Europe. The graph below is from Alain Bertaud.

An advantage rail has over air in Europe is that large numbers of people live close to rail stations, while airports are generally on urban peripheries (lots more people live near the Gare de Lyon than Charles de Gaulle airport). No matter where a rail station is placed in an American city, it will be far from a lot of people, at which point the speed of an airplane overtakes the speed of a high-speed train, in terms of determining total trip length.

Finally, even taking external costs into account, air costs much less than rail in a place as dense as California. Let's turn it over to David Levinson, David Gillen, Adib Kanafani and Jean-Michel Mathieu from UC-Berkeley [correction--the paper was posted in a UC-Berkeley series. Levinson is from the University of Minnesota]:

The Full Cost of Intercity Transportation Page ES-1 This study evaluates
the full cost of three modes of intercity transportation: air, highway, and high
speed rail. The evaluation is done within the context of the California Corridor,
connecting the Los Angeles Basin and the San Francisco Bay Area. The purpose
of evaluating full cost is to compare the economic implications of investment in,
or expansion of, any of these three modes. The scope of the analysis is full
transportation cost. Full transportation costs includes external, or social cost,
in addition to the internal costs of construction, operation and maintenance. In
this study we include estimates of four types of external, social costs: accidents,
congestion, noise, and air pollution. The 677 kilometer corridor for which these
estimates are computed represents one of the alignments of a proposed high
speed rail system between Los Angeles and San Francisco. The methodology
used is to construct cost functions that relate costs to levels of output, as measured by passenger-kms. or vehicle-kms.

Different types of costs are estimated as permitted by available data. These include short run costs, in which the physical capacity is held fixed; and long run functions in which capacity is allowed to expand to meet higher levels of demand. Average and marginal costs are computed for highway and for air transportation. But given the absence of high speed rail systems in California only average costs are estimated. The highway and air cost models are developed from basic principles and are estimated
with actual data and system design characteristics observed in the California
corridor. Rail costs are estimated with models that have been adapted from
estimates for the French high speed rail system, the TGV, using available data
for their estimation. Based on the results summarized in Chapter 7 and shown
in Table 7.1, we find that the full cost of air transportation for the California
Corridor ($0.1315 per passenger-kilometer traveled (pkt)) is significantly less
costly than the other two modes. The full cost of high speed rail and highway
transportation cost approximately the same; rail costs $0.2350/pkt and highway
costs $0.2302/pkt. The internal, or private, monetary costs comprising
infrastructure, carrier, and vehicle operating costs are clearly highest for rail
($0.19/pkt), followed by air ($0.11/pkt) and then highway ($0.10/pkt). And as
is to be expected, user time costs are highest for the slowest mode, the highway
system, followed by rail and then air. Adding user travel time costs to the
monetary costs results in the total internal system costs per passenger-km. of
$0.124 for air; $0.233 for rail; and $0.198 for highway.

In other words, if we disregard external costs then we find that high speed rail is nearly twice as costly as air and that the highway is not far behind. However, if we look at social costs alone – congestion, air pollution, noise, and accidents – we find that high speed rail is clearly less costly than the other modes. In this research the only measurable social cost of high speed rail is that of noise, which at $0.002/pkt, is
significantly lower than that of air at $0.0043/pkt and highway at $0.0045/pkt.
Highway transportation, on the other hand, has a relatively high cost in terms
of air pollution and accidents, two externalities which are virtually absent in
high speed rail. In this study, we consider that the pollution resulting from the
electric power generation used to drive a train is to be allocated to the energy,
and not the transportation sector. Thus, any pollution externality associated
with high speed rail should be already internalized in a higher price for electricity.

Similarly, a 100% safe system, such as high speed rail, implies higher capital
costs due to construction of grade separations, more intelligent systems, etc...
Hence, the avoidance of accidents by high speed trains is not “free”. Therefore,
high speed rail, while more costly than highway transportation in terms of internal
costs, primarily due to its high capital cost, is significantly less costly than
highway in terms of social costs. This comparison is illustrated in the following
figure, where full costs are broken down into three categories: internal, travel
time, and external.

Note that the full cost of rail (.23/pkt) is considerably more than air (.13/pkt) even though any pollution created by trains is attributed to the power plant that provides the electricity, rather than the train itself.

A couple of other points. I have yet to meet a transportation economist (and I talk to a fair number) who is thrilled by high-speed rail as a technology. John Kain was among the most rigorous and influential transportation economist of the past 50 years, and he was very skeptical about rail. I also think that we yet again have evidence that we don't come even close to internalizing the social costs of automobiles, but I see no political will for really reducing our dependence on the auto, in part because most people love their cars (this is hardly unique to America). High speed rail also seems to me to be a way to redistribute income from lower income Americans to higher income Americans, because lower-income Americans will choose Southwest Airlines (which will be cheaper) when they need to travel from one city to another.

Finally, I see that when Ed Glaeser expressed skepticism about high speed rail, he was accused of being a "hack," so I guess I will join his company. But while Paul Krugman is indeed much smarter than Robert Samuelson, I would have a very hard time choosing (not that I would want to) between Glaeser and Krugman.

Saturday, August 22, 2009

How the world likely views arguments among academics

I am guessing that, to the extent that it cares, the broader world sees the current argument between Richard Posner, on one side, and Paul Krugman, Brad Delong, Mark Thoma and Menzie Chinn, on the other, as some sort of esoteric pissing contest. This is because all of these people are very smart and write very well.

The problem is that Posner is just plain wrong--I mean, he gets his arithmetic wrong in so many ways, it is breathtaking. For instance, he doesn't understand the difference between a quarterly growth rate and a quarterly annualized growth rate. This does not particularly surprise me--very good lawyers are often not good at math. One of my dearest friends is a brilliant lawyer (and political analyst), and he couldn't calculate a present value if his life depended on it. He was also amazed that one had to strip the casing off of speaker wire before one hooked up a stereo. The other thing about lawyers is they are not particularly good at admitting when they are wrong--their entire training teaches them not to do so (although the friend I just mentioned is endearingly modest).

In the current context, this is a problem, because Posner is hurling ad hominems [h/t to William Adelman for correcting the spelling] while not knowing what he is talking about.

Friday, August 21, 2009

Tonight on CBS

Watch CBS Videos Online

Naive question

When the economy settles down, why not return to the Clinton tax code? The economy did well, we had fiscal surplus, etc. Raising taxes on the top 5% is fine with me, but I don't think it is enough.

Just asking.

My all time favorite billboard

Mark Thoma has a post this morning on a silly billboard he saw while driving across Nevada.

The best billboard I ever saw was in northern Minnesota. I was driving down US 2, coming up on Grand Rapids, and saw a sign that read

Stop at the [restaurant name that I can't remember]

Why pay Duluth Prices?

It worked for me. I had the walleye pike dinner. It was something like $8 including the all you can eat salad bar. It was good, too.

The Problem with Condos

One interesting aspect of today's Existing Home Sales report is that while the inventory of single family homes is decreasing, the inventory of condos is increasing. This is consistent with past weak housing markets--the detached market tends to come back before the attached market.

One of the reasons for this may be that detached houses are in more desirable locations, and so when prices fall, people who could not afford houses in the single-family market before a price drop can do so afterward. But incomes are falling along with house prices now, so I am not sure that is the explanation.

Rather, it may be that people prefer detached houses because they afford a degree of control not present in the condo market. If you own your own house, and think it is time to repave the driveway, you can just do it. But when you are in a condo, you need to get your condo board to approve capital expenses-even when they are necessary. I have been at condo board meetings where people protested spending money to deal with curable depreciation (i.e., make capital expenses whose value is greater than cost). And so the entire complex deteriorates.

Dan Immergluck responds to Thomas Sugrue

In the Comments Section of the Wall Street Journal

I want to begin by pointing out that I respect Dr. Sugrue's work greatly and use it in my teaching.

However, I am afraid this piece is seriously misleading. While there is no doubt that federal policy -- especially the FHA, Fannie Mae and Freddie Mac , and the home interest deduction - led to overall increasing homeownership rates during the 20th century, the article provides much too much credence to the conservative canard that such programs (and policies like the Community Reinvesment Act) led to the mortgage and foreclosure crisis. These programs were generally consistent with stable, risk-limited homeownership for more than 60 years with relatively limited systemic problems. In fact the problems that did exist were usually in the form of discrimination and redlining (partly evidenced by Dr. Sugrue's Origins of the Urban Crisis book).

But the problems since the middle 1990s - including the current foreclosure crisis - were caused principally by deregulation that began in the 1980s and more recently. These led directly to high risk securitization and subprime lending typically through unregulated channels. Also, critically, there is ample evidence that loans encouraged (NOT compelled) by the Community Reinvestment Act (of 1977 NOT 1976) were NOT subprime loans and performed much better than subprime loans (see recent piece in the American Prospect by Ellen Seidman for a review of this evidence). Fannie Mae and Freddie Mac were major investors in subprime secruties (and should not have been allowed to be), but a relatively small fraction of their own lending activities were high risk and this activity lagged the major boom in high risk lending from 2003-2006.

Finally, comparisons to Europe are oversimplified and misleading. Most European countries have heavily subsdidized or social housing sectors where rental or cooperative forms of housing are state-supported. In the U.S., rental housing subsidy is extremely limited. Pulling back on homeownership subsidies ACCOMPANIED BY corresponding support for rental or coopeative housing would make sense BUT FOR two problems. One, it is very unlikely that Congress would provide such support. And two, local governments routinely zone out or limit rental or non-ownership housing making it difficult to provide in reality. These problems would need to be addressed to shift housing support to rental or cooperative housing. Otherwise, housing costs will rise, and those with modest incomes will be hurt most.

It is critical to get these issues right

It is also worth noting that for low income people, rental housing is more heavily subsidized than owner housing. I don't have a problem with this per se, but it hardly suggests that government resources have been poured into making low income people homeowners. Indeed, Fannie and Freddie's record for funding underserved borrowers was not particularly good, and the mortgage interest deduction is of little value to low income households, because they usually don't itemize, and even if they do, the marginal benefit of the deduction is quite small.

Finally, let's not be so eager to bash homeownership. Security of ternure does provide stability that can lead to good outcomes for families and neighborhoods. Even in the presence of controls, kids of owners do better than kids of renters, and owners are more likely to be civically engaged, almost certainly because they are equity holders in their communities. Amortizing mortgages, moreover, give people a default mechanism for saving. Richard Thaler has shown that such defaults are crucial for getting people to actually put away money and accumulate wealth. This might suggest that interest-only and option-ARM loans should be put to rest, but that is a separate issue from tenure per se.

Monday, August 17, 2009

Whence came unstable housing finance?

Over the weekend, Thomas Sugrue, a highly regarded history professor at Penn, wrote a piece in the Wall Street Journal that implied that we over-subsidize homeownership, and that government programs have produced instability in the housing market. I am not sure either is true.

With respect to homeownership, for those at the margin of owning, net subsidies may flow more to rental than owner housing. Section 8 vouchers support renting, not owning, and the mortgage interest deduction provides no benefit to those who don't itemize--i.e., low income households. It is well established that Fannie and Freddie do no better, and perhaps worse, than the private when it comes to providing first time homebuyer with mortgages. The government does encourage overconsumption of housing for high income households, but that is a different matter.

As for stability, well, as Professor Sugrue correctly points out, it was the housing market of the 1920s, which was financed in the absence of any public sector support, that helped produce the Great Depression. And the preponderance of unstable mortgages originated in this decade were originated by purely private players.

The problem with professors becoming presidents

A lot of what our job is about is understanding the point of view of others, even when we disagree with them. A lot of our job is explaining to students a wide variety of viewpoints, and allowing them to choose from among them.

I don't think FDR worried so much about the point of view of others--Doris Kearns Goodwin said he "gloried in his enemies."

FDR also largely got what he wanted.

Friday, August 14, 2009

Alle Menschen Mussen Sterben

It is disgraceful that opponents of health care reform are exploiting people's fear of the inevitable to undermine a really good idea: Medicare funding of end-of-life consultations.

We all will ultimately die, and I, for one, would like to do so as painlessly, and with as much dignity, as possible. Once I am irreversibly ill, I want neither ventilators nor feeding tubes to keep me alive, and I know enough to say so in an advance directive. Others should know they have the ability to say so too. For those who want the tubes, that is their business.

As for those who argue that government health care will incentivize euthanasia, well, the incentives are of course already there, because all seniors have government insurance.

In general, I detest ad homonym, and hope that I have pretty much kept it out of this blog. But Sarah Palin is just plain evil.

Lisa Schweitzer explains (one reason) why I love LA

She writes:

Last night we went to Dodgers stadium to watch the Dodgers, who lost to Atlanta. Now my friend Casey is a fan of the Braves, having grown up in Atlanta and all, and he is by far one of the most genial, gracious, and decent men I have ever met. However, this woman behind us was a Braves fan, and she was obnoxious. Fine, cheer on your team, but not if God gave you a voice that sounds like a constipated muppet. She was entertaining visitors from out of town, so she was explaining her views on living in Los Angeles. At one point, she said in a loud voice, “LA is ****hole. I can’t imagine staying here because it’s just so…Mexican.”

Hellloooooooo racism!

Now there are million things that I would change about Los Angeles. The rats. The air. The hockey team. We need Trader Joe’s south of the 10 and east of the Harbor. But I wouldn’t change a thing about the people who live here. Not a thing. If I could move wealth around, I would, because I have always been a pinko, but Los Angeles is real cosmopolitanism. We fail at it again and again, but it’s not like we’re a metro area with a few little safe ethnic enclaves mixed in a reassuring way so we can give lip service to cosmopolitanism. It’s a place where people of color outnumber white people but where power is still inverted. LA burns, regularly, both physically and ideologically, and because it burns it requires us to take a hard look at ourselves and how we treat each other. It is a significant place because of these realities.

I, for one, like having my dogs blessed by priests with all my Mexican, south, and central American neighbors and their dogs, some dressed in little sombreros. I like the beautiful girls clacking up Broadway in their heels, all of whom look like they just got done filming something for Univision. I like the handsome old gentlemen in cowboy hats and ostrich-skin cowboy boots who try, with courtly grace, to give me their seat on the subway. I like the little old ladies that sell coconuts and tamales on the street corners.

I can only hope that she will, in fact, go away and grace somewhere else with her retch-inspiring presence. I generally don’t tell people how wonderful Los Angeles/North Mexico City is because I’d rather that people just stay away and indulge whatever biases they have based on whatever Mike Davis book they’ve skimmed or tv show they watch. There are enough people here already; I’m never going to be able to afford a house as it is, and the water situation–egads. But you shouldn’t stay away because it is “too Mexican.” That’s one of the best things about this place, along with it being “too Black” and “too Thai” and “too Korean” and “too Ethiopian” and “too Indian” and “too gay.” Suckitup if you don’t like the Other because the Other is in your face here–and should be.

Thursday, August 13, 2009

I must pronounce more clearly

My kids are home from college for a little while. They both took their first econ classes last year.

One kid asks: can't production possibility frontiers have small regions that are not convex?

Answer: sure, but the relevant points would be the convex hull of the PPF.

Kid: how can a hole be convex?

Does Marginal Analysis Work for Health Care Policy?

In the debate over my post yesterday on physician qualifications, David Barker says:

We should continue to license doctors until we reach the point where the marginal benefit of additional medical care (assuming a negative relationship between quantity and quality) equals the benefit of no additional care at all.

But I am guessing there are some pretty big threshold effects--that there might be large discontinuities as one maps qualifications to outcomes. You really don't want a cardiologist who keeps just missing veins and you don't want an internist who can't quite get the drug interactions right (just as you don't want a 747 pilot who just misses the runway 1 percent of the time).

I think one of the ways economic analysis gets us into trouble is when we rely on continuousness in production and utility functions. Even worse is when we linearize around points--and that perform large comparative statics experiments based on that linearization.

Why don't we have cool trains all over the country like France and Japan?

The simple answer is density. Out of 192 countries, the US ranks 142 in population density, with 1/11 the density of Japan and a bit more than 1/4 the density of France. Germany and the UK are around 8 times denser. Our densest states, New Jersey and Rhode Island, are slightly denser than all of Japan--this explains why the Northeast Corridor is a reasonable place for rail.

The list below is inhabitants per square [mile] (source CIA Fact book). Thanks to Paul Romer for the correction.

1 Monaco 41,970.77
2 Singapore 16,540.43
3 Malta 3,266.17
4 Maldives 3,013.88
5 Bahrain 2,680.74
6 Bangladesh 2,595.74
7 Vatican City 2,090.91
8 Barbados 1,678.39
9 Nauru 1,609.49
10 Mauritius 1,562.37
11 Korea (South) 1,273.50
12 Philippines 758.50
12 San Marino 1,226.21
13 Tuvalu 1,159.52
14 Netherlands 1,023.34
15 Lebanon 952.82
16 Belgium 879.83
17 Japan 873.42
18 India 851.04
19 Marshall Islands 845.25
20 Rwanda 830.04
21 El Salvador 825.36
22 Comoros 801.11
23 Sri Lanka 792.07
24 Israel 782.72
25 St. Vincent & the Grenadines 782.32
26 Philippines 758.50
27 Haiti 758.01
28 Saint Lucia 699.21
29 Grenada 673.85
30 Vietnam 656.50
31 Jamaica 643.74
32 United Kingdom (UK) 639.42
33 Germany 597.99
34 Burundi 592.88
35 Trinidad & Tobago 549.82
36 Liechtenstein 545.84
37 Pakistan 523.26
38 Nepal 509.10
39 Italy 499.57
40 Korea (North) 492.30
41 Sao Tome & Principe 484.88
42 Dominican Republic 475.69
43 Switzerland 469.79
44 Luxembourg 469.32
45 Seychelles 462.16
46 Antigua & Barbuda 401.77
47 Micronesia 398.83
48 Andorra 390.44
49 Tonga 389.19
50 Saint Kitts & Nevis 386.61
51 Gambia 365.19
52 Nigeria 361.04
53 China 352.54
54 Guatemala 348.58
55 Moldova 340.97
56 Kuwait 339.46
57 Czech Republic 336.32
58 Thailand 329.77
59 Kiribati 329.26
60 Indonesia 326.51
61 Denmark 326.49
62 Albania 321.01
63 Poland 320.02
64 Uganda 299.22
65 Portugal 296.20
66 Slovakia 288.00
67 France 287.19
68 Hungary 278.59
69 Serbia & Montenegro 274.04
70 Cape Verde 268.57
71 Malawi 265.80
72 Cuba 265.09
73 Armenia 259.25
74 Togo 259.14
75 Syria 258.03
76 Slovenia 256.93
77 Austria 252.79
78 Romania 243.51
79 Dominica 237.12
80 Azerbaijan 236.63
81 Turkey 231.00
82 Ghana 227.46
83 Cyprus 218.43
84 Sierra Leone 217.25
85 Greece 209.42
86 Macedonia 209.11
87 Spain 206.99
88 Croatia 205.94
89 Bosnia & Herzegovina 203.92
90 Costa Rica 203.56
91 Ukraine 203.46
92 Egypt 200.45
93 Qatar 195.46
94 Cambodia 194.67
95 Morocco 189.81
96 Malaysia 188.14
97 East Timor 179.64
98 Swaziland 175.11
99 Bulgaria 173.98
100 Georgia 173.44
101 Benin 171.56
102 Ethopia 167.87
103 Brunei 167.16
104 Myanmar 163.80
105 Jordan 161.62
106 Honduras 161.17
107 Tunisia 159.49
108 Lesotho 159.30
109 Samoa 155.98
110 Uzbekistan 155.44
111 Iraq 154.51
112 Kenya 150.38
113 Ireland 147.99
114 Senegal 146.89
115 Lithuania 142.87
116 Mexico 139.45
117 Cote d'Ivoire 138.94
118 Burkina Faso 131.53
119 Tajikstan 129.65
120 Belarus 128.51
121 Fiji 126.65
122 Bhutan 123.01
123 Ecuador 122.06
124 Afghanistan 119.72
125 Palau 114.80
126 Nicaragua 109.31
127 Iran 106.90
128 Yemen 101.68
129 Guinea-Bissau 101.53
130 Tanzania 100.76
131 Panama 100.66
132 Guinea 99.74
133 Colombia 97.68
134 Eritrea 97.38
135 South Africa 94.15
136 Latvia 91.84
137 Cameroon 89.23
138 Zimbabwe 84.53
139 Liberia 80.98
140 United Arab Emirates 80.10
141 Madagascar 79.59
142 United States of America 79.55
143 Estonia 76.33
144 Venezuela 72.06
145 Laos 68.00
146 Kyrgyzstan 67.15
147 Congo (Dem. Rep. of ) 66.35
148 Mozambique 62.70
149 Brazil 56.63
150 Peru 56.28
151 Bahamas 56.07
152 Chile 54.68
153 Djibouti 53.68
154 Sweden 51.81
155 Uruguay 50.21
156 Equatorial Guinea 49.48
157 Solomon Islands 48.98
158 Vanuatu 43.69
159 Sudan 41.54
160 Paraguay 40.42
161 Finland 40.14
162 New Zealand 38.90
163 Zambia 38.76
164 Argentina 37.01
165 Norway 36.69
166 Oman 36.59
167 Algeria 35.38
168 Saudi Arabia 34.90
169 Somalia 34.90
170 Belize 31.52
171 Papua New Guinea 31.03
172 Turkmenistan 26.28
173 Mali 25.67
174 Niger 23.85
175 Angola 23.25
176 Congo (Rep.) 23.02
177 Russia 21.75
178 Bolivia 20.88
179 Chad 19.82
180 Central African Republic 15.80
181 Kazakhstan 14.47
182 Gabon 13.44
183 Guyana 9.00
184 Canada 9.00
185 Libya 8.00
186 Mauritania 8.00
187 Australia 7.00
188 Botswana 7.00
189 Iceland 7.00
190 Suriname 7.00
191 Namibia 6.00
192 Mongolia 5.00

Wednesday, August 12, 2009

How do they do it?

One of the things about my job that I really like is that I get to do public radio talk shows from time to time. I will never ceased to be amazed at how good the hosts of these programs are.

Kojo NNamdi at WAMU, Tom Clarke at WERN, Larry Mantel and Patt Morrison at KPCC and Kerri Miller at Minnesota Public Radio all ask good questions, and know how to run programs on controversial issues in a civil atmosphere. This is an exceedingly rare combination of talents; I wish they could find there way beyond the left side of the FM dial.

John Hempton on Fannie and Freddie's losses

I think he gets it right:

It is in the non-traditional guarantee business that Fannie Mae and Freddie Mac have reported the huge losses which leave them in such a precarious position. Some of those losses (particularly the losses on the hedging book caused by the conservatorship) will reverse. Some (end credit losses on junky subprime mortgage securities) will not.

That said – none of these loss categories is likely to expand in the future. If the GSEs wind up being a toxic mess for the government it won’t be on the losses already incurred – it will be on future losses.

All that butter...

...and all those Martinis, and yet Julia and Paul Child lived happily into their nineties. If only I could be sure that theirs was a median outcome.

Tuesday, August 11, 2009

What would be Manhattan be like without subways? (h/t Chris Bradford)

From frumination [Click on link to see cool map].

What's Capacity got to do with my City?

Recently given an advance copy of the official 2008 subway passenger counts, I found myself wondering -- what would it take in terms of auto facilities to replace the morning rush hour carrying capacity of the NYC subway?

This is an important question because the cost (be it financial, environmental, etc) of building, operating, and maintaining a transportation facility is generally determined by the maximum capacity it is expected to provide. To avoid ruining any surprises, all calculations here are derived from the publicly available 2007 Hub Bound Report, and implemented in this spreadsheet. The "hub" here is Manhattan below 60th Street -- New York City's official CBD.

Just to get warmed up, chew on this -- from 8:00AM to 8:59 AM on an average Fall day in 2007 the NYC Subway carried 388,802 passengers into the CBD on 370 trains over 22 tracks. In other words, a train carrying 1,050 people crossed into the CBD every 6 seconds. Breathtaking if you ask me.

Over this same period, the average number of passengers in a vehicle crossing any of the East River crossings was 1.20. This means that, lacking the subway, we would need to move 324,000 additional vehicles into the CBD (never mind where they would all park).

What does it take to move that many additional vehicles? Well, it depends. Different auto facilities in the city appear to have different capacities (as expressed in vehicles per hour per lane):
Facility Inbound Lanes Max Hourly Inbound Traffic Veh/Lane/Hr Lanes Needed
Queens Midtown Tunnel 2 3,882 1,941 167
FDR Drive 3 5,425 1,808 179
Brooklyn Battery Tunnel 2 3,017 1,509 215
Brooklyn Bridge 3 4,262 1,421 228
West Side Highway 4 4,825 1,206 269
2nd Ave 6 4,739 790 410
5th Avenue 5 1,712 342 946

At best, it would take 167 inbound lanes, or 84 copies of the Queens Midtown Tunnel, to carry what the NYC Subway carries over 22 inbound tracks through 12 tunnels and 2 (partial) bridges. At worst, 200 new copies of 5th Avenue. Somewhere in the middle would be 67 West Side Highways or 76 Brooklyn Bridges. And this neglects the Long Island Railroad, Metro North, NJ Transit, and PATH systems entirely.

Of course, at 325 square feet per parking space, all these cars would need over 3.8 square miles of space to park, about 3 times the size of Central Park. At that point, who would want to go to Manhattan anyway?

I would be curious about a similar analysis of Washington, D.C. would look like. Cost-benefit studies of DC Metro generally show that it is not worthwhile, but I always thought that DC would be a miserable place to live without it.

What is the optimal cartel for health care?

Many years ago, I was walking down the street with Pete Colwell, a professor for many years at Illinois and a delightful guy. He said that he looked forward to the day when doctors would peddle their wares on the street--he imagined ads that went something like, "I'll take your pulse for $5!"

Needless to say, Pete is a libertarian, and as such, resents the barriers to entry for becoming a physician. The conversation came to me this morning, because I asked my wife, who has been teaching at the USC Keck Medical School for about eight months now, how the medical students there were. Her answer: "they are very good. After all, they are medical students!"

And so it is that medical students in all US medical schools are very good--because it is hard to get into medical school. When I was the MBA Dean at GW, I did some research on admissions standards at various types of professional schools, and I found that for medical schools, they are extraordinarily rigorous. The typical med student went to a selective college and earned a 3.7 GPA in a science. To say this is rationing would be an understatement.

But is it a bad idea? Like most economists, I have an instinctive aversion to barriers to entry. But when a friend, a family member, or I see a doctor, I have to know that she is really good. The barriers to entry to becoming a physician may indeed be too high (maybe a 3.5 in the sciences should be good enough). But as consumers of health care, we are not in a position to make judgments about competence. I also really don't think we want to glean information about physicians via much larger variations in mortality and morbidity than we currently observe.

Friday, August 07, 2009

Will the Homeownership Rate fall to 63.5 Percent by 2020?

Arthur Nelson is quoted in yesterday's USA Today as saying the ownership rate will drop one-half percentage point per year until it reaches 63.5 percent. His foundation for this forecast is a paper he was good enough to send me--I would link to it but I can't find it on the Web.

It is certainly possible that the ownership rate would fall to its lowest level since 1985, but I am afraid I don't find Professor Nelson's argument to be convincing, because his paper contains no model. Rather, he puts together some survey results and short-term trends, expresses his long-held disdain for suburbs, and argues that 57 percent of housing units added to the stock between now and 2020 will be rental units. This would be a sea change, as there has not been a single year since 1973 where less than half of units built were single-family, and in many years, the single-family share exceeds 70 percent.

An appropriate model of tenure choice would statistically model the relationship between tenure choice and a variety of characteristics, including age, marital status, presence of children, race, residency status, education, income and the relative cost of owning versus renting. Here is what we know based on the econometric literature on tenure choice (none of which Nelson cites): old people are more likely to be homeowners; married couples are more likely to be homeowners, permanent residents are more likely to be homeowners, white people are more likely to be homeowners (even after controlling for other characteristics), and homeownership rises in income and education. We also know that when owning is a good deal relative to renting, people are more likely to buy.

So a paper that purports to forecast owning needs: (1) a well specified model; and (2) forecasts of variables that predict owning, including income and relative costs. I don't know what either income or relative costs are going to look like in 15 years, and neither does Professor Nelson.

BTW, FWIW, I will take the over on 63.5 percent.

Thursday, August 06, 2009

Dave Donaldson, the railroads of the British Raj, and infrastucture policy

He tests six propositions:

1. Inter-district price differences are equal to trade costs (in special cases): That is, if a com-
modity can be made in only one district (the ‘origin’) but is consumed in other districts (‘des-
tinations’), then that commodity’s origin-destination price difference is equal to its origin-
destination trade cost. I use this result to infer trade costs (which researchers never fully
observe) by exploiting widely-traded commodities that could only be made in one district.
Using inter-district price differentials, along with a graph theory algorithm embedded in a
non-linear least squares routine, I estimate the trade cost parameters governing traders’ en-
dogenous route decisions on a network of roads, rivers, coasts and railroads. This is a novel
method for inferring trade costs in networked settings. My resulting parameter estimates
reveal that railroads significantly reduced the cost of trading in India.

2. Bilateral trade flows take the ‘gravity equation’ form: That is, holding constant exporter- and
importer-specific effects, bilateral trade costs reduce bilateral trade flows. I find that railroad-
driven reductions in trade costs (estimated in Step 1) increase bilateral trade flows, and show
that the parameters estimated from the gravity equation identify my model.

3. Railroads reduce the responsiveness of prices to local productivity shocks: That is, a district’s
prices are less responsive to its own productivity shocks when it is connected to the railroad
network; however, a district’s prices are more responsive to any other district’s productivity
shocks when these two districts are connected by a railroad line. I find empirical support
for both of these predictions. Specifically, in a novel test for market integration, I find
that railroads caused a dramatic reduction in the responsiveness of prices to local rainfall
shocks, reducing responsiveness to almost zero (even when focusing purely on rainfall vari-
ation across crops, within a district and year). This implies that railroads brought India’s
district economies close to the small open economy limit where local conditions have no effect
on local prices. I also find that a district’s rainfall shocks affect prices in neighboring districts
to which it is connected by the railroad network (to a weak but statistically significant extent).

4. Railroads increase real income levels: That is, when a district is connected to the railroad
network its real income rises; however, improvements in the railroad network that by-pass
a district reduce the district’s real income (a negative spillover effect). Empirically, I find
that own-railroad access raises real income by 18 percent, but a neighbor’s access reduces
real income by 4 percent. However, these are reduced-form estimates that could be due to a
number of mechanisms. A key goal of Step 6 is to assess how much of the reduced-form effect of
railroads can be attributed to gains from trade due to the trade cost reductions found in Step 1.

5. Railroads decrease real income volatility: When a district is connected to the railroad network,
its real income is less responsive to stochastic productivity shocks in the district (which reduces
volatility). Empirically, I find that railroads reduced the responsiveness of real agricultural
income to local rainfall, which suggests a second welfare benefit of transportation infrastruc-
ture (in addition to that found in Step 4) that has not, to my knowledge, been demonstrated
empirically before. However, as with the results in Step 4, a number of mechanisms could
underpin this reduced-form result.

6. There exists a sufficient statistic for the welfare gains from railroads: That is, despite the com-
plexity of the model’s general equilibrium relationships, the impact of the railroad network on
welfare in a district is captured by one variable: the share of that district’s expenditure that
it sources from itself. A prediction similar to this appears in a wide range of trade models
but has not, to my knowledge, been tested before.3 I test this prediction by regressing real
income on this sufficient statistic (as calculated using the model estimated in Steps 1 and 2)
alongside the regressors from Steps 4 and 5 (which capture the reduced-form impact of rail-
roads).4 When I do this, the reduced-form coefficients on railroad access estimated in Steps
4 and 5 fall to a level that is close to zero. This finding provides support for prediction 6 of
the model and suggests that decreased trade costs account for virtually all of the real income
impacts of the Indian railroad network.

Beyond his findings, he uses clever empirical strategy to show that his results are not spurious. In particular, he tests his propositions for areas where railroads were planned put not executed, and finds that they do not get the perceived benefits of the railroads.

While the impact of infrastructure development in the US now would be less spectacular than railroad development in the Indian Raj, Donaldson's paper still has important implications, particularly about the development of freight transport systems and intermodal transportation. The paper is also a terrific read.

Wednesday, August 05, 2009

Would Brahms have gotten tenure?

The post below made me think about this question, because Brahms would only publish stuff that he thought was good. A lot of his work--which was doubtless superior by anyone else's standards--wound up in the ash can. We in academia like to say we care more about quality than quantity, but I am not sure whether this is really true.

Why not play the Brahms Serenades?

I am coming up on a year of residing in Los Angeles, and I believe I have determined by favorite thing about it: concerts at the Hollywood Bowl. Last night, the LA Phil played three Brahms pieces, and played them well. The oboe solo played by Ariana Ghenz at the beginning of the second movement of the Violin Concerto was especially lovely.

At the beginning of the concert, Leonard Statkin spoke. His appearance surprised me--I have always thought of him as a young conductor (he was when he began making recordings when I was in High School), and now he looks 65 because, well, he is 65. But he made an obvious yet generally unremarked upon point: Brahms only wrote 13 orchestral works in his life: four symphonies, four concertos, two overtures, the Haydn Variations, and two serenades. He also noted that the serenades are rarely played.

This is a shame, because the Brahms serenades are absolutely glorious pieces. The opening movement of the First is as fresh and joyful as anything written in the second half of the 19th century, and the Second is clever (in part because of its strange instrumentation) and tuneful. Haitink has done wonderful recordings of both: the first with the Concertgebouw and the second with the London Symphony.

Brahms didn't leave us with much (he burned a lot of stuff that didn't meet his own standards), but what he left was choice. We should hear at all on a regular basis.

An Admission (Officer's) Essay

USC has become a selective school, and so when parents find out that I teach here, they ask me the trick for getting their kids in. I tell them, "have your kid take hard classes and get good grades."

Anyway, such questions remind me of the following:

Kid comes into an admissions office, says, “I’ve got an act for you.” Admissions guy says, “What kind of act?” Kid says, “A family act.” “OK, how does it go?” Kid says, “High-school junior spends $4,000 on a Princeton Review class and SAT scores go up 120 points—now he figures he doesn’t have to go to Nos. 10–15 on the U.S. News list but can get into 1–10, so the mother takes a second job to pay off the Princeton Review and buys the Platinum Package from an independent college counselor for $30,000 so Junior can be advised about when to help his fellow man and how best to package the experience, and when to take power naps. Father, meanwhile, talks to the accountant, finds out that even a home-equity loan won’t bring enough cash to get the kid into the right summer program to help repair castles in Carcassonne as a community-service project, without which Junior won’t get into colleges 1–10, to say nothing of having the money to send the boy to Tibet to practice spinning prayer wheels as proof of his spirituality and concern for diversity and international harmony, and besides there is the tuition for sophomore daughter’s harp camp in Maine. So he decides to sell the car, which means mom and dad have to use the Metra to get the younger brother to his 2 a.m. hockey practice, which he’ll need if he wants to use the athletic hook to get into an Ivy or at least a Little Three, a trip that takes one parent away from Junior’s homework—the family has a pact that at least one parent will write at least one draft of each required paper due senior year, and Junior has carefully chosen the “most challenging” senior coursework—AP stats as his math, AP psych as his science, History of the Vietnam War as the social science, Literature of the Vietnam War as the English elective, and Reading a Balance Sheet as preparation for his college internship, which he means to be the culmination of his liberal-arts education.

Parents are working so many extra hours and spending so much time on the Metra train on the way to hockey practice that sister is ignored and stops practicing the harp, thereby settling for a future without a prestigious college education, hence, perdition, has herself heavily tattooed, drops out of the Key Club, joins a heavy-metal harp band, and spits venomously whenever Junior pulls out his SAT word list and adds another entry to his online collection of homonyms. Metra goes on strike, little brother can’t get to hockey practice, is kicked off the team, begins to think of a future at the community college or emigration to Germany where he can join an apprentice program for tool and die makers, and Mom and Dad begin to feel strains in the marriage but vow to stay together to see Junior through the second round of the SAT IIs, because they know that with support, and coaching, he will be able to get an 800 on the writing exam unless he is tempted to be either original or imaginative, which would result in a lower score and his having to settle for, heaven forbid, a state university, which means no job at Goldman Sachs, so why bother to go to college at all?

Father finds that he begins to daydream of the time when he carried Junior’s egg on his toes beneath a flap of his own skin during the long Antarctic winter and vows that the boy will never go to college in a windy and frigid Midwestern city where, if the egg drops, cracks will reveal the icicles that had been his not-yet fledgling son, and in his identification with the fragile frosty egg decides that we will only apply to Duke, Emory, UVA, and, of course, Dartmouth if we can get in—damn the cold, they are rated 7th in U.S. News. All the while, the mother swims under the ice eating enough chum to regurgitate meals for her newly hatched chick to make him strong enough for cross-country practice, which should look pretty good on the application despite the fact that his little webbed feet limit his speed, and he finds that flopping on his belly to slide along the ice doesn’t really improve his time. Family meets and decides to prune away younger brother and sister to help foster the blossom that they wish Junior actually had turned out to be, they sell the home and move to Kazakhstan, hoping that geographical diversity might work the trick at any, please, just any, top-ten college or university, and they are last seen deciding to which school they will apply Early Decision.”

The admissions guy looks at him and says, “Wow! That’s quite an act—what do you call it?”

“The Meritocrats.”

Tuesday, August 04, 2009

Mark Thoma on Moving and Economic Development

Around 18 months ago he wrote:

…I struggle with this one a little bit. Should we, as official policy, expect people to move when things get bad - to leave their family and friends, to move away from the place they grew up and put their kids into new schools - or should government try to find a way to attract new business and provide enough jobs for residents? The latter strategy isn't always feasible, sometimes changes are permanent and nothing can be done about that, and attracting business is difficult in any case. When it isn't feasible, when change that is out of their control forces people to uproot and relocate, shouldn't we do what we can to help with the transition?

But I'm not sure what role the government should play in these cases. The difficulty that comes from leaving a place where you've lived a long time isn't just from home ownership, though that certainly contributes, so simply promoting more renting or even making it easier to sell a home won't fully resolve this "stickiness". If we want to encourage faster adjustment, then to help ease the transition I'd certainly be in favor of generous tax advantages for middle and lower income households who are willing to relocate if we can structure the policies to avoid the distortions that tax breaks for relocating create (e.g., we don't want people moving just to get tax breaks).

But tax breaks aren't the only possibility. Many families won't even move across town while their kids are in school because even if they are willing to provide transportation, the kids cannot stay at the same school due to residency requirements. Reexaming rules such as these could help promote labor market flexibility without costing taxpayers much. The point is that we can do a lot more than we do now to facilitate the transition for families willing to relocate for economic reasons and hopefully, when the administration changes after the next election, domestic issues such as these will receive much more attention than they have in recent years.

Monday, August 03, 2009

The problem of Flint (and East St. Louis, and the Mississippi Delta...)

Yesterday, I watched four or five holes where Tiger Woods methodically held onto his lead in the Buick Open (I missed his daring miss and masterful up and down on the 13th). The coverage was elegiac, because this will probably be the last year for a PGA event that is either sponsored by Buick or held near Flint.

I found myself carried along by the mood, because Flint has so little now, and the place the tournament might be moving--the Greenbriar--is a place of plenty (although to be fair, it is in West Virginia). When not rooting for my own teams, I tend to root for those from places like Buffalo, Pittsburgh and Cleveland: places that have fallen on hard times and were once great centers of making things.

One wants to figure out policies that would help these places, but no one knows what they are. We do know that people-centered policies--such as access to education and health care--help people improve their lot in life. But I know of no example of a place-based economic development program that has been broadly successful. When neighborhood vitalization is attempted in one part of a metropolitan area, it usually simply chases problems to another part of the area. A series of works by Tim Bartik and Helen Ladd shows that place based economic development programs create very few jobs and are very expensive. So the solution to the problems of economically depressed regions would seem to be to educate the kids and train the adults so they can move to economically robust places. This is a view I have long taken myself. When I visited the Mississippi Delta some years ago in the course of doing a project for the Ford Foundation, I was shocked at the amount and level of poverty one could still see within the United States, and I wanted to tell every adult to move their kid to Atlanta or Nashville, where opportunities are much greater.

But people feel a passion for their places. The intensity of these feelings have struck me twice in the past month. When I visited Cleveland around a month ago, it was clear that people cared deeply about that struggling city. When I watched the Buick Open yesterday, there was something special about how much the gallery appreciated that Tiger would play in their tournament. While economists prefer for the best of reasons to be bloodless when thinking about urban policy, people have deep ties to family and friends in their communities, and these ties are important--often more important to them than economic opportunity. And so I struggle with the policy implication--should we require people to leave their nearest and dearest in order to have a decent job?

Perhaps there is no alternative. Certainly, schemes for economic revitalization have not generally been successful. But that doesn't mean we should stop searching for something that might be.