Alex Tabarrok

The slums are the only free market housing in Mumbai.

That’s me in the latest video from MRUniversity, an on-the-ground look at the consequences and political economy of rent controls and affordable housing in Mumbai, India. Rent controls have been in place for so long in Mumbai that buildings are literally collapsing. Moreover, the approval process is so slow that just about the only new housing being built is condos for the well-off while at the same time a large fraction of the housing stock lies vacant.

Reuben Abraham is very good on how government housing is captured by the rich and why any solution to the affordable housing problem must focus on increasing supply.

It’s interesting how similar land policy is around the world. In the United States today, we don’t have collapsing buildings like they do in Mumbai (see video above) but the fanatical fear of density and the slow approval process are the same. Berkeley Mayor Jesse Arreguín, for example, says a bill that would allow higher density construction near transit hubs and bus lines is “a declaration of war against our neighborhoods.” And a new report finds that in San Francisco:

in 2000, it cost approximately $265,000 per unit to
build a 100-unit affordable housing building for families in the city, accounting for inflation. In
2016, a similar sized family building cost closer to $425,000 per unit, not taking into account
other development costs (such as fees or the costs of capital) or changes in land values over this
time period.

Did you get that? Inflation adjusted construction costs have increased in San Francisco over the last 16 years by 60% not including changes in land values.

Interviews and focus groups identified four local drivers of
rising construction costs: city permitting processes, design and building code requirements,
workforce regulations and ordinances, procurement (small and local business) requirements,
and environmental regulations.

the most significant and pointless factor driving up construction costs was the length of time it takes
for a project to get through the city permitting and development processes.

Housing Hypergamy

by on January 23, 2018 at 12:11 pm in Economics, Science | Permalink

NYTimes: Thanks to the now-abandoned one-child policy, China has more young men than young women, setting off a male-led surge to buy homes to make themselves more appealing husbands. Shang-Jin Wei, a Columbia University business professor, found that rising real estate price increases in 35 big cities were strongly correlated with lopsided gender ratios.

CNN tells us that “When it comes to dating, homeownership can be the ultimate aphrodisiac,” so the effect may not be confined to China.

In the movies I’ve seen people who try to get out of a traffic ticket by telling the police officer they made a donation to the policeman’s ball, but those were comedies. I had no idea that not only does this exist there are official cards. In fact, the police in New York are livid that the number of cards is being limited:

The city’s police-officers union is cracking down on the number of “get out of jail free” courtesy cards distributed to cops to give to family and friends.

Patrolmen’s Benevolent Association boss Pat Lynch slashed the maximum number of cards that could be issued to current cops from 30 to 20, and to retirees from 20 to 10, sources told The Post.

The cards are often used to wiggle out of minor trouble such as speeding tickets, the theory being that presenting one suggests you know someone in the NYPD.

The rank and file is livid.

“They are treating active members like s–t, and retired members even worse than s–t,” griped an NYPD cop who retired on disability. “All the cops I spoke to were . . . very disappointed they couldn’t hand them out as Christmas gifts.”

A Christmas gift of institutionalized corruption.

Here’s another article on these cards which just gets all the more stunning.

First, there are tiers of cards. Silver cards are the highest honor given to citizens. It’s almost universally honored by officers, and can also help save money on insurance. Gold PBA cards are only given to police officers and their families. You’d be hard-pressed finding a cop who won’t honor a gold card.

Gold and silver cards! It gets better. You can buy these cards on eBay. Here’s a gold New Jersey card on sale for $114. A silver “family member” shield goes for $299. Some of these are probably fake. The gold and silver are rare but remember, cops get 20 to 30 regular cards so you can see why they might be upset at losing them.

The regular cards have become more common as NYC hires more police. The union may in fact be trying to bump up its monopoly profit by restricting supply.

The cards don’t just go to family members. The rot is deep:

Union officials say the cards are also public relations tools and tokens of appreciation handed out to politicians, judges, lawyers, businessmen, civil service workers and members of the news media.

A retired police officer on Quora explains how the privilege is enforced:

The officer who is presented with one of these cards will normally tell the violator to be more careful, give the card back, and send them on their way.

…The other option is potentially more perilous. The enforcement officer can issue the ticket or make the arrest in spite of the courtesy card. This is called “writing over the card.” There is a chance that the officer who issued the card will understand why the enforcement officer did what he did, and nothing will come of it. However, it is equally possible that the enforcement officer’s zeal will not be appreciated, and the enforcement officer will come to work one day to find his locker has been moved to the parking lot and filled with dog excrement.

He’s not kidding. Here is what seems like a real police officer on a cop chat room (from Mimesis law)

It’s important for me to get in touch with shield [omitted] and ask him why he felt it necessary to say “I’m not even going to look at that” to my PBA card and proceed [sic] to write a speeding ticket on the Bronx River Parkway yesterday afternoon to my fukking WIFE!!!!!!!!!!!!

I’ll show him the courtesy he so sorely lacks by not posting his name on a public forum.

Any help would be appreciated.  Please inbox me.

I will find you.

I find these cards especially odious as more and more police are funding themselves through fines and forfeitures. Discriminatory taxation increases the tax rate. It’s one rule for the ruler and another for the ruled.

The cards are not a secret but I agree with my colleague Mark Koyama who remarked:

Sometimes you find out something about the country you live in that makes it appear little better than a corrupt, tinpot, banana republic.

We have always known that trade and technology shocks destroy some jobs and create others with the change in equilibrium typically being zero net job losses and a net positive effect on wages. Increases in imports, for example, should be matched sooner or later by increases in exports as foreigners aren’t sending us goods for nothing. The China Shock paper of Autor, Dorn and Hanson seemed to suggest that the job losses were not matched by job gains. The paper’s clever identification strategy, however, was much stronger on identifying the losses than the offsetting gains (see e.g. Scott Sumner.)

New research by Feenstra, Ma and Xu and Feenstra and Sasahara (summarized here) shows, that as theory predicts, there were offsetting gains. Feenstra, Ma and Xu use similar techniques to ADH and find big offsetting increases in exports:

Our empirical results show important job gains due to US export expansion. We find that although imports from China reduce jobs, the global export expansion of US products creates a considerable number of jobs. Based on the industry-level estimation, our results show that on balance over the entire 1991-2007 or 1991-2011 periods, job gains due to changes in US global exports largely offset job losses due to China’s imports, resulting in about 300,000 to 400,000 job losses in net. Estimation at the commuting zone level generate even bigger job creation effects: in net, global export expansion substantially offsets the job losses due to imports from China, resulting in about 200,000 net job losses over the period 1991-2007, and a roughly balanced net effect if we extend the analysis to 1991-2011.

(Note that the net job loss figures are rounding error in an economy where there are millions of hires and separations every month).

Using a second, quite different, approach based on input-output calculations they find similar results in manufacturing but an even bigger effect on services:

We find that the growth in US exports created demand for 2 million manufacturing jobs, 500,000 resource-sector jobs, and a remarkable 4.1 million jobs in services, totalling 6.6 million. The positive job creation effect of exports in the manufacturing sector, 2 million, is quantitatively similar to the result in Feenstra et al. (2017), in which 1.9 million jobs were created by US exports from the instrumental-variable regression approach. On the import side, our analysis shows that manufacturing imports from China reduced demand for US jobs by 1.8-2.0 million, which is similar to the result in Autor et al. (2016), who finds a decline of 2.0 million jobs due to imports from China.

The authors conclude:

Our results fit the textbook story that job opportunities in exports make up for jobs lost in import-competing industries, or nearly so. Once we consider the export side, the negative employment effect of trade is much smaller than is implied in the previous literature. Although our analysis finds net job losses in the manufacturing sector for the US, there are remarkable job gains in services, suggesting that international trade has an impact on the labour market according to comparative advantage. The US has comparative advantages in services, so that overall trade led to higher employment through the increased demand for service jobs.

Why do governments sometimes engage in mass killings? Mass killings could help governments to suppress the opposition–that seems obvious–but it’s also true that mass killings can create blowback and further stiffen the opposition’s resolve. Uzonyi and Hanania offer a simple theory and some clarification:

We argue that government mass killing during war reduces opportunities for the opposition to return to military conflict in the future. This allows for longer periods of post-conflict peace. However, government atrocities that begin after the end of a civil war create new grievances without diminishing the ability of opponents to fight. This makes a faster return to conflict more likely. Statistical analysis of all civil wars between 1946 and 2006 strongly supports our arguments, even when we account for selection effects regarding when governments are more likely to engage in mass killing. These results reveal that both during-war and post-war tactics influence civil war recurrence, but that the same tactic can produce different effects depending on the timing of its use.

Essentially the authors are arguing that civil wars sometimes end when one side decisively wins. Not surprising but how about this for an uncomfortable thought:

We stress that mass killing is a grizzly and morally appalling
tactic. But it does appear to keep a country at peace for a
longer duration once a conflict ends. If the international
community disrupts these effects of mass killing, it may be
inadvertently increasing the likelihood that civil war will recur. Thus, if the international community chooses to intervene in conflicts to protect civilians, member states must also
be willing to remain in the country over the long term to
help the government and opposition groups refrain from returning to war. Unfortunately, few states have demonstrated
an appetite for such long-term commitments
.

The United States has been called the OPEC of blood plasma because it exports hundreds of millions of dollars worth to other countries. Why does the US dominate the blood plasma industry? Because in the U.S. it’s legal to pay donors which increases supply. Some provinces in Canada have also allowed paid donors but 80% of the blood plasma given to Canadians is imported from the United States and, to make matters worse, some provinces have banned or are considering banning paid donation. A very good letter opposes the ban:

We are professional ethicists in the fields of medical ethics, business ethics, and/or normative ethics, and academic economists who study how incentives and other mechanisms affect individual behaviour. We all share the goal of improving social welfare.

We have strong reservations regarding any Act or legislation (hereafter: “Acts”) that would prohibit compensation for blood plasma donations…….Both the ethical and the economic arguments against a compensatory model for blood plasma for further manufacture into PDMPs are weak. Moreover, significant ethical considerations speak in favour of the compensatory model, and therefore against the Acts.

The letter carefully discusses many of the objections such as that paid donations will drive out unpaid:

The compensatory model leaves open the possibility of donors’ opting out of compensation, or the operation of a parallel non-compensatory model. The United States does just this, and has an approximately 50% higher voluntary, unpaid, per capita blood donation rate than Canada. Germany, Austria, and the Czech Republic, where plasma donors can be compensated, likewise all have higher rates of voluntary, unpaid per capita blood donation than Canada.

Is paid blood plasma less safe?

Dr. Graham Sher, the CEO of Canadian Blood Services, has said, “It is categorically untrue to say, in 2015 or 2016, that plasma-protein products from paid donors are less safe or unsafe. They are not. They are as safe as the products that are manufactured from our unremunerated or unpaid donors.”

The letter is signed by two Nobel Prize winners in economics, Alvin Roth and Vernon Smith, by philosophers like Peter Jaworski, who did most of the heavy lifting, and by experts who have studied incentives and blood donation closely like Nicola Lacetera and Mario Macis. I am also a signatory.

Modern Principles, 4th ed!

by on January 16, 2018 at 7:25 am in Books, Economics, Education | Permalink

Tyler and I are thrilled to announce the release of the 4th edition of our principles of economics textbook, Modern Principles. In the new edition we have fully integrated the microeconomics and macroeconomics videos that we have been producing for MRUniversity. No other textbook has anything like this wealth of supplementary material–putting it all together makes Modern Principles a new kind of textbook. We have also added a lot of new questions, Ask FRED questions, that use data from the FRED database, more material on health and economic welfare, more material on financial crises and fires sales and much more.

No other textbook has our super simple Solow model which for the first time makes the Solow model accessible to principles students. Modern Principles also has a balanced treatment of Keynesian and Real Business Cycle models, lots of material on modern topics like price discrimination including bundling and tying, a chapter on managing incentives (piece rates, salaries, tournaments) that’s great for MBA students and of course the best guide to understanding the marvels of the price system.

Check out the video!

Crime Imprisons and Kills

by on January 15, 2018 at 7:26 am in Economics, Law, Medicine | Permalink

…the most disadvantaged people have gained the most from the reduction in violent crime.

Though homicide is not a common cause of death for most of the United States population, for African-American men between the ages of 15 and 34 it is the leading cause, which means that any change in the homicide rate has a disproportionate impact on them. The sociologist Michael Friedson and I calculated what the life expectancy would be today for blacks and whites had the homicide rate never shifted from its level in 1991. We found that the national decline in the homicide rate since then has increased the life expectancy of black men by roughly nine months.

…The everyday lived experience of urban poverty has also been transformed. Analyzing rates of violent victimization over time, I found that the poorest Americans today are victimized at about the same rate as the richest Americans were at the start of the 1990s. That means that a poor, unemployed city resident walking the streets of an average city today has about the same chance of being robbed, beaten up, stabbed or shot as a well-off urbanite in 1993. Living in poverty used to mean living with the constant threat of violence. In most of the country, that is no longer true.

That’s Patrick Sharkey writing in the New York Times.

More police on the street is one cause, among many, of lower crime. It’s important in the debate over better policing that we not lose sight of the value of policing. Given the benefits of reduced crime and the cost of police, it’s clear that U.S. cities are under policed (e.g. here and here). We need better policing–including changes in laws–so that we can all be comfortable with more policing.

I, Pencil Revisited

by on January 14, 2018 at 12:10 pm in Economics, The Arts | Permalink

Leonard Read’s essay I, Pencil showed how even simple objects like a pencil were produced only through the cooperation and coordination of many thousands of people all over the world who often knew neither one another nor even what their actions ultimately produced. Milton Friedman made the pencil metaphor famous in Free To Choose when he said that “There’s not a single person in the world who could make this pencil.” Tyler and I illustrate the same idea with a romantic twist in our I, Rose video.

The NYTimes doesn’t seem aware of the history but, as if guided by an invisible hand, has a lovingly produced series of photos from a pencil factory showing that even the proximate steps are charmingly esoteric.

Scott Alexander at SlateStarCodex riffs off my post on how we laugh at Oregonians afraid to pump their own gas while not looking at our own absurd restrictions on cutting hair, for example, and adds a few of his own:

There are way too many discrepancies in approved medications between countries to discuss every one of them, but did you know melatonin is banned in most of Europe? (Europeans: did you know melatonin is sold like candy in the United States?) Did you know most European countries have no such thing as “medical school”, but just have college students major in medicine, and then become doctors once they graduate from college? (Europeans: did you know Americans have to major in some random subject in college, and then go to a separate place called “medical school” for four years to even start learning medicine?) Did you know that in Puerto Rico, you can just walk into a pharmacy and get any non-scheduled drug you want without a doctor’s prescription? (source: my father; I have never heard anyone else talk about this, and nobody else even seems to think it is interesting enough to be worth noting).

Scott then strikes at the heart of the issue:

So maybe the scary thing about Oregon is how strongly we rely on intuitions about absurdity. If something doesn’t immediately strike us as absurd, then we have to go through the same plodding motions of debate that we do with everything else – and over short time scales, debate is interminable and doesn’t work. Having a notion strike us as absurd short-circuits that and gets the job done – but the Oregon/everyone-else divide shows that intuitions about absurdity are artificial and don’t even survive state borders, let alone genuinely different cultures and value systems.

This is part of what I meant by collective action kills innovation. I wasn’t saying that DARPA can’t work but rather that by subjecting everything to collective action we subject it to debate. discussion and legislation and that slows down innovation, in part because our notions of what is normal are so time and culture bound.

Dolphin Capital Theory

by on January 10, 2018 at 7:27 am in Economics, Science | Permalink

The Guardian…Kelly the dolphin has built up quite a reputation. All the dolphins at the institute are trained to hold onto any litter that falls into their pools until they see a trainer, when they can trade the litter for fish. In this way, the dolphins help to keep their pools clean.

Kelly has taken this task one step further. When people drop paper into the water she hides it under a rock at the bottom of the pool. The next time a trainer passes, she goes down to the rock and tears off a piece of paper to give to the trainer. After a fish reward, she goes back down, tears off another piece of paper, gets another fish, and so on.

…Her cunning has not stopped there. One day, when a gull flew into her pool, she grabbed it, waited for the trainers and then gave it to them. It was a large bird and so the trainers gave her lots of fish. This seemed to give Kelly a new idea. The next time she was fed, instead of eating the last fish, she took it to the bottom of the pool and hid it under the rock where she had been hiding the paper. When no trainers were present, she brought the fish to the surface and used it to lure the gulls, which she would catch to get even more fish. After mastering this lucrative strategy, she taught her calf, who taught other calves, and so gull-baiting has become a hot game among the dolphins.

The dolphins are not only gaming the system they are saving and using a capital structure to increase total output.

The more we learn, the smaller appears the gap between humans and other animals. Over twenty years ago, I read When Elephants Weep: The Emotional Lives of Animals. I was convinced. But at that time it was a controversial book. Today, with thousands of youtube videos of animals clearly having fun or exhibiting other emotions, it seems obvious.

Animal consciousness is still controversial but the gap between other minds and other non-human minds appears to me to be very small. If I can believe in the first, I can easily believe in the second. As the Cambridge Declaration put it:

Convergent evidence indicates that non-human animals have the neuroanatomical, neurochemical, and neurophysiological substrates of conscious states along with the capacity to exhibit intentional behaviors. Consequently, the weight of evidence indicates that humans are not unique in possessing the neurological substrates that generate consciousness. Nonhuman animals, including all mammals and birds, and many other creatures, including octopuses, also possess these neurological substrates.

Oregon has just passed a law that gives gas stations in rural counties the option of allowing self-pumping (in some rural counties this is allowed only between 6 p.m. and 6 a.m.!) As you have probably heard, this incomplete lifting of an absurd restriction has some Oregonians upset and afraid.

“I don’t even know HOW to pump gas and I am 62, native Oregonian . . . I say NO THANKS! I don’t like to smell like gasoline!” one woman wrote.

“No! Disabled, seniors, people with young children in the car need help. Not to mention getting out of your car with transients around and not feeling safe. This is a very bad idea. Grrr,” another woman wrote.

“I’ve lived in this state all my life and I REFUSE to pump my own gas . . . This [is] a service only qualified people should perform. I will literally park at the pump and wait until someone pumps my gas.”

Most of the rest of the America–where people pump their own gas everyday without a second thought–is having a good laugh at Oregon’s expense. But I am not here to laugh because in every state but one where you can pump your own gas you can’t open a barbershop without a license. A license to cut hair! Ridiculous. I hope people in Alabama are laughing at the rest of America. Or how about a license to be a manicurist? Go ahead Connecticut, laugh at the other states while you get your nails done. Buy contact lens without a prescription? You have the right to smirk British Columbia!

All of the Oregonian complaints about non-professionals pumping gas–“only qualified people should perform this service”, “it’s dangerous” and “what about the jobs”–are familiar from every other state, only applied to different services.

Once we got familiar with self-pumping it didn’t seem like a problem, but it’s surprising we ever got self-pumping as it would have been easy to scare people into voting no. After all, the case for trained gas pumpers is far stronger than for licensed barbers. Perhaps we were less risk averse and complacent in the past. I don’t think we could build the Hoover Dam today either.

It’s easier to scare than to inform and we fear losses more than we desire gains so collective decision-making defaults toward stasis.

We have innovations like Uber and Airbnb and many others only because entrepreneurs didn’t have to ask for permission. Had we put these ideas to the vote they would have been defeated. Allow almost anyone with a car to drive customers around town? Stranger danger! Let any house be turned into a hotel? Not in my neighborhood! Once the innovations were brought into existence, the masses saw the benefits but they would not have seen those benefits if the idea had been put to a vote. Demonstration is more powerful than imagination.

More and more, however, the sphere of individual action shrinks and that of collective action grows. Thus, I do not laugh at the Oregonians and their fear of gas pumping freedom. We are all Oregonians in one form or another.

A person on Quora asks Should you accept an offer of either tea or coffee in a serious meeting or a job interview?. Most say yes. I say no. Here’s my answer:

As an encyclopedia salesperson, (yes—a long time ago), I was taught that you should decline an offer of coffee. Here’s why. Suppose you spend 20 minutes talking with someone about encyclopedias. At the end of your pitch, you have given them your time and wisdom and people feel a need to reciprocate—they feel a little bit guilty that if they don’t buy, your time was wasted—so the need to reciprocate inclines them towards buying. But, if they have given you coffee, then there was an exchange, a quid pro quo, your time for their coffee, and since an exchange was made and your time wasn’t wasted they feel less need to buy.

Most Popular MR Posts of 2017

by on December 29, 2017 at 7:25 am in Current Affairs | Permalink

The most popular post on MR for 2017 was my post, Switzerland is Prepared for Civilizational Collapse. Who can tell what will go viral? I suppose people are thinking a lot about civilizational collapse in recent times.

Next was Tyler’s post on Richard Thaler’s Nobel Prize.

There’s a lot of interest in Tyler’s religious beliefs as What is the Strongest Argument for the Existence of God? and Why I Don’t Believe in God were both widely read and commented upon.

Next came a bunch of econ posts from both Tyler and myself including:

Not surprisingly politics was also popular, including Tyler’s The Show so Far and Who Should be Shamed? and my post Authoritarians Distract Rather than Debate.

Overall, what strikes me is how normal 2017 seems. Compare with last year’s top posts, which are crazy. I don’t think 2017 was any less crazy than 2016 but–god help us–crazy has become normal.