Economics

The Japanese Zoning System

by on August 19, 2016 at 12:04 pm in Economics, Law | Permalink

In Laissez-Faire in Tokyo Land Use I pointed to Japan’s constitutional protection of property rights and it’s relatively laissez-faire approach to land use to explain why housing prices in Japan have not risen in past decades, as they have elsewhere in the developed world. A very useful post at Urban kchoze offers more detail on Japan’s zoning system. Here are some of the key points.

Japan has 12 basic zones, far fewer than is typical in an American city. The zones can be ordered in terms of nuisance or potential externality from low-rise residential to high-rise residential to commercial zone on through to light industrial and industrial. But, and this is key, in the US zones tend to be exclusive but in Japan the zones limit the maximum nuisance in a zone. So, for example, a factory can’t be built in a residential neighborhood but housing can be built in a light industrial zone.

…[the] Japanese do not impose one or two exclusive uses for every zone. They tend to view things more as the maximum nuisance level to tolerate in each zone, but every use that is considered to be less of a nuisance is still allowed. So low-nuisance uses are allowed essentially everywhere. That means that almost all Japanese zones allow mixed use developments, which is far from true in North American zoning.

…[The] great rigidity in allowed uses per zone in North American zoning means that urban planing departments must really micromanage to the smallest detail everything to have a decent city. Because if they forget to zone for enough commercial zones or schools, people can’t simply build what is lacking, they’d need to change the zoning, and therefore confront the NIMBYs. And since urban planning departments, especially in small cities, are largely awful, a lot of needed uses are forgotten in neighborhoods, leading to them being built on the outskirts of the city, requiring car travel to get to them from residential areas.

Meanwhile, Japanese zoning gives much more flexibility to builders, private promoters but also school boards and the cities themselves. So the need for hyper-competent planning is much reduced, as Japanese planning departments can simply zone large higher-use zones in the center of neighborhoods, since the lower-uses are still allowed. If there is more land than needed for commercial uses in a commercial zone, for example, then you can still build residential uses there, until commercial promoters actually come to need the space and buy the buildings from current residents.

In addition, residential means residential without discrimination as to the type or form of resident:

…In Japan…residential is residential. If  a building is used to provide a place to live to people, it’s residential, that’s all. Whether it’s rented, owned, houses one or many households, it doesn’t matter.
This doesn’t mean that people can build 10-story apartment blocs in the middle of single-family houses (at least, not normally). As I mentioned, there are maximum ratios of building to land areas and FAR that restricts how high and how dense residential buildings may be. So in low-rise zones, these ratios mean that multifamily homes must also have only one to three stories, like the single-family homes around them. So in neighborhoods full of small single-family homes, you will often see small apartment buildings full of what we would call small studio apartments: one room with a toilet.>

In short, as the author concludes, Japan’s zoning laws are more rational, more efficient and fairer than those used in the United States.

More details in the post. Hat tip: Sandy Ikeda.

From Scott Sumner:

…what’s happened since 2009 involves not just one, but at least five new types of voodoo:

1. The claim that artificial attempts to force wages higher will boost employment, by boosting AD.

2. The claim that extended unemployment benefits—paying people not to work—will lead to more employment, by boosting AD.

3. The claim that more government spending can actually reduce the budget deficit, by boosting AD and growth. Note that in the simple Keynesian model, even with no crowding out, monetary offset, etc., this is impossible.

4. More aggregate demand will lead to higher productivity. In the old Keynesian model, more AD boosted growth by increasing employment, not productivity.

5. Fiscal stimulus can boost AD when not at the zero bound, because . . . ?

In all five cases there is almost no theoretical or empirical support for the new voodoo claims, and lots of evidence against. There were 5 attempts to push wages higher in the 1930s, and all 5 failed to spur recovery. Job creation sped up when the extended UI benefits ended at the beginning of 2014, contrary to the prediction of Keynesians. The austerity of 2013 failed to slow growth, contrary to the predictions of Keynesians. Britain had perhaps the biggest budget deficits of any major economy during the Great Recession, job growth has been robust, and yet productivity is now actually lower than in the 4th quarter of 2007.

There is more at the link. And here is Scott from the comments:

As I recall, productivity did well during the 1930s. Why? If falling AD hurts productivity, then shouldn’t productivity have done very poorly during the 1930s?

See also my earlier post “Not all complaints can be true at the same time.

My current pet peeve is advocacy of fiscal stimulus without even bothering to consider whether the economy might be at or very close to full employment, much less considering whether the stimulus will target unemployed resources.

We do in fact need a good aggregate demand-based macroeconomics; the topic is far too important to allow it to become so politicized.

The author is Nancy Tomes and the subtitle is How Madison Avenue and Modern Medicine Turned Patients into Consumers.  Here is one excerpt:

While unwilling to pass any kind of national insurance program, the U.S. Congress strove to advance the cause of “medical democracy” by other means.  Instead of guaranteeing a right to medical care, legislators voted to spend public funds on hospital construction and basic medical research as a means to yield more and better treatment.  To make that treatment affordable, the federal government looked to the private sector for help, using tax policy to encourage the growth of employee insurance plans.  In this fashion, postwar political and business leaders hoped to create a free enterprise alternative to “socialized” medicine.

The first step toward expansion came in 1946 when Congress passed the Hill-Burton Act, which funneled federal funds into hospital construction and expansion.  Over the next two decades, Hill-Burton funds would be used on almost 5,000 projects, many of them in rural areas that previously had had no hospitals.  The program proved very popular, giving local communities a new institution to be proud of while creating more “doctors’ workshops” for medical education and private practice.  At the same time, Congress vastly increased funding for medical research, from about $4 million in 1947 to $100 million by 1957.  Postwar political leaders found appealing the idea of tackling cancer, mental illness, and other dread diseases through “a medical research program equal to the Manhattan Project,” as the National Health Education Research Committee urged in 1958.  Taxpayer dollars helped to build up the National Institutes of Health (NIH) in Bethesda, Maryland, as the hub of what a later generation would christen the “medical-industrial complex”: a network of researchers located in American universities and scientific institutes whose careers depended on the generation of medical innovations.

I found this book extremely useful for understanding the evolution of American health care policy and institutions before 1965.

Nice

by on August 17, 2016 at 12:18 pm in Current Affairs, Economics, Political Science | Permalink

Accordingly, raising residential building requirements in high-amenity areas should cause those areas to move gradually to the left.

That is from Jason Sorens at Dartmouth, via the excellent Kevin Lewis.

That is one question I consider in my latest Bloomberg column, here is one excerpt:

Nima Sanandaji, a Swedish policy analyst and president of European Centre for Entrepreneurship and Policy Reform, has recently published a book called “Debunking Utopia: Exposing the Myth of Nordic Socialism.” And while the title may be overstated, his best facts and figures are persuasive.

For instance, Danish-Americans have a measured living standard about 55 percent higher than the Danes in Denmark. Swedish-Americans have a living standard 53 percent higher than the Swedes, and Finnish-Americans have a living standard 59 percent higher than those back in Finland. Only for Norway is the gap a small one, because of the extreme oil wealth of Norway, but even there the living standard of American Norwegians measures as 3 percent higher than in Norway. And that comparison is based on numbers from 2013, when the price of oil was higher, so probably that gap has widened.

Of the Nordic groups, Danish-Americans have the highest per capita income, clocking in at $70,925. That compares to an U.S. per capita income of $52,592, again the numbers being from 2013. Sanandaji also notes that Nordic-Americans have lower poverty rates and about half the unemployment rate of their relatives across the Atlantic.

It is difficult, after seeing those figures, to conclude that the U.S. ought to be copying the policies of the Nordic nations wholesale.

There is more to the piece, and I will note that I see a Land of Twitter where many Danes have read only that part of the piece.   I close with this:

How’s this for a simple rule: Open borders for the residents of any democratic country with more generous transfer payments than Uncle Sam’s.

Do read the whole thing.  You can buy the Sanandaji book here.

Here’s a post I wrote in 2009 (no indent) that I will update today:

In an interesting paper, Aghion, Algan, Cahuc and Shleifer show that regulation is greater in societies where people do not trust one another.  The graph below, for example, shows that societies with a greater level of distrust have stronger minimum wage laws.  Note that the result is not that distrust in markets is associated with stronger minimum wages but that distrust in general is associated with greater regulation of all kinds.  Distrust in government, for example, is positively correlated with regulation of business.  Or to put it the other way, trust in government (as well as other institutions) is associated with less regulation.

minwagedistrustrespectdistrustAghion et al. argue that the causality flows both ways on the regulation-distrust nexus. Distrust makes people turn to government but in a society with a lot of distrust government is often corrupt and this makes people distrust even more.  Crucially, when people distrust others they invest not in the highest return projects but in human and physical capital that is complementary to distrust–for example, they invest in human capital that helps them bond with their group/tribe/family rather than in human capital that helps them to bond with “outsiders” and they invest in physical capital that is more difficult to expropriate rather than in easier to expropriate capital, even though in both cases the latter investments may be the all-else-equal higher return investments.  Such distrust traps are quite similar to Bryan Caplan’s idea traps.

Thus, societies with a lot of distrust generate regulation and corruption and citizens who don’t have the skills or preferences to break out of the distrust equilibrium.  Consider, for example, that in societies with a lot of distrust parents are less likely to consider it important to teach their children about tolerance and respect for others.

The update should be obvious. More and more this appears to be describing the United States. More distrust in government, more regulation, lower growth and more people who are so distrustful of one another that they can’t cooperate to break out of the bad equilibrium. Here drawn from Our World in Data is interpersonal trust in the United States.

DistrustoverTime

Here is my Bloomberg column on the passing of the economic miracle, here is one excerpt:

Most of the world’s wealthiest and best-governed countries got there without super-rapid bursts of growth. Denmark, which has a per capita income of about $52,000 and is frequently ranked as one of the happiest countries in the world, never experienced what anyone would call an economic miracle. If you Google that phrase, the main entry will be a research piece detailing how, in the 1990s, the country lowered its unemployment rate without having to dismantle its welfare state.

Denmark’s overall economic record is gloriously boring. From 1890 to 1916, per capita growth averaged about 1.9 percent per year, and if in 1916 you had forecast that this pace would continue for another 100 years, you would have been off by only about $200. Denmark had positive growth about 84 percent of the time and no deep recessions, according to a recent study by Lant Pritchett and Lawrence Summers.

And this:

…the experience of Denmark and other “no drama” growth stories provides some clues to the future of developing economies. The East Asian growth model, for all its wonders, belongs to history. Slow and steady may be the only option left. For whatever reasons, few countries have been able to scale up their educational successes as rapidly as the East Asian tigers. Trade growth, which exceeded overall output growth in the late 20th century, now seems stagnant. Many export industries are automated and hence don’t create as many middle-class jobs as they used to.

In other words, today’s world may resemble the 19th century more than the last few decades.

Do read the whole thing.

From the comments

by on August 15, 2016 at 2:50 pm in Economics, History, Philosophy | Permalink

The authors of an article entitled “Mysticism in Literature” (by H.C. Gardiner and E. Larkin) were surprisingly dismissive of Blake, an “I-It” enthusiast (like Wordsworth and fantasy novel world-builders); apparently the real success in the “Mysticism in Literature” world is in the “I-Thou” (Carmelite poets, very generous people, that sort of thing) area. I have long thought that JM Keynes – whose General Theory is in places as well written as Finnegans Wake, as I once read somewhere on this blog – was to his brother Geoffrey (the Blake specialist) what the fictional Sherlock was to Mycroft; a very bright sibling but clearly the exponentially less capable of the two. Economics, though, is often just common sense reiterated and refined with the mistakes thrown out; it seems almost comical to associate something that takes such a long time with young students. I read my first economics book, with a banana-yellow cover, in high school (bought at a Waldenbooks at a Bay Area shopping mall, long vanished; at the same mall, I was in line behind a young woman, now in her 70s, who bought a cassette recording of Rachmaninoff’s 24 variations on a theme of some long-forgotten fiddler. I still remember the shy happy smile on her face – the money she spent must have meant something to her – and how well she was dressed, as if she believed one had to dress elegantly to buy a Rachmaninoff cassette. Writing a comment on this almost (or completely) male-only comment thread, all I can say is she was as likely to be right about the necessity of elegance as me, if not more so. If she is reading this, I don’t remember the town, but it was somewhere just north of Pleasanton).

It doesn’t matter what the post was, that is from another vote another time zone, if only E. Harding were so eloquent…

Japan’s central bank is set to become the top shareholder of 55 companies in the Nikkei

Here is more.

A lot of the women go away to study and don’t come back:

There are already 2,000 more men than women on the Faroes – which has a total population of just under 50,000 – and some of those men have taken matters into their own hands by importing wives and companions from the Philippines and Thailand.

Filipinos and Thais make up two of the largest groups of foreigners on the Faroe Islands . There are now 200 Thais and Filipinos – mostly women – spread out over the islands.

In the tiny hamlet of Klaksvík located in the northern part of the islands, there are already 15 women from Asia.

Bjarni Ziska Dahl, who married his Filipino wife in 2010, said that the foreign women could well be the answer to the issues facing the Faros.

“We must recognise that there is a problem, and welcome these strangers with dignity,” Dahl told DR Nyheder. “We need these people.”

Both Dahl and his wife Che said that they have a lot in common: island life, a dedication to family and a longing for simplicity. Dahl said that Asian woman are often willing to take jobs that Faroese women will not do.

Here is the full report, one Faorese woman does not like having to say hello to everyone she meets in the street there.  And this is not just a news story, the married and younger Asian women were one of the first things I noticed getting on the plane to Faroe.  (They looked not unhappy by the way.  The other thing I noticed right away was how many disparate groups on the flight seemed to know each other.  And that you have to be careful not to assume that people who look somewhat alike are brothers, or sisters, or parents and children.)

You might consider this a metaphor for some broader social trends around the world, albeit in this case unusually concentrated along the dimensions of geography and nation/territory.  Some women just don’t want to hang out with the guys — even the best guys — who are selling to a market of 50,000 people.  Other women are happy to move into that situation.  Solve for the equilibrium.

There is yet another paper on this topic, called Buffering Volatility: A Study on the Limits of Germany’s Energy Revolution, by Hans-Werner Sinn.  Here is the abstract:

Based on German hourly feed-in and consumption data for electric power, this paper studies the storage and buffering needs resulting from the volatility of wind and solar energy. It shows that joint buffers for wind and solar energy require less storage capacity than would be necessary to buffer wind or solar energy alone. The storage requirement of over 6,000 pumped storage plants, which is 183 times Germany’s current capacity, would nevertheless be huge. Taking the volatility of demand into account would further increase storage needs, and managing demand by way of peak-load pricing would only marginally reduce the storage capacity required. Thus, only a buffering strategy based on dual structures, i.e. conventional energy filling the gaps left in windless and dark periods, seems feasible. Green and fossil plants would then be complements, rather than substitutes, contrary to widespread assumptions. Unfortunately, however, this buffering strategy loses its effectiveness when wind and solar production overshoots electricity demand, which happens beyond coverage of about a third of aggregate electricity production. Voluminous, costly and inefficient storage devices will then be unavoidable. This will make it difficult for Germany to pursue its energy revolution beyond merely replacing nuclear fuel towards a territory where it can also crowd out fossil fuel.

Here is yet another NBER paper on this topic.  You may recall the recent JPE paper estimating that the costs of solar intermittency are higher than the costs of carbon.

Overall the message seems to be that not going nuclear was an even bigger mistake than we had been thinking.

*Common Sense Economics*

by on August 13, 2016 at 3:02 pm in Books, Economics, Education | Permalink

The third edition is now out, and the authors are James D. Gwartney, Richard L. Stroup, Dwight R. Lee, Tawni H. Ferrarini, and Joseph P. Calhoun.

Self-recommending, this is a very good introduction to economics for say a smart high school student who reads books.  Sadly, more and more politicians and indeed professional Ph.d. economists need this wisdom too.

Let’s say the private sector is using a hurdle rate of five percent and the government a rate of one percent.  (Those numbers are illustrative only.)

Furthermore say the private sector uses five percent because it faces private risk which is in fact not social risk from a welfarist point of view.  In other words, the private sector ought to use a one percent hurdle rate, even though it does not, but people worry about their own portfolios rather than the broader social portfolio of projects in toto.  If the private sector switched to the one percent rate, of course, it would invest much more and lower the marginal rate of return on capital from five percent down to one percent, adjusting for all the required adjustments (taxes, transactions costs, etc.).

In such a world, if a new government project displaced private capital, the opportunity cost would be one percent at the margin.

But we are not in such a world, even if you think we ought to be.  If a new government project displaces some private sector capital, the marginal cost there is still five percent.

You can read Brad DeLong’s take on my post yesterday on the opportunity cost of extra government projects.  Brad longs for that cross-sector equalization down to one percent on both sides of the ledger and he makes many fine points.  But there is nothing in his argument which rebuts, or even tries to rebut, the claim that, given current imperfections the marginal opportunity cost is still five percent.

So the message of my original post stands as well, and you will note that is simply the mainstream micro take on this question which has been around since the 1970s, with the commonly understood answers pretty much crystallized by the early 1980s.

Addendum: Here is me, from the comments: “It is amazing how much “free lunch” economics one can read in these comments. Of course we should in fact apply multiplier analysis to the percentage of previously unemployed resources targeted by the new project, and a higher hurdle rate to the rest. You can argue over what is the percentage mix here, but please don’t pretend scarcity is no longer a ruling economic principle.”

Singapore leads the way, offering three-quarters of a million U.S. dollars to gold-medal winners, followed by Indonesia ($383,000), Azerbaijan ($255,000), Kazakhstan ($230,000) and Italy ($185,000).

I would say Italy should not be on that list, as they have some fiscal troubles, plus plenty of other sources of national pride.  And there is this:

…other countries offer alternative bait — like military exemptions (South Korea), a lifetime supply of beer (Germany) and unlimited sausages (Belarus).

Here is the article, via James Crabtree.

It seems to be living near failure, not necessarily experiencing it yourself:

Yet a major new analysis from Gallup, based on 87,000 interviews the polling company conducted over the past year, suggests this narrative is not complete. According to this new analysis, those who view Trump favorably have not been disproportionately affected by foreign trade or immigration, compared to people with unfavorable views of the Republican presidential nominee. The results suggest that his supporters, on average, do not have lower incomes than other Americans, nor are they more likely to be unemployed.

Yet while Trump’s supporters might be comparatively well off themselves, they come from places where their neighbors endure other forms of hardship. In their communities, white residents are dying younger, and it is harder for young people who grow up poor to get ahead.

The Gallup analysis is the most comprehensive statistical profile of Trump’s supporters so far. Jonathan Rothwell, the economist at Gallup who conducted the analysis, sorted the respondents by their Zip code and then compared those findings with a host of other data from a variety of sources.

That is from Max Ehrenfreund and Jeff Guo at the always-excellent Wonkblog.  And there is this:

White households tend be more affluent than other households, and Trump’s supporters are overwhelmingly white. The same is true of Republicans in general. Yet when Rothwell focused only on white Republicans, he also found that demographically similar respondents who were more affluent viewed Trump more favorably.

These results suggest that personal finances cannot account alone for Trump’s appeal. His popularity with less educated men is probably due to some other trait that these supporters share.

Rothwell’s results also very much downplay the roles of trade and China, compared to some other estimates.  Here is a link to Rothwell summarizing some of these results, I am not sure if there is a link to the full study proper.