Month: July 2009

High-speed rail in Texas?

I have never blogged high-speed rail issues because I don't (yet?) have a point of view on them.  I can see the benefits from subsidizing metro systems and buses.  I don't know whether most of the planned subsidies to high speed rail will pay off.

Ed Glaeser, in a recent Op-Ed, criticized high speed rail for Texas.  On this issue, Ryan Avent gets upset at Glaeser:

Of course, Texas has four of the nation's fastest growing
metropolitan areas, all within a few hundred miles of each other — an
ideal distance for high-speed rail. Austin, Dallas, Houston, and San
Antonio are currently home to some 16 million people, and those
metropolitan areas have added 3 million people since 2000 alone.
Congestion is an issue within those metropolitan areas and will continue to worsen as they grow.

only is it entirely appropriate to build transportation infrastructure
with future growth in mind, it's imperative. America's current
sprawling growth pattern resulted in no small part from the mass
construction of interstates and highways, which drew suburbanites to
previously unsettled areas.

Moreover, Texan metropolitan
areas are working to accommodate future growth in a denser fashion by
building miles of metropolitan transit systems. Transit and rail are
complementary technologies, each of which will increase the return on
investment of the other.

My question is simple: how could you take rail from Dallas to Houston and cope once you got there?  San Antonio I can see, at least provided you will camp out in city center (a mistake, but that's a question for a different day).  I am willing to be converted, but what are the odds of such a line attracting significant patronage, with or without ongoing subsidy to the fares and not just to line construction?  Or is the vision that everyone takes the train and then rents a car on arrival?  According to Matt Yglesias, the plan won't even directly link Houston to Dallas.  By the way, here are some of the other planned links from Texas.  Will people really take trains from Houston to Meridien, Mississippi

Inquiring minds wish to know.

*Realizing Freedom*

That's the title of the new Tom Palmer book and the subtitle is apt: Libertarian Theory, History, and Practice.  It delivers what it promises plus the very short essays (Iraq, gay pride in Moscow) are quite interesting.  I view this book as defining one of the main threads in modern libertarian thought:

1. Cato-influenced (for lack of a better word).  There is an orthodox reading of what "being libertarian" means, defined by the troika of free markets, non-interventionism, and civil liberties.  It is based on individual rights but does not insist on anarchism.  A ruling principle is that libertarians should not endorse state interventions.  I read Palmer's book as belonging to this tradition, broadly speaking.

2. Rothbardian anarchism.  Free-market protection agencies will replace government-as-we-know-it.  War is evil and the problems of anarchy pale in comparison.  David Friedman offered a more utilitarian-sounding version of this approach, shorn of Misesian influence.

3. Mises Institute nationalism.  Gold standard, a priori reasoning, monetary apocalypse, and suspicious of immigration because maybe private landowners would not have let those people into their living rooms.

4. Jeff Friedman and Critical Review: Everything is up for grabs, let's be consequentialists and focus on the welfare state because that's where the action is.  Marx is dead.  The case for some version of libertarianism ultimately rests upon voter ignorance and, dare I say it, voter irrationality.

5. "Hayek libertarianism."  All or most of the great libertarian thinkers are ultimately compatible with each other and we have a big tent of all sorts of classical liberal ideas.  Hayek and Friedman are the chosen "public faces" of this approach.  "There's a classical liberal tradition and classical liberal values and we can be fuzzy on a lot of other things."

What am I leaving out?  And which will win out as the dominant strand?

The eloquent Craig Garthwaite

He emails me:

There is also a broader point that I have always wondered when people cite the low administrative costs of Medicare.  At least a portion of it has to come from the fact that they cover everything with little dispute.  In addition, Medicare is also approaching fiscal insolvency.  These are not two unrelated points, and therefore I wonder if perhaps Medicare might want to spend a little bit more on administrative costs?

Addendum: More from Megan McArdle.

Matt Yglesias reviews *Create Your Own Economy*

The review is here, excerpt:

It’s a bit hard to do the book justice because the subject matter is so unorthodox. So I’ll put it this way instead. I first cracked the book one afternoon intending to read for about ninety minutes and then go get on my bike and meet someone. While reading, I decided to change plans and take the bus instead so as to create more time (both coming and going) when I could read more Create Your Own Economy. There’s no real discussion of policy issues here, but you do get a fascinating analysis of Sherlock Holmes.

You can buy the book here.

Administrative Costs

In the latest debate: Paul Krugman attacks Greg Mankiw for linking to a study by Robert Book arguing that administrative costs under Medicare are not as low as many people think.  Book defends against Krugman's attack here.  I find the debate peculiar for a number of reasons:

1)  Picking out one measure of health care "costs" to compare systems is sadly reminiscent of the arguments for socialism.  Do you remember those arguments?  Under socialism:

  • "Think of how much money we will save on advertising!"

  • "Socialism will lower costs by maximizing economies of scale!" 

  • "Money will be used for production not profits!"

Exactly these arguments are regularly trotted out in the debate over administrative costs in health care so color me unimpressed.  To be clear, the point is not that these statements are false – the point is that these premises to the argument are all in some sense true it's just the conclusion, socialism is more efficient than capitalism, which turned out to be false.  We tried that and it didn't work. In other words, you have to compare systems not arbitrarily pick out for comparison one type of costs.

2)  Closely related to this point is the bizarre habit of taking about costs without mentioning benefits.  The implicit argument appears to be that administrative costs are simply waste – this is the ancient cutting out the middleman fallacy.  Administrative benefits, for example, reduce fraud and are a necessary consequence of making it easy for patients to get second and third opinions from different doctors.

3)  Even if we could switch from a private to a public system and save administrative costs, the deadweight costs of taxation will far exceed any reasonable savings.

4)  Any savings on administrative costs is a one-time level effect but the real issue with health care costs is growth as a share of GDP.  (By the way, this same point explains why the debate over whether the public plan will discipline private monopolies is not especially important, monopoly–even if it is a  problem–could at best explain a level effect not a growth effect which is where the action is.)

5)  I'm not surprised that administrative costs under Medicare and under Canada's system suggest some potential cost reductions from moving to a single-payer system–again, Lada did save on marketing expenses–but it's a complete blunder to use Medicare administrative costs as an argument in favor of a "public option."  The whole point of the public option, so we are told, is to compete on a level footing with private plans which means marketing expenses and all the rest.     

Addendum: n.b. this post is about administrative costs not other reasons for preferring one system to another.  See also Tyler on administrative costs further below.

Symposium on Paul Collier

You will find a Collier essay on democracy and development along with numerous comments, including from Bill Easterly and Nancy Birdsall, all courtesy of Boston Review.

Easterly is not happy:

I have been troubled by Paul Collier’s research and policy advocacy for
some time. In this essay he goes even further in directions I argued
were dangerous in his previous work. Collier wants to de facto
recolonize the “bottom billion,” and he justifies his position with
research that is based on one logical fallacy, one mistaken assumption,
and a multitude of fatally flawed statistical exercises.

Nancy Birdsall suggests that donors support more investment in policing.  She also notes:

The economy of sub-Saharan Africa–including Nigeria and South Africa–is smaller than the economy of New York City.

There is much more at the link.

Administrative costs, a simple point or two

Andrew Gelman serves up some links.  Mankiw's addendum serves up some more.

Public sector programs usually have higher administrative costs — all relevant costs considered — than corresponding private sector programs.  The public sector program is funded by taxation.  That means the public sector doesn't have to worry so much about marketing or meeting payroll on commercial revenue alone.  That will bring significant cost savings on administrative matters.  But you can't stop counting there.

The deadweight loss from taxation is perhaps twenty percent or more.  (It depends on which tax you consider as "the marginal tax" and there is not a simple factual answer to that question.)  That should be factored into any comparison, even if you define that cost as "not an administrative cost." 

The public sector also engages in less monitoring of who receives its services.  If you're 67 and have worked a lifetime in this country, usually you can receive Medicare benefits.  The "indiscriminate" nature of the program may be either a net social cost or a net social benefit but certainly it should not be counted as zero or ignored.

If you favor "indiscriminate" programs over targeted programs, OK.  But the accompanying lesson is not one about the relative efficiency of the public sector at a comparable task.  The lesson is that sometimes the public sector can be more effective when you don't wish to discriminate in supplying a particular kind of service.


A second stimulus?

That's today's topic in the blogosphere, starting with Bruce Bartlett, and then Paul Krugman (and here) and Megan McArdle.  The economy hasn't exactly gone well but a priori that could support either the view that the stimulus won't much help, or the view that we needed (and still need) a bigger stimulus.

I'll restate a few of my core points on this topic:

1. If we're not in a liquidity trap, monetary policy is a better way to stimulate aggregate demand.

2. If we are in a liquidity trap, the stimulative effects of fiscal policy will die out pretty quickly.

3. I have never defended "the Treasury view."'

4. The worst case scenario, which requires that you put your balance sheet in somewhat better order, remains relevant.  I am suspicious when I hear "efficient markets" defenses of current fiscal policy ("Interest rates remain manageable," etc.) from the same people who for years criticized those arguments as applied to banks or for that matter homes.

5. Some temporary, short-run stimulus was indeed called for, consisting mostly of aid to state and local governments.

6. The employment benefits of fiscal policy are mostly temporary and will require a "redo" in two years' time or so, unless we are willing to lose those jobs again or move to "permanent stimulus," which I do not recommend.  We are postponing required labor market adjustments, not solving the labor market problems.

7. There were better ways to spend most of that money.  The assumption was that the American public would be so happy with the stimulus that they would be clamoring for more and more government programs.  That does not appear to be the case.

One new point, based on recent history: We've just seen what special interest groups have done to legislation on health care reform and climate change and neither has even reached the Senate yet.  Round one of the stimulus represented the high water mark of the influence of the technocrats in the Obama administration.  What do you think round two of the stimulus would look like?

I'll also note this: even if you think the pro-stimulus forces are correct, they are losing the rhetorical battle rapidly.  American voters do not in fact have the patience for a lot of good ideas.

Robert McNamara passes away

He is best known for his dubious role in the Vietnam War and also, now, through the movie The Fog of War.  But McNamara also had a huge influence on the economics profession, most of all through his 13-year presidency at the World Bank.  He focused the Bank on poverty reduction, he brought Communist China into the Bank, he introduced the practice of five-year lending plans, he significantly increased the Bank's budget, he grew staff from 1600 to 5700, he favored sector-specific research, he raised money from OPEC, he strongly encouraged "scientific project evaluation," and he started a largely successful program to combat "river blindness"; the latter may have been his life's achievement.  The Bank as a large, modern technocracy — for better or worse — dates largely from his tenure.

He probably shaped the Bank more than did any other single person.  Here is one overview.  The Bank, of course, continues to be a major employer of economists and a major influence on the theory and practice of development economics.

Addendum: Kevin Drum offers some interesting thoughts.

Interview with *The Economist*

I was asked six questions (mostly about Create Your Own Economy, but not all), here is one of them:

FE: What has most surprised you about the current economic downturn?

Mr Cowen: That
it happened with such severity.  As an economist I grew up reading and
thinking about two formative events.  The first was the crash of the
real estate bubble in the late 1980s, preceded by the stock market
crash in 1987.  The second was the Third World debt crisis of the early
and mid-1980s.  Both were bad, but for the United States neither were
like the last two years.  I’ve never been a believer in any of the
extreme forms of the efficient markets hypothesis, but those events
made me overly complacent about how badly crashes and excess leverage
can turn out.  In the early 1980s I expected widespread insolvency for
major U.S. banks and when they muddled through I ended up overrating
their ability to do the same again.

Should “Fairfax County” become a city?

Should Fairfax County become a proper city?  It has over a million people, many more than Washington, D.C.  The bottom line seems to be this:

The basis for the idea is largely tactical — under state law, cities
have more taxing power and greater control over roads than counties do
— and it led to more than a few snickers about the thrilling nightlife
in downtown Fairfax (punch line: there isn't any).

Natasha could no longer say "We are from Washington":

If Fairfax does become a city, it would instantly become one of the largest in the nation, the size of San Antonio or San Jose.

It would also diverge dramatically from the stereotype of the gritty
metropolis. Fairfax enjoys many of the benefits — wealth and jobs —
and few of the detriments — crime, troubled schools — of a large
urban center. With a median household income of $105,000, it is the
wealthiest large county in the nation. Among large school systems, it
boasts the highest test scores. And it has the lowest murder rate among
the nation's 30 largest cities and counties.

One question is why this rather uncoordinated mix works so well.  Federal dollars, diversity of immigration, and diversity of planning strategies all can be cited.  The latter factor probably means we should not touch the status quo.  And by the way, almost all of our nightlife is Korean but it does exist.

Markets in everything: convert the atheist, on Turkish TV

From The Guardian, via Effect Measure:

It sounds like the beginning of a joke: what do you get when you put
a Muslim imam, a Greek Orthodox priest, a rabbi, a Buddhist monk and 10
atheists in the same room?

Viewers of Turkish television will
soon get the punchline when a new game show begins that offers a prize
arguably greater than that offered by Who Wants to be a Millionaire?

will ponder whether to believe or not to believe when they pit their
godless convictions against the possibilities of a new relationship
with the almighty on Penitents Compete (Tovbekarlar Yarisiyor
in Turkish), to be broadcast by the Kanal T station. Four spiritual
guides from the different religions will seek to convert at least one
of the 10 atheists in each programme to their faith.

persuaded will be rewarded with a pilgrimage to the spiritual home of
their newly chosen creed – Mecca for Muslims, Jerusalem for Christians
and Jews, and Tibet for Buddhists.

The real prize, of course, is the conversion itself.  But if you are faking it just to win the trip, I believe Islam is at a disadvantage.  By the way, they do "verify" that you are an atheist in the first place, using a panel of eight theologians (are they so hard to fool?), plus they monitor your behavior afterwards to see you truly have become a believer.

The value of personal experience

It's rare that I read something about Barack Obama which I had not already seen:

Barack Obama's last visit to Russia,
as a senator in 2005, did not end so well. He was detained by the
security services at an airport near Siberia for three hours, locked in
a lounge, his passport confiscated, like a scene from a John le Carré novel.

The Russians later called it a “misunderstanding.”