Month: August 2010

Kling on free parking

Arnold isn't convinced:

If we abolished free parking, would parking spaces be scarcer? Keep in mind that if the price of parking went up, this would cause movement along the supply curve as well as along the demand curve. Maybe the total number of parking places would decline (it depends on elasticities), but the one result you can predict with certainty is that the number of unused parking places would go up. Is that necessarily welfare-improving?

The key is not to "abolish" free parking, but to a) abolish minimum parking requirements, and b) put prices or higher prices on congested municipal-owned parking spaces.  Both a) and b) will lower the demand for parking and a) will lower the supply of parking, so why should the number of unused parking spaces necessarily go up?  If you treat something as an appropriately scarce resource, it should be used more effectively.

There are plenty of DC restaurants which don't have their own parking lots, but they use paid valet parking and find ingenious ways to store cars more effectively.  The parking fee means that some people walk there or use the Metro, rather than driving and parking.  No one finds this arrangement especially objectionable and while valet parking is at a discount to market still it is priced.  At lunch time valet parking is less likely but still people pay to park, usually in nearby lots.  No one would suggest that these restaurants be forced to put in minimum parking.  Nor would anyone suggest that mandated minimums would be neutral with respect to parking efficiency.

I'm simply asking for the same switch in reverse, namely to do away with minimum parking requirements.  Very likely, such a change will have a bigger impact on future developments than on past developments (it can be hard to reconfigure a parking lot), although some malls might sell off or rent their now-liberated parking spots to other commercial ventures.

Pricing parking on busy residential streets is just common sense S&D and the price should vary with peak times.

Most of all, I am calling for "parking recalculation," so I am surprised Arnold is skeptical.  Maybe he thinks the recalculation won't bring much change (the Wal-Mart in North Dakota may never charge for parking), but in fact we find a wide variety of parking pricing practices around the world and even around the U.S., as laws and institutions and real net prices vary.

You could argue that politics already pushes us to somewhat efficient outcomes for policy, as indeed NYC does usually (though not always) treat parking spaces as more scarce than does Fargo, North Dakota.  Still, there is an obvious chain for political failure.  Development decisions are very often made on a one-by-one, sequential basis.  Other merchants, or nearby homeowners, fear parking overflow and they lobby as if this private cost were actually a social cost.  At each step of development, lots of parties are pushing for minimum parking requirements.  Some "once-and-for-all" parking policy decisions could limit this political incentive. 

Another simple public choice story is this: minimum parking limits the supply of land and boosts the returns to local homeowners.  It raises retail prices but many of the store's customers are from out of town, so that is a vote-winning strategy at the local level, namely scarcer land and higher prices for stores.

People who drive cars also have disproportionately more political power than people who do not, especially in most suburban areas.

Most of the time, legal quantity minimums have real effects on markets and they are not set efficiently at the political level.

Addendum: Here is Arnold's response to Robin, here is Robin on Arnold.  And yet more from Arnold.  And here is an O'Toole comment; for one thing there is free parking in Manhattan, but for another…I never claimed there was.

From the comments: "A note of clarification about free parking in Manhattan. By law meters are prohibited on residential streets. Only on commercial streets and corners are meters allowed. Residential parking permits are also prohibited by the state. This means that in many parts of the island (mostly above 59th street though also in certain areas of lower Manhattan) there is "free" parking at the curb. In these neighborhoods there is substantial cruising for parking. In addition, all of Manhattan was subject to minimum parking requirements until 1982, and now areas north of Central Park (roughly) are subject to minimum parking requirements, as are the other boroughs."

Topics I haven’t blogged so far

I fully support letting the NYC mosque proceed for reasons well articulated by Sullivan, Krugman, Yglesias, Josh Barro and others; if nothing else, this episode shows "politics isn't about policy" but rather about the relative status of different societal groups.  We should think more seriously about how we might give Islam, and Muslims, higher status in the United States and elsewhere.

Should we favor a Korean reunification tax?

The flood in Pakistan is worse than many people realize, possibly affecting over twenty million people. 

Here are some stunning photos; I thank Farhan for the pointer.

The economics of free parking

Here is my latest NYT column, for the ideas I am indebted to pointers from Daniel Klein, Matt Yglesias, and of course Donald Shoup.

Here is the bottom line:

If developers were allowed to face directly the high land costs of providing so much parking, the number of spaces would be a result of a careful economic calculation rather than a matter of satisfying a legal requirement. Parking would be scarcer, and more likely to have a price – or a higher one than it does now – and people would be more careful about when and where they drove.

The subsidies are largely invisible to drivers who park their cars – and thus free or cheap parking spaces feel like natural outcomes of the market, or perhaps even an entitlement. Yet the law is allocating this land rather than letting market prices adjudicate whether we need more parking, and whether that parking should be free. We end up overusing land for cars – and overusing cars too. You don’t have to hate sprawl, or automobiles, to want to stop subsidizing that way of life.

Here are a few quotations from the article:

“Minimum parking requirements act like a fertility drug for cars.”

And:

As Professor Shoup puts it: “Who pays for free parking? Everyone but the motorist.”

And:

If we don’t give away cars, why give away parking spaces?

What are the biggest problems with the idea?  First, the danger of spillover parking means that a lot of parking has to be properly priced all at once.  If the local K-Mart has a smaller lot, you don't want the customers flooding a neighborhood street and simply shifting the problem.  The proper correction requires a coordinated pricing and enforcement effort, not only to succeed, but also to be sufficiently popular with homeowners.  Fortunately, most of the coordination can be done at the level of the individual town or city.

Second, we don't yet know how many more spaces would be priced in the absence of legal minimum parking requirements, and how many fewer car trips there would be, especially if we are holding the quantity and quality of mass transit constant.  The employer still may wish to subsidize appearance at the workplace.  Alternatively, "parking fees as lump sum tax" is fine by me and it bears an odd but pleasant connection to Georgist ideas.  Another possibility is that a lot of parking is shifted to satellite lots, combined with small buses or shuttles; Tysons Corner Mall already does this at Christmas or consider any number of airports.  That still would improve land use (and welfare), but it remains an open question how much congestion and emissions would get better.

Mark Thoma discusses some distributional issues.  I would note that less land for parking should lower other real estate and retail prices, even if more poor people end up taking the bus.  And the very poorest Americans often don't have cars at all.

Australia fact of the day

Which country's stock market has been the best performer in the world — not just over the past year or decade, but over the last 110 years?

It's Australia, which stands above all others in its combination of higher returns and lower volatility.

While they speak our language, and we have some common origins, they have hitched their wagon to the dynamic growth of Asia. And it's paid off, as Australia has had the best performing stock market in the world from 1900 to 2009.

Australia posted 7.5% after-inflation returns per year during that time, with a standard deviation of 18.2%, according to a study from Credit Suisse. Those returns are the highest and the volatility the second lowest of the 19 major markets the researchers studied.

During that time, U.S. stocks made a 6.2% return, with a standard deviation of 20.4%. That means investors would have made more money in Australian stocks with less volatility than in the U.S. or any other major market over that long stretch.

The full story is here and hat tip goes to Ann Jessica Lien on Twitter.

Question: does this mean that Australia is really good, economically speaking, or simply not thought very much of by others?

The worst Americans of all time?

Status games, why not?  At least the purpose is upfront and the weather is nice. Here is a list from right-wing bloggers and here is a list from Bainbridge, both in one link with Bainbridge's comments.

It's bizarre that Jimmy Carter comes out as the all-time worst from the right-wing bloggers and I don't have to tell you who is number two.  It's also hard for me to see how Bainbridge ends up with Paris Hilton and Michael Moore in his list of the worst and he seems to acknowledge this oddity toward the end of his post.

The most plausible picks are, I think, any number of political figures behind slavery and its continuation (it's debatable who is truly focal here), Woodrow Wilson, the Rosenbergs, and any number of assassins, domestic terrorists, and serial killers.  

Who am I forgetting?  Are there focal figures who held back public health advances?  Led slaughters against Native Americans?  What else?

Who is the worst Canadian of all time?

Hat tip goes to Andrew Sullivan.

Is policy uncertainty the problem?

Pete Boettke says "policy is the problem."  Ezra says he can't find evidence that policy is the problem.

I hold the intermediate view that policy uncertainty is a problem but not the problem.  On one hand, policy uncertainty probably has been greatest for the health care sector, yet job growth in that sector has been relatively robust.  Furthermore, Obamacare may bring uncertainty, but part of the uncertainty is about whether employers can get away with dumping their workers onto the subsidized exchanges.  Arguably that should help hiring rather than hurt it.

I expect electoral gridlock by November yet no one seems to be welcoming that "certainty" very much.

Perhaps most importantly, deleveraging recessions usually take a long time to recover from in any case and there's not a lot of good cheer along the way.

I would be more convinced by the uncertainty view if it were combined into a larger, coherent story, consistent with reported corporate profits being fairly high.

Do the implicit volatilities embedded in option prices show a lot of expected uncertainty?  Maybe, but again I'm waiting to see the evidence.  If so, this one should be staring us right in the face.

On the other side of the ledger, the tax code remains highly uncertain, to our detriment, and monetary policy is some mix of uncertain and baffling (though see the above point on implicit volatilities). 

There is also behavioral economics.  An image or speech or proposed law can crush a mood, whether or not that is rational.  I can't cite a lot of systematic evidence for this having happened, but I know from talking to people how many of them think, rightly or wrongly, that Obama is very very bad for the American economy.  I believe that is a factor in our slow recovery. 

Be careful to separate your positive and normative views here.  Maybe the audience is "at fault," rather than the messenger, but still some people are very upset.  Every time I read a left-wing writer dismantling "right-wing media" I think they are actually providing another data point for the policy uncertainty hypothesis, although that is hardly their intent.  In many circles there is a perceived problem with our country, regardless how much that is based on fact or not.  If food consumers can be irrational and moody, political consumers (who are also investors) can be the same.  Still, I don't know how significant this factor is.

Temporary hiring is quite high, while permanent hiring is not.  However that need not show that the decisive uncertainty comes from politics.  Furthermore it instead could mean that the fixed cost of hiring labor full-time is high but not uncertain.

A lot of the current uncertainty is about a higher estimate of overall systemic risk, rather than from politics per se.  Such risk worries may be a blend of private and public sector factors, such as worries about Europe or China.  Economic and political uncertainty are not always separable categories.

Overall I don't see a lot of clear evidence on this question but I think policy uncertainty is one factor, albeit an exaggerated factor in many circles.

Google and Verizon and net neutrality

I found this excerpt from Reihan to be persuasive:

I’ll just note that Google official line on wireless net neutrality, as stated by Richard Whitt, sounds fairly persuasive. Why insist on net neutrality regulations for wireline but not for wireless services?

First, the wireless market is more competitive than the wireline market, given that consumers typically have more than just two providers to choose from. Second, because wireless networks employ airwaves, rather than wires, and share constrained capacity among many users, these carriers need to manage their networks more actively. Third, network and device openness is now beginning to take off as a significant business model in this space.In our proposal, we agreed that the best first step is for wireless providers to be fully transparent with users about how network traffic is managed to avoid congestion, or prioritized for certain applications and content.

I believe in legally mandated net neutrality when monopoly is present, as with many cable providers, but not with wireless.  Here is my previous post on net neutrality.  Here are Robert Litan and Hal Singer, defending the Google-Verizon arrangement.

All the king’s horses and all the king’s men…

Here is another factor behind the recent German economic success:

A vast expansion of a program paying to keep workers employed, rather than dealing with them once they lost their jobs, was the most direct step taken in the heat of the crisis.

There is much more of interest here.  I would describe this as a major, still uninternalized lesson of the recent crisis, with its roller coaster-rapid dips.  In a highly specialized modern economy, it is much easier to prevent jobs from being destroyed than to create them again, at least assuming those are "good" jobs in the first place.  (Yes, people thought they knew this but it's an even stronger difference than had been believed.)  The U.S. auto bailout, for instance, worked better than did most of the stimulus program.  Most of the Austrians would disown this point, but you can pull it right out of Lachmann's Capital and its Structure

We should have cut the payroll tax as soon as possible, an idea which I might add Alex was promoting quite early on.

CAPTCHA Economics

CAPTCHA (Completely Automated Public Turing test to tell Computers and Humans Apart) are the distorted text puzzles that are designed to keep spammers out of websites.  Although some AI systems have been developed to solve CAPTCHAs the market has discovered that it is cheaper to farm out the problems to workers in developing countries.

Here is an amazingly detailed investigation from researchers at UC San Deigo of the market for solving CAPTCHAs.

Bottom line:

  • Prices run about $1 per thousand CAPTCHAs solved, depending on the time of
    day and demand.
  • The median response time to solve a CAPTCHA is 14
    seconds and accuracy runs about 90%.
  • “[T]he
    business of solving CAPTCHAs,…is a well developed, highly-competitive industry with the capacity to solve on the order of a million CAPTCHAs per
    day.”

Hat tip: Mim’s Bits.

A short seasonal cycle: both a negative supply shock and a negative demand shock

This Friday some people will be so paralyzed with fear they simply won't get out of bed. Others will steadfastly refuse to fly on an airplane, buy a house, or act on a hot stock tip. It's Friday the 13th, and they're freaked out.

"It's been estimated that [U.S] $800 or $900 million is lost in business on this day because people will not fly or do business they would normally do," said Donald Dossey, founder of the Stress Management Center and Phobia Institute in Asheville, North Carolina.

The full story is here, hat tip goes to BrainPicker, and I am not sure how formal that quantitative estimate is.  Note also that some of that business is likely made up on other days, either earlier or later.

Assorted links

1. Layman's overview of P vs. NP and the new proof, and origami is NP hard.

2. Many prediction tools, from Ian Ayres.

3. Rumored Romer replacements.

4. Photos of "ugly animals," though many I find cute or more intriguing than ugly.

5. German growth beats estimates: "Laurence Boone, chief economist at Barclays Capital France, said the breakdown of the GDP figures was “somewhat surprising” because it was growth boosted by a 0.4 per cent increase in household consumption, which had been expected to be flat given unemployment and impending fiscal retrenchment."  Germany is growing at an annualized rate of over eight percent this quarter.  This divergence, however, does increase the strain on the euro.  Unfortunately, Germany is still quite exposed to potential real economy weaknesses from China and the weak eurozone countries.  There is more detail here.

Wichita fact of the day

It is, in percentage terms, the most export-oriented city in the United States.

According to a study published late last month by the Brookings Institution, a Washington think-tank, nearly 28 per cent of the city’s gross metropolitan product is sold abroad. That makes it the most export-oriented in the country, just ahead of Portland, Oregon – noted for its computer and electronics companies – and San Jose in California’s Silicon Valley.

Can you say "small aircraft"?

The Paul Ryan debates

I haven't followed the numerical specifics of his plan (see Krugman, McArdle, and Ezra), which will never be voted on, so at this point I'm more interested in the general problem motivating the reform.  We all know that health care spending has to be restrained in some manner.  There are (at least) two approaches:

1. Have the federal government take a more active role in shutting down or limiting some reimbursements, based on efficacy studies ("death panels").

2. Turn some or all of Medicare into a fixed voucher program and let individuals choose which set of restrictions they will accept from private suppliers ("grandma bangs on HMO door").

As I understand Ryan's approach, he is putting a great deal of emphasis on #2, whereas most Democrats favor #1.

Which mix of #1 and #2 is best is one question; which mix people will accept politically is another.  A third issue is which mix is time consistent and a fourth is which prevents "rationed" people from simply popping up somewhere else in the public health system.  I would start with those distinctions and see which policy direction people need to be nudged in, relative to the path we are on now.  That probably means greater acceptance of both #1 and #2, to some extent.

I believe that #2 works fine for a lot of health care, especially the less controversial and less emotional areas of care, such as laser eye surgery.  Neither #1 nor #2 work especially well, or are especially popular, for end of life issues.

Whatever problems the Ryan plan may have (should we dismiss all ideas from people with overly optimistic forecasts?), I take his contribution to be a nudge in the direction of #2, given the current political equilibrium.  Overall I see this as a healthy nudge, even if you think that relying fully or even mainly on #2 is undesirable, infeasible, and time inconsistent.