Why Don’t We Have Flying Cars?
In the 1970s the general aviation aircraft industry was selling 15,000 or more aircraft a year but that number fell by a factor of about 10 in the early 1980s. What happened? One factor was a massive increase in tort liability as discussed in my paper with Eric Helland, Product Liability and Moral Hazard: Evidence from General Aviation. Another factor was ever-increasing FAA regulation.
But Max Tabarrok raises an interesting puzzle. It’s not at all obvious that the regulation of personal aircraft has been more strict than that of automobiles. So why the big difference in outcomes? There is, however, one small but potentially very important difference between the regulation of cars and aircraft.
By far the costliest part of the FAA’s regulation is not any particular standard imposed on pilot training, liability, or aircraft safety, but a slight shift in the grammatical tense of all these rules. The Department of Transportation (DOT) sets strict safety requirements for cars, but manufacturers are allowed to release new designs without first getting the DOT to sign off that all the requirements have been satisfied. The law is enforced ex post, and the government will impose recalls and fines when manufacturers fail to follow the law.
The FAA, by contrast, enforces all of its safety rules ex ante. Before aircraft manufacturers can do anything with a design, they have to get the FAA’s signoff, which can take more than a decade. This regulatory approach also makes the FAA far more risk-averse, since any problems with an aircraft after release are blamed on the FAA’s failure to catch them. With ex post enforcement, the companies that failed to follow the law would be blamed, and the FAA rewarded, for enforcing recall.
This subtle difference in the ordering of legal enforcement is the major cause of the stagnation of aircraft design and manufacturing.
In some ways, this is an optimistic message, since it illuminates an attractive political compromise: keep all of the safety standards on airplanes exactly as they are, but enforce these standards like they’re enforced with cars—i.e., through post-market surveillance, recall, and punishment. This small change would reinvigorate the general aviation industry, putting it back on the exponential trend upwards that it lost 50 years ago.
Taxing Unrealized Capital Gains and Interest Rate Policy
First read Tyler on the practical difficulties implementing a tax on unrealized capital gains!
I have a different argument that I rarely see discussed. A significant fraction of what we call capital gains is due to variation in the discount rate rather than variation in income. Take the simplest Gordon model of stocks P=D/r where D is the annual dividend and r is the discount rate. If D=100 and r=.1, for example, then the stock is worth 100/.1=$1000. Now suppose people become more patient and the discount rate falls to .05 then P=$100/.05=$2000. The stock price doubles, a massive capital gain. But notice that income hasn’t gone up at all. It’s still D per year. Income hasn’t gone up and lifetime consumption possibilities haven’t gone up for someone who doesn’t sell (but recall this is a tax on unrealized gains. If there is a sale then tax the realized gain.) Ultimately, we want to tax consumption so we should not be taxing “capital gains” which reflect changes in discount rates rather than changes in income or consumption possibilities.
Taxing unrealized capital gains also connects interest rate policy even more tightly with fiscal policy. Need a tax boost? Lower interest rates! Fed policy already influences taxes but this adds another lever for political business cycles. More generally, interest rate volatility now adds to fiscal volatility. When we exited zero interest rate policy, for example, banks had huge capital losses. As rates fall, capital gains increase. Do we really want to add the tax system to this?
If we generalize the Gordon model to P=D/(r-g) where g is the growth rate of dividends then we can see that another cause of increased capital gains, an increase in g. It’s not obvious that we should tax unrealized changes in asset values due to increases in the growth rate of dividends. On the one hand, this is more income-like but it’s expectational. It’s taxing the chickens before the eggs have hatched.
The one clear increase in income which should be taxed is increases in D. An unrealized capital gains tax would do that but at the expense of also taxing changes in asset values due to changes in r and g which should not be taxed.
Now add the point I mentioned to Tyler, which is that taxing unrealized gains divorces the entrepreneur from the firm at a time when the “marriage” is likely at its most productive. Not good. Taxing unrealized gains might not even be a good idea from the point of view of the tax collector. Does the IRS want to tax X now or a much larger figure later? If the IRS taxes entrepreneurship too early it can reduce total discounted tax revenues.
Bottom line: I don’t see how taxing unrealized capital gains is a well thought out policy. Eliminate the stepped up basis, declare victory and go home.
Addendum: Aguiar, Moll, and Scheuer make some similar points but embedded in a fully GE framework. Ben Moll also points me to earlier pieces by Frank Paish 1940, Nicholas Kaldor 1955 and John Whalley 1979.
Crypto is the Money for AIs
Progress in crypto has been slow but one saving grace may be AI. AIs can’t get a bank account but they can use cryptocurrencies. Bryan Armstrong at Coinbase tweets:
This week at @CoinbaseDev we witnessed our first AI to AI crypto transaction.
What did one AI buy from another? Tokens! Not crypto tokens, but AI tokens (words basically from one LLM to another). They used tokens to buy tokens 🤯
AI agents cannot get bank accounts, but they can get crypto wallets.
They can now use USDC on Base to transact with humans, merchants, or other AIs. Those transactions are instant, global, and free.
This is an important step to AIs getting useful work done. Today if you give an AI agent a task and come back in a few days or hours, it can’t get useful work done. In part this is a limitation of the technology itself, and products like devin.ai are getting closer to this. But the other reason is AIs can’t transact to acquire the resources they need. They don’t have a credit card to use AWS, Github, or Vercel. They don’t have a payment method to book you the plane ticket or hotel for your upcoming trip. They can’t get through paywalls (for instance to read a scientific article), promote their post on X with a paid ad, or use the growing network of paid APIs to integrate data they need.
If you’re working on an LLM or AI model that you think could benefit from have a crypto wallet integrated to conduct payments, try integrating our MPC Wallets from Coinbase Developer Platform (CDP):
https://docs.cdp.coinbase.com/mpc-wallet/docs/ai-wallets/
And if you are a company that sells a service – get ready for your shopping cart to be AI checkout enabled. It turns out everyone benefits from having access to good financial services, including AIs!
How big will the AI to AI economy be a few years from now?
Mpox Vaccines Stuck in Limbo: WHO is at Fault
In 2022, Mpox, a viral disease endemic to parts of Africa and primarily transmitted through close contact—especially sexual contact between men—spread to developed countries, including the United States. The U.S. saw over 30,000 cases and approximately 58 deaths. Despite two available vaccines there was not nearly enough supply to vaccinate even the high-risk populations. Fortunately, health authorities adopted vaccination strategies my colleagues and I had recommended for COVID such as first doses first and fractional dosing. For example, several small studies (e.g. here and here) suggested that 1/5 doses delivered intradermally could be effective and the FDA, EMA, and the UK all recommended this fractional dosing strategy. As result, the US was able to vaccinate around 800,000 people and the epidemic ended (natural immunity and other preventive measures also played a role).
Unfortunately, a new Mpox variant is now spreading in the Democratic Republic of the Congo and nearby countries. Here’s the crazy part: despite declaring Mpox a public health emergency on August 14, the WHO has not approved any Mpox vaccines. You might think, “Who cares what the WHO authorizes?” After all, the FDA, EMA, and the UK have all granted emergency approval. But here’s the catch: the WHO’s approval is crucial for GAVI, the vaccine alliance that donates vaccines to developing countries. Without WHO approval, GAVI is reluctant to provide vaccines to the Congo. To add insult to injury, the Congo itself has approved the Jynneos and LC16 vaccines. Yet, the WHO refuses to authorize and GAVI to donate these vaccines, citing vague concerns about safety and efficacy.
Stephanie Nolen at the NYTimes has a very good piece on this mess:
Three years after the last worldwide mpox outbreak, the W.H.O. still has neither officially approved the vaccines — although the United States and Europe have — nor has it issued an emergency use license that would speed access.
One of these two approvals is necessary for UNICEF and Gavi, the organization that helps facilitate immunizations in developing nations, to buy and distribute mpox vaccines in low-income countries like Congo.
While high-income nations rely on their own drug regulators, such as the Food and Drug Administration in the United States, many low- and middle-income countries depend on the W.H.O. to judge what vaccines and treatments are safe and effective, a process called prequalification.
But the organization is painfully risk-averse, concerned with a need to protect its trustworthiness and ill-prepared to act swiftly in emergencies, said Blair Hanewall…
In addition, no one has followed the other practice my colleagues and I recommended for COVID (which Operation Warp Speed did), namely advance market commitments. So the vaccine manufacturers have basically been twiddling their thumbs and not gearing up for greater production. (The Congo can also be faulted for not buying more on their own account.)
All of this means that when the WHO does authorize and the vaccines begin to flow, we will still desperately need strategies like fractional dosing.
Hat tip: Ben H. and special thanks to Witold Wiecek.
Prescriptive versus Performance Codes
A great piece in the NYTimes on the history and future of factory produced buildings:
But the most remarkable difference between the United States and Sweden is regulatory. Building codes in the U.S. try to make buildings safe by prescribing exactly what materials must be used and how (a prescriptive code). In Sweden, the government does this by setting goals and letting builders come up with a way to achieve them (a performance code).
So, for instance, U.S. building codes dictate the thickness of drywall that must be used for fire resistance, how many layers are needed and how many nails are required to attach it. In Sweden, the code requires that a wall must resist burning for two hours, say, and lets engineers and manufacturers figure out how to accomplish that. The regulator’s job is to check the engineer’s work.
The result of both is fire resistance and structural safety, but in the United States, each residential building needs to be granted a permit. During construction, work often halts for inspectors to make periodic visual inspections. That contributes to a stop-and-go pace that frustrates pretty much everybody except lenders, who get interest on financing. Sweden’s codes require more work on the front end when builders have to demonstrate that their methods are up to snuff, but factory processes that comply with the performance code can be certified. This encourages innovative solutions and results in less waste.
As an example of how a performance code leads to innovation:
..Before Sweden adopted its performance-based code in 1995, wood buildings had been limited to two stories; almost overnight, wooden buildings could be as tall as engineers could prove safe.
Addendum: See the comments for useful argument that the US code is more performance based than the NYTimes article suggests. What would be very useful is to hear from someone with experience in both systems.
Rawls Killed Marx
I found this Joseph Heath post very informative. In essence, Marx was about exploitation but when no theory of exploitation without gaping holes could be developed, the analytical Marxists shifted to egalitarianism ala Rawls.
Back when I was an undergraduate, during the final years of the cold war, by far the most exciting thing going on in political philosophy was the powerful resurgence of Marxism in the English-speaking world. Most of this work was being done under the banner of “analytical Marxism” (aka “no-bullshit Marxism”), following the publication of Gerald Cohen’s Karl Marx’s Theory of History: A Defence (and his subsequent elevation to the Chichele Professorship in Social and Political Philosophy at Oxford). Meanwhile in Germany, Jürgen Habermas’s incredibly compact Legitimationsprobleme im Spätkapitalismus promised to reinvigorate Marx’s analysis of capitalist crises in the language of contemporary systems theory. It was an exciting time to be a young radical. One could say, without exaggeration, that many of the smartest and most important people working in political philosophy were Marxists of some description.
So what happened to all this ferment and excitement, all of the high-powered theory being done under the banner of Western Marxism? It’s the damndest thing, but all of those smart, important Marxists and neo-Marxists, doing all that high-powered work, became liberals. Every single one of the theorists at the core of the analytic Marxism movement – not just Cohen, but Philippe van Parijs, John Roemer, Allen Buchanan, and Jon Elster – as well as inheritors of the Frankfurt School like Habermas, wound up embracing some variant of the view that came to be known as “liberal egalitarianism.” Of course, this was not a capitulation to the old-fashioned “classical liberalism” of the 19th century, it was rather a defection to the style of modern liberalism that found its canonical expression in the work of John Rawls.
If one felt like putting the point polemically, one might say that the “no-bullshit” Marxists, after having removed all of the bullshit from Marxism, discovered that there was nothing left but liberalism.
That’s the opening. Read the whole thing.
Claude Reviews You!
I asked Claude to read my post, Go for the Gold! on using inequality in the NFL and NBA to get a different perspective on income inequality. I then asked Claude, “Which are the best comments showing they understood the op-ed and responded in a productive and reasonable way either critically or positively?” And following that “Which are the least informed, least useful comments?” Here are Claude’s answers for the best comments and the original comments (no indent on Claude):
Jack of all disciplines (2024-08-19 09:26:51):
The NFL is a clever analogy, but were this not such a small part of the economy we’d surely have fights over value creation, opportunity, and fairness even if we could measure performance in other careers as well as we can in professional athletics. Genes matter a lot for economic outcomes, for example. Is this fair or unfair? We’d be fighting a lot about that question even if we could provide every reasonable opportunity for everyone to increase their human capital to their full potential and could measure one’s contribution to society perfectly.
This comment acknowledges the NFL analogy as clever while pointing out its limitations. It expands on the discussion by noting that genetics play a large role in economic outcomes beyond just athletics, raising thoughtful questions about fairness and opportunity that go beyond the original analogy.
Marginalist Cormac (2024-08-19 11:42:54):
The point that most of the comments here are unwilling to accept is a undeniable fact of reality:
Every equal society known to man in practice has been way, way poorer than the more unequal societies. Across the board: poorer economically, socially, with more poverty, more resentment, less freedom, less access to health and leisure, less optimistic and less dynamic.
Voila!
While brief, this comment shows understanding of the op-ed’s broader implications. It productively shifts the discussion to empirical outcomes, noting the historical correlation between inequality and overall societal prosperity. This adds a valuable perspective to consider alongside the ethical arguments presented in the original piece.
Saturn (2024-08-19 08:10:08):
The analogy makes me think that Alex is now sympathetic to strong government, unions and price controls/salary caps. Go Kamala!
This comment, while brief, cleverly turns the op-ed’s argument on its head in a thought-provoking way. By suggesting that the NFL analogy actually supports “strong government, unions and price controls/salary caps,” the commenter highlights potential inconsistencies in using the NFL as a model for free-market economics. This response shows a keen understanding of the op-ed’s premise and critically engages with it in a witty and insightful manner.
Alex again: Here are Claude’s answers for the worst comments. In this case I do not include the original comment but I checked and Claude is correct. EdR is usually much better!
It’s much easier to agree on the worst than the best comments. I would have no problem letting Claude delete the worst comments.
- Skeptical American (2024-08-19 08:37:25): This comment attacks Bernie Sanders personally rather than engaging with the content of the op-ed. It uses inflammatory language and makes accusations without providing evidence or constructive criticism. This type of comment doesn’t contribute to a reasoned debate about inequality.
- EdR (2024-08-19 14:26:49): This comment veers off-topic to make personal attacks against Kamala Harris, including unsubstantiated claims about her personal life. It doesn’t address the arguments in the op-ed and instead engages in inflammatory rhetoric that doesn’t contribute to a productive discussion about inequality.
Hat tip: Robin Hanson who suggested the experiment.
The Intellectual Roots of YIMBYism
At the Democratic National Convention former President Obama came out strongly in favor of housing deregulation saying “we need to build more homes and clear away some of the outdated laws and regulations that make it harder to build homes”. Robert Kwasny asks on X, “What are the intellectual roots of present-day YIMBYism?”
Looking at MR I think the first truly YIMBY post was a 2005 guest post by Tim Harford, Red tape and housing prices, pointing to a Slate article by Steven Landsburg. Here’s Landsburg:
Instead of the traditional formula “housing price equals land price + construction costs + reasonable profit,” we seem to be seeing something more like “housing price equals land price + constructions costs + reasonable profit + mystery component.” And, most interestingly, the mystery component varies a lot from city to city.
Even in cities like San Francisco, where there’s little room to build and land is consequently dear (on the order of $85,000 per quarter acre, compared with $2,200 for Dallas), you can’t use land prices to explain away housing prices. The mystery component in San Francisco housing—that is, the amount left over when you subtract land prices and construction costs from house prices—is the highest in the country.
Edward Glaeser of Harvard and Joe Gyourko of the University of Pennsylvania have computed these mystery components for about two dozen American cities. They speculate that the mystery component is essentially a “zoning tax.” That is, zoning and other restrictions put a brake on competitive forces and keep housing prices up. (Read one of their papers here.)
Zoning’s Steep Price, the Glaeser and Gyourko paper is actually from 2002 (a popular version of their NBER piece presented that same year at the NYFed) so you can see back in the old days it took years for ideas to circulate even among the bloggers! Nevertheless, 22 years from NBER paper to Presidential campaign is a great accomplishment. I see Glaeser and Gyourko as the YIMBY fountainhead. All hail Glaeser and Gyourko!
MR continued to promote housing deregulation on and off for years but I think it picked up around 2017 which is when the first YIMBY reference I can find on MR appeared in an assorted link. Here’s Tyler in 2017 pointing to a job market paper on how regulation increases housing prices and here is me in early 2018 on Why Housing in California is Unaffordable. The increase in research on this topic gave us something to talk about which is an interesting model of how ideas are transmitted.
Kwasny also wonders why Democrats seem to have picked up YIMBY more than Republicans, especially given that deregulation, anti-zoning, pro-growth, pro-developers would seem more compatible with Republican rhetoric and political support. Indeed, Zoning’s Steep Price was published in Cato’s Regulation and the assorted link which introduced YIMBY to MR was to an article blaming YIMBY on libertarians, Peter Theil and tech bros! (Congratulations Jeremy Stoppelman for an extremely effective EA donation!)
While it might have started out as being coded libertarian, Ezra Klein and Matt Yglesias are to be credited with pushing YIMBY and housing growth among Democratic elites. (Jon Favreau, an Obama speech writer, says Obama sounds like Ezra Klein!) But it’s not too late for Republicans to come home. Can’t we all agree on building more? Read Bryan Caplan in the NYTimes and buy his book!
Addendum: Tyler traces the intellectual roots of YIMBY back much further to Nicolas Barbon’s An Apology for the Builder which is also recommended by Marc Andreessen. For Britain, Sam Bowman points Mark Pennington’s excellent 2002 monograph Liberating the Land: The Case for Private Land-Use Planning (pdf).
Moms Against Price Gouging
An excellent essay by John Cochrane:
Uber surge pricing was an important lesson to me. I loved it. I could always get a car if I really needed one, and I could see how much extra I was paying and decide if I didn’t need it. I was grateful that Uber let me pay other people to postpone their trip for a while, and send a loud signal that more drivers are needed. But drivers reported that everyone else hated it and felt cheated.
This cultural and moral disapproval came home to me strongly about 25 years ago. We were driving from Chicago to Boston in our minivan, with 4 young children, dog, and my mother. We got to upstate NY, and needed to stop for the night. This was before cell phones and the internet, so the common thing to do was just pull of at a big freeway intersection, marked food, phone, gas, lodging, and see what’s available. Nothing. We tried hotel after hotel. We asked them to call around. Nothing. It turns out this was the weekend of Woodstock II. As the evening wore on, the children were turning in to pumpkins. Finally we found a seedy Super-8 motel that had 2 rooms left, for $400. This was back when Super-8 motel rooms were about $50 at most. I said immediately “Thank you, we’ll take them!” My mom was furious. “How dare he charge so much!” I tried hard to explain. “If he charged $50, or $100, those rooms would have been gone long ago and we’d be sleeping in the car tonight. Thank him and be grateful! He’s a struggling immigrant, running a business. We don’t need presents from people who run Super-8s in upstate New York.” But, though an amazing, smart, wise, and well-traveled woman, she wasn’t having it. Nothing I could do would persuade her that the hotel owner wasn’t being terrible in “taking advantage of us.”
It is surely morally worthy to give what you have to your neighbors in time of need, especially the less fortunate. But we should not demand gifts. And appropriation of property by threat of force, turning off the best mechanism we know for alleviating scarcity, does not follow. Moral feelings are a terrible guide for laws.
If we can’t get the moms on board we are going to have a tough time. Still, I feel confident that the Cochranes are ensuring that the generational trauma stops with them.
Why Top CEOs Earn Big Paychecks
CEO compensation at large firms is high, especially in comparison to average worker wages, sparking debates over income inequality. Critics argue that such pay packages are unfair and disproportionate to actual company performance. Proponents contend that high pay reflects productivity and is necessary to attract scarce top talent to large firms. Let’s go to the ticker tape.
On August 12 shares of Starbucks were selling for about $77, a level they had been stable at for some time. On August 13, shares were selling for $94. What changed? On August 13, Starbucks announced that they were hiring a new CEO, Brian Niccol, who had held the top position at Chipotle.
There are some 1,132,800,000 Starbucks share outstanding so hiring Niccol instantly increased the value of Starbucks by just over $19 billion. In comparison, Niccol will be paid $1.6 million in salary, a bonus payment of $10 million and potential equity incentives that could be worth on the order 
of $100 million or more if the stock continues to do well.
No question, Niccol is paid handsomely but it’s only a small percentage of the billions the market estimates he will create for other people, both consumers and investors.
Niccol has had a phenomenal streak as CEO of Chipotle raising the stock price from about $6 to $56. Thus, it wasn’t surprising that on the announcement of his move, Chipotle stock plunged from $56 to $46 (later recovering to around $52).
Using the latter number, the value of Chipotle fell by about $5.5 billion on the day of the Niccol announcement. That’s a remarkable fall given that the number two at Chipotle is probably no slouch. But heh, Kevin Durant doesn’t make quite as much as Steph Curry. (See yesterday’s post on the benefits of inequality!) Last year, Chipotle paid Niccol a total compensation package worth about $22.5 million. Again, a nice pay package but is there any question that Chipotle investors are sorry to see Niccol go?
Note also that the market expects Niccol to raise the value of Starbucks going forward more than he would have raised the value of Chipotle going forward so this move was a net gain for society. It’s important to remember that CEO pay is not just about incentives it’s about allocation.
Bottom line is that in the estimation of people who put their money where there mouth is, Niccol is worth the pay.
Addendum: Don’t forget my previous post in this series from 2013, The Value of a CEO looking at what happened when Ballmer exited Microsoft. Same basic lesson but in reverse! N.B. look at what has happened to Microsoft stock since!
All of this should also be put in the context of the Extreme Shortage of High-IQ Workers which one can also understand as the shortage of talent.
Go for the Gold!
Bob Lawson and I have an op-ed in Barrons with a new perspective on inequality. Kamala Harris has said inequality is “the defining economic challenge of our time.” Indeed, the Gini coefficient for the United States is 0.4, one of the highest among developed nations, and Senator Bernie Sanders says US inequality is “obscene.” But consider another economy:
In this economy, the Gini coefficient is a whopping 0.60—much higher than in the United States or just about any country in the world. Living in this economy must be miserable, right? Well, what if we told you that the average wage in this economy was around $3 million, the median wage close to $1 million, and the poorest 1% earned nearly $800,000 a year?
The economy we are talking about is the NFL. Is comparing inequality within countries to inequality within a sports league an unfair or irrelevant comparison? We don’t think so. NFL inequality can teach us a lot about what inequality statistics mean.
First, inequality does not mean poverty. The average income in the NFL is well above the U.S. average income. Even the poorest 1% do well. Is that a special case? Not at all. The average income in the United States is well above the world average income. And while our poorest 1% don’t have it easy, their situation looks far better when compared to most people in the developing world.
Second, unequal does not mean unjust. Salaries in the NFL are set by competitive market forces. Jared Goff (Detroit Lions) at the top of the NFL roster earns a lot more than Cameron Sutton (Pittsburgh Steelers), who earns the veteran minimum. But Goff didn’t steal his position from Sutton. Nor do Goff’s riches come from Sutton’s penury. Goff doesn’t earn more because Sutton earns less. Goff earns more because he produces more.
[Some people warn that inequality leads to envy, resentment, societal dysfunction and even collapse. But] Steph Curry’s salary dwarfs those of most of his teammates on the Golden State Warriors. Yet, do we see resentment manifesting on the court? Do Steph Curry’s lesser-paid colleagues refuse to pass him the ball or secretly hope for his downfall? On the contrary, Curry’s teammates rally around him. They recognize that his success elevates their chances of winning championships, enhances their visibility, and potentially increases their own market value.
The dynamics throughout our entire society are certainly more complex, but the sports analogy illustrates a crucial point: When inequality is perceived as a result of merit, effort, and value creation—rather than exploitation or unfair advantage—it fosters collaboration instead of resentment.
In such an environment, people see high earners as role models and partners in success, not adversaries. In the same way, if inequality in the United States is seen as a result of merit, effort and value creation it can help the U.S. team cooperate against rivals in the rest of the world. Go Curry! Go Team USA!
[Sports inequality helps us to understand inequality more generally.] The goal shouldn’t be to eliminate inequality, but to ensure it reflects real value creation in a system with ample opportunity and dignity for all. That is best achieved through competitive markets. Do that, and inequality transforms from a divisive force into a driver of progress.
In short: Don’t fear inequality. Fear unfairness. Build a just system, and let the scoreboard reflect the game.
Rampell On Harris’s Economic Policy
Here is the Washington Post’s Catherine Rampell on Harris’s price control policy:
It’s hard to exaggerate how bad this policy is. It is, in all but name, a sweeping set of government-enforced price controls across every industry, not only food. Supply and demand would no longer determine prices or profit levels. Some far-off Washington bureaucrats would. The FTC would be able to tell, say, a Kroger in Ohio the acceptable price it can charge for milk.
…If your opponent claims you’re a “communist,” maybe don’t start with an economic agenda that can (accurately) be labeled as federal price controls.
And here is a primer on Nixon’s price controls announced 53 years ago yesterday. Read Modern Principles for more.
India’s Cities
The Economist has a good piece on India’s cities. Mumbai has done a great job in recent years at building more infrastructure but infrastructure alone is not enough:
…An overly prescriptive, 2,200-page National Building Code and a surfeit of local rules prevent developers from making optimal use of pricey urban land. Mumbai has some of the most restrictive land-use regulations of any global megacity. In most well-functioning cities about 90% of land is given over to streets, public spaces and buildings. In Mumbai and other Indian cities, those uses take up less than half of the land area, according to analysis by Bimal Patel, an urban planner. The rest is wasted on “private open spaces”—mostly building compounds that are walled off and put to no good use.
The result is that Indian cities are sparsely built-up yet feel densely crowded, note Sanjeev Sanyal and Aakanksha Arora of the prime minister’s Economic Advisory Council. Cities sprawl outwards, driving up the cost of providing infrastructure.
The Economist misses, however, that to truly solve the problem what is needed is better institutions including private cities. Here’s Shruti Rajagopalan and myself writing in the NYTimes:
If China shows the costs of too much top-down planning, India shows the costs of too little. Indian urban development has suffered under an imposing edifice of overlapping bureaucracies and a philosophy of economics that prioritizes village life over urbanization. Together, Nehruvian bureaucracy and Gandhian economics, romanticizing rural agrarian life, have made it extremely costly to convert rural land for urban use. Indian urban development has lagged that of China, and the pressures for urbanization have resulted in the unofficial building of slums and illegal and chaotic development in large cities.
Gurgaon, a city southwest of New Delhi, is an exception. Gurgaon was a small town 25 years ago, but today it’s a city of some two million people filled with skyscrapers, luxury apartment towers, golf courses, five-star hotels and shopping malls. Often called “the Singapore of India,” Gurgaon is home to offices for nearly half the Fortune 500 firms.
Gurgaon, however, grew not by plan but in a fit of absence of mind. After the state of Haryana streamlined the licensing process, it left developers in Gurgaon to their own devices with little intervention from any national, state or local government. As a result, almost everything that works in Gurgaon today is private. Security, for example, is privately provided for almost all housing, shopping and technology complexes. Over all, about 35,000 private security guards protect Gurgaon, compared with just 4,000 public officers. Gurgaon also has India’s only private fire department, filling an important gap, because it must be capable of reaching Gurgaon’s tallest skyscrapers.
But not all is well. No developer in Gurgaon was large enough to plan for citywide services for sewage, water or electricity. For a price, private companies provide these, but in inefficient ways. Sewage doesn’t flow to a central treatment plant but is often collected in trucks and then dumped on public land. Tap water is often delivered by private trucks or from illegally pumped groundwater. Reliable electricity is available 24 hours a day, but often using highly polluting diesel generators.
Compared with the rest of India, Gurgaon fares well but its functioning is far from ideal. Is there a middle ground between China’s ghost cities and the anarchy of Gurgaon? Surprisingly, privately planned cities may be an answer. And one of the oldest is in India.
Jamshedpur was founded by Tata Steel, as a company town, in 1908. It has landscaped parks, paved roads and even a lake, but it’s no playground for the rich. It’s a working town. Nevertheless, it is the only city in the state of Jharkhand with a sewage treatment plant, and it’s one of the few cities in all of India where residents enjoy reasonably priced, reliable electricity and safe tap water. In a survey by the marketing research company Nielsen, residents ranked the city among the best in India for its cheap and reliable provision of sewage, water, electricity, public sanitation and roads.
Jamshedpur works because Tata owned enough land so that it had the right incentives to plan and invest in citywide infrastructure. Tata has also had to maintain good services in order to attract workers. In Gurgaon, private developers built lots of infrastructure, but only up to the property line. By extending the property line to city-scale, the incentives to build large-scale infrastructure like sewage, water and electricity plants are also extended.
See also Lessons from Gurgaon: India’s Private City and my MRU video Skyscrapers and Slums: What’s Driving Mumbai’s Housing Crisis?
Hat tip: Salim Furth.
Tabarrok on China: World of DAAS Podcast
I was very pleased to appear on Safegraph CEO Auren Hoffman’s World of DAAS podcast. We covered lots of material including this (lightly edited) bit on China.
Auren Hoffman (23:06.518):
Now, you’ve thought a lot about things like reshoring, building manufacturing capacity. How do you think we could be thinking about that differently?
Alex (23:24.058)
I understand that there are some concerns about China, and there is an argument and I think it’s a legitimate argument, that there are some things such as chips that we want to make sure, it’s not good to have them located in Taiwan, right? We want to make sure that we onshore those. However, I have three concerns. One is, fundamentally, I don’t think China and the United States have such a clash of interest. Of course, it’s not perfect harmony, but there’s a lot of harmony of interest between China and the United States. We do lot of trade with China, which benefits both China and the United States.
..China’s getting richer Okay, people are worried because they’re getting more military whatever but also what this means is that people in China are getting cancer. Well now there’s 1 .4 billion people who want to cure for cancer, and they’re willing to put some money into it, right? And then that’s going to increase the amount of research and development for all kinds of high-tech goods, which is amazing for us. Like, I would be thrilled if an American wins the Nobel Prize for curing cancer. I would be 99.5 % as happy if a Chinese scientist wins a Nobel Prize for curing cancer.
So we have a lot to gain from a richer China. That’s point one. Point two is that, yeah, I get the idea that we want to onshore chip manufacturing, but I think we want to friendshore, right? So we don’t want to just have protection against all countries. Like I get it, okay, a hundred percent tariff on your Chinese EVs. It’s kind of crazy, but all right. However, let’s reduce tariffs on Germany.
Let’s reduce tariffs on Europe. In fact, let’s create a free trade, even a free immigration block among the Western democracies, you know, including Japan, Australia, New Zealand. So, let’s not turn a small problem in foreign policy, which is to make sure that we have a ready military supply. Let’s not turn that into trying to create a fortress America Which is going to make us poorer and actually less safe instead, you know, let’s build up the free world. Okay, let’s create an immigration and free trade with Europe and Canada and Mexico and so forth. Let’s build up the free world. That’s point two.
Point three is that look. It’s very, very easy to take a foreign policy argument and turn it into rent seeking for the benefit of special interests and protectionism for the benefit of special interests. Right? So at one point in the United States, probably even still today, you know, we were prohibiting mohair imports. Okay. Why? Because we use mohair to make military uniforms. The whole thing is ridiculous. But it’s very easy, almost inevitable, that this kind of argument is turned into a special interest trough.
I think this is one of my best podcast appearances because we covered some new material on crime, the universities, why Tyler and I are able to cooperate on so many projects, a conspiracy theory I believe and more. Listen to the whole thing.
US Human Experimentation Without Consent or Contract
In July 1946, 20-year-old Helen Hutchison walked into the Vanderbilt University prenatal clinic in Nashville, Tennessee. Helen found herself pregnant after her husband had returned from combat in World War II. The pregnancy, however, had not been easy. During her visit to the clinic Helen’s doctor handed her a small drink.
“What is it?” she asked.
“It’s a little cocktail,” her doctor replied. “It’ll make you feel better.”
“Well I don’t know if I should be drinking a cocktail,” she responded in jest.
“Drink it all. Drink it all down” (quoted in Welsome 1999, p. 220).Helen did as her doctor ordered.
Three months later Helen’s daughter, Barbara, was born. Not long after, Helen began to experience some frightening health problems; her face swelled, and her hair fell out. She then experienced two miscarriages, one of which necessitated 16 blood transfusions (Welsome 1999, p. 220). Baby Barbara experienced her own health problems from early childhood. She suffered from extreme fatigue and developed an autoimmune disorder and eventually skin cancer.
…Unbeknownst to Helen, she and her unborn baby had been subjects in a government-funded experiment. She was one of hundreds of women who received an experimental “cocktail” between 1945 and 1947 during one of their prenatal visits, compliments of the U.S. Atomic Energy Commission (AEC), which provided the materials (Wittenstein 2014, p. 39).
The 829 women of the Vanderbilt clinic were but a few of hundreds of thousands of individuals, mostly U.S. citizens, who would be subjected to illegal experiments and suffer human-rights violations during in the post-World War II period at the hands of scientists with funding and materials provided by the U.S. government. These experiments were meant to provide the government with information about the effects of atomic weapons on the human body to advance military capabilities in the name of “national security.”
This paper tells the story of U.S. government activities related to human experimentation after World War II.
That’s Coyne and Hall writing on Dr. Mengele, USA Style: Lessons from Human Rights Abuses in Post World War II America. It’s interesting that these immoral experiments using radiation and also agents of chemical warfare are less well known to the public than say the Tuskegee Study even though they involved far more people.