China’s Private Cities
In Rising private city operators in contemporary China, Jiao and Yu report that China’s private cities are growing.
…the last decade has witnessed a large growth in private city operators (PCOs) who plan, finance, build, operate and manage the infrastructure and public amenities of a new city as a whole. Different from previous PPPs, PCOs are a big breakthrough…they manage urban planning, industry development, investment attraction, and public goods and services. In other words, the traditional core functions of municipal governments are contracted out, and consequently, a significant neoliberal urban governance structure has become more prominent in China.
In the new business model, the China Fortune Land Development Co., Ltd. (CFLD) was undoubtedly the earliest and most successful. It manages 125 new cities or towns with a total area of over 4000 km2. Founded in 1998, the enterprise group has grown into a business giant with an annual income of CNY 83.8 billion in 2018. The company’s financial statements demonstrate that the annual return rate of net assets has grown as much as 30% annually from 2011 to 2018, which is the highest among the Chinese Fortune 500 companies.
As Rajagopalan and I argued in Lessons from Gurgaon, India’s Private City the key development has been to scale large enough so that the private operator internalizes the externalities. Quoting Jiao and Yu again:
The key to solving this problem is to internalize positive externality so that costs and benefits mainly affect the parties who choose to incur them. The solution of the new model is to outsource Gu’An New Industry City as a whole to CFLD, which becomes involved in the life cycle including planning, infrastructure and amenity construction, investment attraction, operations and maintenance, and enterprise services. In this way, a city is regarded as a special product or a spatial cluster of public goods and services that can be produced by the coalition of the public and private sectors. The large-scale comprehensive development by a single private developer internalizes the externality of non-exclusive public amenities successfully and achieves a closed-loop return on investment.
As a result private firms are willing to make large investments. In Gu’An, an early CFLD city, for example:
CFLD has invested CNY 35 billion to build infrastructure and public amenities, including 181 roads with a length of 204 km, underground pipelines of 627 km, four thermal power plants, six water supply factories, a wastewater treatment plant, three sewage pumping stations, and 30 heat exchange stations. The 2018 Statistical Yearbook of Langfang City illustrates that the annual fiscal revenue increased to CNY 9 billion, and the fixed asset investment was approximately CNY 20 billion, and Gu’An achieved great success in terms of economic growth and urban development strongly promoted by the collaboration with CFLD.
By the way, The Journal of Special Jurisdictions, is looking for papers on these cities:
Although a relatively recent phenomenon in urban development, Chinese Contract Cities already cover 66,000 square kilometers and house tens of millions of residents. They host a wide range of businesses and have attracted huge amounts of investment. In cooperation, local government entities, private or public firms plan, build and operate Chinese contract cities. Developers obtain land via contracts with local government or long-term leases with village collectives and enjoy revenues generated from economic activity in the planned and developed community. Residents contract a management firm for housing and other municipal services. In that way, Chinese contract cities offer innovative solutions to urban finance, planning, and management challenges.
The Chinese Contract Cities Conference will offer the world’s first international gathering of experts on this important new phenomenon.
…The proceedings of the Chinese Contract Cities Conference will appear in the Journal of Special Jurisdictions.
See also my previous post on Jialong, China’s Private City.
Pre-order *Talent* at a Barnes & Noble discount
“Between 1/26 – 1/28, get 25% off when you preorder TALENT online only at @BNBuzz! Use code: PREORDER25 https://www.barnesandnoble.com/w/talent-tyler-cowen/1138462103”
Here is my previous post on Talent, a book co-authored with Daniel Gross.
Where I differ from Bryan Caplan’s *Labor Econ Versus the World*
One thing I liked about reading this book is I was able to narrow down my disagreements with Bryan to a smaller number of dimensions. And to be clear, I agree with a great deal of what is in this book, but that does not make for an interesting blog post. So let’s focus on where we differ. One point of disagreement surfaces when Bryan writes:
Tenet #6: Racial and gender discrimination remains a serious problem, and without government regulation, would still be rampant.
Critique: Unless government requires discrimination, market forces make it a marginal issue at most. Large group differences persist because groups differ largely in productivity.
I would instead stress that most of the inequity occurs upstream of labor markets, through the medium of culture. It is simply much harder to be born in the ghetto! I am fine with not calling this “discrimination,” and indeed I do not myself use the word that way. Still, it is a significant inequity, and it is at least an important a lesson about labor markets as what Bryan presents to you.
But you won’t find much consideration of it in Bryan’s book. The real problems in labor markets arise when “the cultural upstream” intersects with other social institutions in problematic ways. To give a simple example, Princeton kept Jews out for a long time, and that was not because of the government. Or Princeton voted to admit women only in 1969, again not the government. What about Major League Baseball before Jackie Robinson or even for a long while after? Much of Jim Crow was governmental, but so much of it wasn’t. There are many such examples, and I don’t see that Bryan deals with them. And they have materially affected both people’s lives and their labor market histories, covering many millions of lives, arguably billions.
Or, the Indian government takes some steps to remedy caste inequalities, but fundamentally the caste system remains, for whatever reasons. Again, this kind of cultural upstream isn’t much on Bryan’s radar screen. (I have another theory that this neglect of culture is because of Bryan’s unusual theory of free will, through which moral blame has to be assigned to individual choosers, but that will have to wait for another day!)
We can go beyond the discrimination topic and still see that Bryan is not paying enough attention to what is upstream of labor markets, or to how culture shapes human decisions.
Bryan for instance advocates open borders (for all countries?). I think that would be cultural and political suicide, most of all for smaller countries, but for the United States too. You would get fascism first, if anything. I do however favor boosting (pre-Covid) immigration flows into the United States by something like 3x. So in the broader scheme of things I am very pro-immigration. I just think there are cultural limits to what a polity can absorb at what speed.
If you consider Bryan on education, he believes most of higher education is signaling. In contrast, I see higher education as giving its recipients the proper cultural background to participate in labor markets at higher productivity levels. I once wrote an extensive blog post on this. That is how higher education can be productive, while most of your classes seem like a waste of time.
On poverty, Bryan puts forward a formula of a) finish high school, b) get a full time job, and c) get married before you have children. All good advice! But I find that to be nearly tautologous as an explanation of poverty. To me, the deeper and more important is why so many cultures have evolved to make those apparent “no brainer” choices so difficult for so many individuals. Again, I think Bryan is neglecting the cultural factors upstream of labor markets and in this case also marriage markets. One simple question is why some cultures don’t produce enough men worth marrying, but that is hardly the only issue on the table here.
More generally, I believe that once you incorporate these messy “cultural upstream” issues, much of labor economics becomes more complicated than Bryan wishes to acknowledge. Much more complicated.
I should stress that Bryan’s book is nonetheless a very good way to learn economic reasoning, and a wonderful tonic against a lot of the self-righteous, thoughtless mood affiliation you will see on labor markets, even coming from professional economists.
I will remind that you can buy Bryan’s book here, and at a very favorable price point.
My talk at Yale on university Covid policy and how universities really work
I start with about ten minutes of remarks, and then for fifty minutes or so answer questions from Yale students. This was at Yale’s William F. Buckley group.
*Labor Econ Versus the World*
The author is Bryan Caplan and the subtitle is Essays on the World’s Greatest Market. It is a collection of his best blog posts on labor markets over the last fifteen years or so. A Bryan blog post from 2015 gives a good overview of much of the book, which you can read as pushback against a lot of doctrines held by other people, including the mainstream:
What are these “central tenets of our secular religion” and what’s wrong with them?
Tenet #1: The main reason today’s workers have a decent standard of living is that government passed a bunch of laws protecting them.
Critique: High worker productivity plus competition between employers is the real reason today’s workers have a decent standard of living. In fact, “pro-worker” laws have dire negative side effects for workers, especially unemployment.
Tenet #2: Strict regulation of immigration, especially low-skilled immigration, prevents poverty and inequality.
Critique: Immigration restrictions massively increase the poverty and inequality of the world – and make the average American poorer in the process. Specialization and trade are fountains of wealth, and immigration is just specialization and trade in labor.
Tenet #3: In the modern economy, nothing is more important than education.
Critique: After making obvious corrections for pre-existing ability, completion probability, and such, the return to education is pretty good for strong students, but mediocre or worse for weak students.
Tenet #4: The modern welfare state strikes a wise balance between compassion and efficiency.
Critique: The welfare state primarily helps the old, not the poor – and 19th-century open immigration did far more for the absolutely poor than the welfare state ever has.
Tenet #5: Increasing education levels is good for society.
Critique: Education is mostly signaling; increasing education is a recipe for credential inflation, not prosperity.
Tenet #6: Racial and gender discrimination remains a serious problem, and without government regulation, would still be rampant.
Critique: Unless government requires discrimination, market forces make it a marginal issue at most. Large group differences persist because groups differ largely in productivity.
Tenet #7: Men have treated women poorly throughout history, and it’s only thanks to feminism that anything’s improved.
Critique: While women in the pre-modern era lived hard lives, so did men. The mating market led to poor outcomes for women because men had very little to offer. Economic growth plus competition in labor and mating markets, not feminism, is the main reason women’s lives improved.
Tenet #8: Overpopulation is a terrible social problem.
Critique: The positive externalities of population – especially idea externalities – far outweigh the negative. Reducing population to help the environment is using a sword to kill a mosquito.
Yes, I’m well-aware that most labor economics classes either neglect these points, or strive for “balance.” But as far as I’m concerned, most labor economists just aren’t doing their job. Their lingering faith in our society’s secular religion clouds their judgment – and prevents them from enlightening their students and laying the groundwork for a better future.
I will say this: Labor Econ Versus the World, while not written as a book per se, still is the best free market book on labor economics I know of. And it is very reasonably priced. I agree with much of what is in this book, but by no means all of it. I’ll consider my differences with it in a separate blog post, to come tomorrow.
“But are you short the market?”
“But are you short the market?” That is my favorite rejoinder to expressions of radical pessimism. It came to mind recently when I read an opinion piece suggesting that “the United States as we know it could come apart at the seams.”
…Besides, shorting the market does not have to be impossibly risky. Just buy some unleveraged market puts each year until that position pays off. That’s not a great investment tactic for most people, but it makes sense for diehard pessimists. Are they even asking around about how to do this, the way you might ask for recommendations for a good restaurant or a masseuse?
I do have friends and acquaintances who work in finance who short particular assets. If they short the entire market, it might be in frothy times — when things seem good and indeed are good, albeit not as good as sky-high prices indicate. That trading tactic, whether prudent or not, is hardly an indicator of mega-pessimism.
There are committed pessimists in the world. Argentina, for instance, is full of pessimists about the Argentinian economy. Typically they have dollar-based bank accounts abroad, which take time and trouble to set up. So there are ways of expressing true pessimism, if you mean it.
Another curious response I hear from pessimists is that they aren’t short the market because the death of democracy in the U.S., or the birth of fascism, isn’t going to be bad for the stock market. That is at least a consistent view — but it is wrong and oddly anti-democratic.
I for one think that America’s biggest and best companies will do better in an era of stability, freedom and economic growth. Fascism is too terrible to succeed for very long.
That is from my latest Bloomberg column, I conclude that very few Americans are truly pessimistic.
Does crypto add to the money supply?
That is a reader request from Jerry Kate:
Is crypto effectively adding to M2 or M3 money supply and hence inflationary (outside the control and models of central banks), or is the velocity of crypto so low that it acts (like stocks) as a store of value having no impact on inflation? Will the answer to the prior question change if the market cap of crypto doubles or if crypto is tweaked to add velocity, or incorporated into the banking system to generate multiplier effects? Should central banks be worried?
I think you could ask this question of monetary economists, and get “confirmed” answers, yet the answers would disagree with each other. My views are as follows:
1. If crypto prices are bubbles, they will encourage more spending and thus they would be inflationary, though only mildly so. And that process could not continue for very long. In the old school “Gurley and Shaw” sense, crypto is a kind of outside money and net wealth, and so spending will rise.
2. Alternatively, let’s say crypto assets have use cases that justify the current prices, but those use cases are not yet actively in use at this moment. The crypto assets are then mildly inflationary now, but an offsetting deflationary impetus will kick in once those use cases arrive and lower the prices of goods and services in the marketplace.
3. Or, let’s say crypto prices are not bubbly, and are justified by current uses. You then have a more or less offsetting boost in both aggregate demand and aggregate supply.
4. An additional question is whether the velocity of (traditional) money is higher or lower in the crypto sector. I don’t know the answer to that question. It is a possible effect, though probably not a major one. If crypto soaks up money in a kind of “segregated from the real economy” shell game, it can be mildly deflationary.
5. Jerry also asks about “incorporating crypto into the banking system.” That could mean a number of things. Under one scenario, stable coins are told to become banks and then they are regulated like banks. It would then be like having more money market funds, and that could be broadly inflationary on a modest, one-time basis, though of course you would have to compare the effects of those money market funds to the “wild west crypto effects” they were displacing.
Any other views or scenarios to consider? Overall I don’t see this as a significant effect in quantitative terms, but it is nonetheless worth thinking through the logic of the question.
Lina Khan and the rule of law
“And there’s also indication that Congress wanted enforcers not just to act when you know, the third and fourth companies are merging or the first and second, but actually in the incipiency, when you said see trends towards concentration that those can also be important moments for enforcers to jump in.”
Here is the transcript.
Monday assorted links
1. How ugly were the ugly buildings of earlier eras? Maybe not that much. And new recordings of the Chopin Nocturnes (New Yorker).
2. Noah Smith on why Ukraine is such an economic failure.
3. Why skyscrapers are so short.
4. Claims about socialism and fascism.
Your Presidential Picks
Conor Friedersdorf asks“You can appoint any American citizen to one term as president,” I wrote earlier this week, “so long as your choice has never run for president before. Who do you appoint to the White House and why?”
and gets some interesting answers including these two:
“Austin makes a case for the public-radio host Kai Ryssdal, highlighting parts of his résumé I’d never known about:
Born in the U.S., but grew up partially overseas. MA in national security studies from Georgetown. [Flew] airplanes off of aircraft carriers in the US Navy. Pentagon staff officer. U.S. Foreign Service. Great communication skills, as heard on his hit radio show Marketplace, where he breaks down economics and markets both foreign and domestic. After he left the Navy he would ride his bike to work at a Borders for $7 an hour. He’s got an unbelievably impressive résumé with real world experience in National Security, International Relations, China Policy, US Military policy, economics, and the markets. Plus he knows what it’s like to work a real job like the rest of us. And he speaks Chinese! That’s huge. I would get behind him any day of the week.
Russell picked one of my favorite public intellectuals:
I’d like to appoint Tyler Cowen as president—besides being an uber-rationalist, we should give him a chance to put his state capacity libertarianism idea into practice. He is also one of the best identifiers of talent possibly on Earth, so we know we would get a dream team administration, likely composed of heterodox thinkers of diverse and opposing views who could shake everyone out of complacency. Finally, he has studiously managed to avoid being labeled as particularly associated with either party, so it’s possible that popular opinion wouldn’t know what to make of it all, giving the Cowen administration a chance to chart some new path, independent of pre-established partisan biases. Magical thinking? Maybe, but no less than we’ve got permeating our politics now.”
Good picks. I’d imagine that Cowen would appoint a pretty good FDA commissioner, or at least try.
Kevin Erdmann was right
I will turn the microphone over to Scott Sumner:
I was just shooting from the hip when I questioned the housing bubble view that was so popular after 2006. Credit should go to Kevin Erdmann, who produced a mountain of evidence against the bubble hypothesis in two very impressive books on housing. His view, which was once highly contrarian, has now been completely vindicated. Indeed, I don’t see how any fair-minded person reading his books could still believe in the housing bubble theory. Unfortunately, he’ll probably be ignored. The media tends to focus on academic research from top schools like Harvard, not unaccredited individuals working on their own. Better to be famous than to be right.
Here is the full post, and I am honored to have Kevin as my colleague at Mercatus, including for some of the earlier years of his work on this topic.
The economics of exploding job market offers
I am hearing various Twitter reports that in the absence of AEA scheduling coordination, the junior economics job market is involving a lot of departments jumping the gun, interviewing early, and then making “exploding offers” with a short fuse, hoping to snap up desperate candidates. I am not personally involved in that market this year, but my sources seem credible. In any case, this is a problem worth thinking through.
As an economist, how should we think about exploding job market offers?
1. If you are a decently strong candidate who is highly risk-averse, you will end up with too low quality a job. That said, the market is satisfying your risk-averse preference just as it does when you buy insurance. And if you are so risk-averse, maybe your research record won’t be so important anyway, even if you manage to publish well. I guess I am not that worried about these people. I am happy enough to tax their risk-aversion, and in fact I suspect we should tax their risk-aversion all the more.
2. You might argue there are “thick market externalities,” and so it is efficient if most of the offers/trading occur closely bunched in time (see Niederle and Roth). After all, many asset price markets have designated trading hours, rather than full blast trading 24/7. While I find that analogy plausible, keep in mind what the efficiency here consists of, namely placing the more highly rated candidates in the more highly rated schools. Is it so terrible if a “market inefficiency” shakes up that system a bit? I thought the system was too elitist anyway. Some would say “too white male patriarchical, etc.” anyway. That is not exactly my view, but I agree that status quo ex ante methods were hardly sacrosanct.
2b. I am not one to trust a “managed intervention” into the previous job market methods more than a general disruption of trading. Of course if you are an AEA elite leader, you might differ on this.
3. Private sector offers for economists are “always there,” as for instance Amazon and Uber are not locked into the same hiring schedule as academic departments are. So at the margin these exploding offers will push more economists into the private sector. I am fine with that, as arguably economists are currently excessively subsidized into academic institutions by government support.
4. Possibly the longer-term equilibrium is that everyone is pushed into acting in November, and perhaps with fewer flyouts. I am not sure that is a bad option. Is much extra, true information revealed between November and January? If you are a good department and afraid of losing good candidates to exploding offers, can’t you just hurry up yourself? That speed-up of the entire process also gives the secondary market, for those who did not get offers on the first round, more time to operate. Surely there is room for the entire process to hurry up, yes?
4b. The more quickly the first tier of offers is cleared up, the more efficiently the queued candidates (say second or third in line for an offer) will be allocated. Isn’t that important too? For an egalitarian maybe more important? And rapid, exploding offers may take some top candidates off the market more quickly, in a good way, and stop the places that have no chance at them from chasing after them and wasting time?
5. A speedier overall job market presumably would help the job candidates who are anti-procrastinators and hurt the candidates who are procrastinators. I am fine with that! On the offering side, maybe it would help private universities, which tend to be speedier, and hurt public universities? YMMV.
6. Through the use of letters and phone calls and exclusivity norms, there has been a de facto preemptive market for the top schools for a long time. And now others are jumping in early!? Just exactly who is supposed to be fooled here?
7. What is the actual initial job market distortion we might want any change to address or improve? Might it be that job market candidates are too “Top Five” oriented and too risk-averse? I am genuinely unsure here. But if that is the problem, I don’t see why having more exploding offers should be so terrible.
8. Aren’t a lot of the most important opportunities in your life to come similar to “exploding offers”? Is it so terrible if you have to get used to this method early on?
9. If you really hate exploding offers, work on weakening the supposition that a candidate is not allowed to take one and then a month later “quit” and take another, better job. Discussed here.
10. The best argument for a coordinated market is simply that it serves the interests of the top schools, and makes sure they get the best candidates, even the risk-averse ones. Yet everyone is afraid to come out and make this explicitly elitist, anti-egalitarian, and so they resort to a lot of loose moralizing rhetoric (“ooh, it stresses people!” or “ooh, it’s unfair!”) that does not really befit how economists ought to be thinking about the problem.
Here are my earlier remarks on related issues.
The benefits system that is Irish
A dead man was brought to a post office this morning in an attempt to collect his pension in one of the most bizarre incidents that gardaí have ever seen.
The shocking incident in which the deceased male was propped up by two other men happened at the post office on Staplestown Road in Carlow town…
No money was handed over and it is understood that the deceased man is well known to the two men who moved his body.
A local woman living beside the post office told how her daughter witnessed two men carrying a man into the shop.
“She was leaving my house at the time and said the man looked unwell as his feet were dragging the ground,” she said.
The woman, who did not want to be named, said there was a queue outside of the post office at the time.
“It’s a small shop and you’re only allowed three at a time with social distancing. People were in shock as they thought he was after having a heart attack,” she said.
Here is the full story, note that the postal workers became “immediately suspicious.”
Sunday assorted links
1. The dating culture that is D.C.
2. I don’t usually trust such papers, and indeed I don’t trust this one, but this result is deserving of further investigation: “The current data suggest that both increased salience of reward/loss information and reduced discrimination between reward and loss feedback could be factors linking SES with the development of human capital and health outcomes.”
3. Biden administration opposes plan to strengthen WHO. Yet I am barely hearing a peep about this. The Biden people are also wanting to enforce Trump’s Phase I trade deal with China.
4. N.S. Lyons thinks Wokeness hasn’t peaked yet.
5. Nate Meyvis on how to talk better to think better.
6. Paul Krugman is coming very close to admitting a) “real estate bubble” was not the best formulation, and b) Kevin Erdmann was right.
7. More on Germany.
The future of football, revisited
American football, that is. Reader JB requests:
Do you still believe the death of American football is near? If not, what has changed your mind?
He is referring to this earlier 2012 Grantland essay, which by the way did not argue that “the death of American football is near.” Nonetheless I have significantly upped my probability on American football continuing more or less indefinitely. The relevant evidence is simple, namely a) the number of Americans who will not receive Covid vaccines, and b) the relative lack of high-profile litigation over Covid deaths and disabilities, while at the same time there is plenty of litigation over mandates! I also might toss in c) the greater prevalence of federalism in American life, post-Covid.
There you go.