Math Is Required

There’s a very good post from Derek Thompson at Atlantic which explains why the recovery looks so good to some people, e.g. President Obama, but not so good to a lot of people. And it has nothing to do with racism or ideology but with the structure of the American economy today:

The U.S. economy’s power-law features, in which averages disguise massive inequalities in outcomes, go a long way in explaining how Obama can tell a story about the economy vastly different from the ones that are propelling some presidential candidates. A prime example is the pattern of income growth. Between 2009 and 2013, most measures of real personal income showed slow but steady improvement. Average hourly earnings for private sector workers grew about 7 percent. But what about the distribution? The top 1 percent saw its disposable income grow by 11 percent. Everybody else got close to nothing. For the bottom 99 percent, income actually declined through the first five years of the recovery. “So far all of the gains of the recovery have gone to the top 1 percent,” the economist Justin Wolfers wrote.

which if you will recall is what I’ve been saying for some time.

Left unaddressed is what to do about it. We could produce a lot more growth. Enough so that it would trickle down to a higher proportion of the people. Unfortunately, nobody knows how to do that. Everybody has an idea and many of the ideas are mutually exclusive.

We could raise taxes on the beneficiaries of the growth of the last few years and transfer the proceeds to those who haven’t benefited. That has two problems. First, getting the taxed to sit still long enough to pay is harder than it sounds. And second when the proposals get filtered through the Congress somehow rather than going to people in the bottom 90% of the economy the transfers always end up going to people in the top income percentiles. On behalf of the bottom 90%, natch.

My proposal—stop subsidizing the rich—never seems to get any traction. To do that you’ll need to let banks fail, make the ownership of assets (as opposed to work or the production of goods) less profitable, and kill a sacred cow or two, e.g. the home mortgage interest deduction, an astonishing proportion of the benefits of which go to the highest income earners. Funny, that.


Weeping Because There Were No More Worlds to Conquer

In what is possibly the dumbest post from a smart guy I’ve ever read over at Bloomberg Noah Smith argues for “intensive growth”:

Extensive growth is based on greater inputs. More energy, more cheap labor, more land. When you use existing technologies to build more roads and more buildings, that’s extensive growth. Intensive growth, on the other hand, is about getting more output for a given about of input — doing a lot with a little. One famous example of intensive growth was early modern Dutch agriculture, in which the Netherlands created flooded basins called polders to reclaim land from the sea. Improved production technology, of course, is one of the biggest generators of intensive growth.

The U.S. isn’t as good at intensive growth as it should be. For example, the country uses too much energy to produce each dollar of economic output — though it is improving. The U.S. has very low urban population density relative to other advanced countries. Though the country is considered highly urbanized, many so-called urban residents actually live in far-flung suburbs. Where Europe and Asia cluster, America sprawls.

Sprawl probably reduces productivity. When people cluster more tightly together, they become more productive — this is known in economics as an agglomeration externality. This explains why the same person will produce more economic output in New York City than in a small town.

Is that really the interpretation of the graph he submits as evidence?
If it is why are there more triangles below the hypothesized trend line than above it? And why are Los Angeles and Chicago below the trend line? Isn’t it possible that insurance and finance skew the results?

Also, if density is so good for economic growth why is Europe growing more slowly than the U. S.? Shouldn’t it be the other way around?

I don’t think that Dr. Smith understands why people have been fleeing the cities for the suburbs for the last 70 years. In Chicago in particular it isn’t because it’s so easy. There are been a targeted strategy of making it hard to move out of the city which has flopped.

Allow me to offer a unified theory for why people have left the cities and why Detroit and Chicago (just to name two) are in such terrible shape: entrenched power structures. They won’t become transient if more people move downtown.

Yet another example of cargo cult thinking. And highly selective cargo cult thinking at that.

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Forum Question: Book With the Most Influence?

The Watcher’s Council Forum question this week was about which books have had the most influence on us. I’ve recounted this anecdote before here but this was my contribution:

That’s a subject I haven’t thought about in years. From age 7 to 20 my life was marked out in books like milestones along a road.

The book that influenced me the most was the first one I ever read–my dad’s fourth grade reader. When I completed first grade I couldn’t read a word. According to my mom that summer I took my dad’s fourth grade reader, disappeared behind the couch, and when I re-emerged at the end of the summer not only could I read, I was reading far above grade level.

It was a wonderful book! An anthology of stories, fables, poetry, and snippets from popular literature (popular at the turn of the last century that is). It was the first of many.

There is no frigate like a book, indeed.

However, I don’t recall whether I’ve ever shared the punchline to that story with you which was how my parents came to know that I could read. Later that summer we were on a family day trip and, after going into a filling station restroom with my dad, when we emerged I said “Daddy, what does ‘prophylactic’ mean?” to which he responded “It’s something to keep you clean” and that’s how they knew I could read.

The Council forum is here.


The Next Term

I have no idea what the first term of a President Trump would be like. When I say “no idea”, I mean I have absolutely no idea. He’s a cipher as far as I’m concerned.

Oddly and despite her being one of the most known quantities in politics today, I only have the fuzziest notion of what President Hillary Clinton’s first term would be like.

So, help me out here. Describe President Hillary Clinton’s first term. Show your work.


Too Slow To Be Effective

This isn’t a particularly good piece at Climate Change News:

Speaking at a sustainability event in London, Sir David argued innovation to bring down the cost of clean technology would bring swifter results.

“I don’t think it [carbon pricing] is a fast enough driver for change,” he told Climate Home on the sidelines. “It needs to go hand in hand with other regulatory systems.”

His stance contrasts with the priorities of neighbouring France and indeed the UK government’s line within the EU.

Last week, France was among six countries calling for an expansion of carbon pricing to cover half the world’s emissions by 2030.

but it does bring up an important point that I hadn’t considered before. While carbon pricing may be too slow to be an effective tool against climate change, I’d be willing to be that it’s just dandy for arbitrage.


The First Shoe (Updated)

The Wall Street Journal reports that Puerto Rico is defaulting on its debt:

Puerto Rico’s Government Development Bank doesn’t plan to make most of a $422 million debt payment due Monday, a step that could move the island’s financial crisis to a new level.

“Faced with the inability to meet the demands of our creditors and the needs of our people, I had to make a choice,” Gov. Alejandro Garcia Padilla said in a speech Sunday night, according to an English translation of the remarks. He said making the payment would divert money needed for crucial health and public-safety services.

A law enacted by Puerto Rico’s government in April empowers Mr. Garcia Padilla to suspend debt payments to pay for essential services as the U.S. commonwealth awaits help from Congress. Some of Puerto Rico’s creditors have criticized the law, saying the government won’t commit to necessary financial changes and hasn’t made a good-faith effort at a consensual restructuring.

I don’t see any way that can be construed as a benign development. Puerto Rico’s general obligation bonds are trading at around 65 cents on the dollar. CPS’s are trading at 72 cents. Chicago’s are trading at 96. Is Chicago far behind?


In commenting on the situation in Puerto Rico at RealClearMarkets, Ike Brannon notes:

There are already law firms working on a possible Chapter 9 bankruptcy in Chicago, and Illinois’ enormous pension problems will likely result in it needing to restructure debt in the next few years as well. The recent Chicago Board of Education bond issuance even required specific language that discussed contingencies in a non-existent bankruptcy regime. The likely outcome there–especially in a Clinton Administration, where the cast of characters in Treasury may not change all that much–will be to protect the pensions of current and retired government workers first and foremost and renege on the promises made to the lenders. How could anyone conclude differently?


What’s the Matter With Portland?

Portland has the third lowest percentage of black population of any major metropolitan area in the United States and it’s lost 11.5% of that over the last four years. This article at City Journal examines what’s going on:

Portland is part of the fifth-whitest major metropolitan area in America. Almost 75 percent of the region is white, and it has the third-lowest percentage of blacks, at only 3.1 percent. (America as a whole is 13.2 percent black.) Portland proper is often portrayed as a boomtown, but the city’s tiny (and shrinking) black population doesn’t seem to think so. The city has lost more than 11.5 percent of its black residents in just four years. Metro Portland’s black population share grew by 0.3 percentage points from 2000, but that trailed the nation’s 0.5 percentage-point growth. This implies that some of Portland’s blacks are being displaced from the transit- and amenity-rich city to the suburbs that progressives themselves insist are inferior.

The San Francisco Bay metro area has lost black residents since 2000, though recent estimates suggest that it may have halted the exodus since 2010. The Los Angeles metro area, too, has fewer black residents today than in 2000. The performance in the central cities is even worse. America’s most liberal city, San Francisco, is only 5.4 percent black, and the rate is falling. It’s a similar tale in Seattle—“one of the most progressive cities in the United States,” as a Black Lives Matter protester noted. One city bucking the western trend is Denver. Though the Rocky Mountain city has a small black population—6.1 percent in the region and 9.5 percent in the city proper—that population is growing in both areas, if slowly.

These figures might not be important if they merely reflected a choice by blacks to move to more auspicious locations, but the evidence suggests that specific public policies in these cities have effectively excluded and even driven out blacks. Primary among them are restrictive planning regulations that make it hard to expand the supply of housing. In a market with rising demand and static supply, prices go up. As a rule, a household should spend no more than three times its annual income on a home. But in West Coast markets, housing-price levels far exceed that benchmark. According to the Demographia International Housing Affordability Survey, the “median multiple”—the median home price divided by the median household income—should average about 3.0. But the median multiple is 5.1 in Portland, 5.1 in Denver, 5.2 in Seattle, 8.1 in Los Angeles and San Diego, 9.4 in San Francisco, and 9.7 in San Jose. As the Demos/IASP report found, differences in homeownership rates between whites and blacks account for a large share of the racial wealth gap. Policies that put the price of homeownership out of reach for black families exacerbate the problem.

In Chicago Mayor Emanuel’s policies have led to the funding of various amenities that appeal primarily to people in upper income brackets while neighborhood schools are closed and the homicide rate is higher than it’s been in more than a decade. The latter problem is particularly grave in the largely black South and West Sides.


How Elastic Is Demand?

The problem with the Orange County Register analysis by the CEO of the company that owns the Carl’s Jr. and Hardees chains of the effects California’s increase in the minimum wage is that he completely discounts the possibility of price increases. Is demand really that elastic and prices really that inflexible?

I think that supporters of a $15 minimum wage are too quick to throw the workers who will lose their jobs under the bus, too focused on large cities, and too focused on the big corporations and not nearly enough on the franchisees. I don’t think the minimum wage issue can be decided on an a priori basis.


Technocrats and Individualists

In an interview at In These Times (hat tip: RealClearPolitics), Thomas Frank of What’s the Matter With Kansas? fame points out something that’s worth reflecting on:

What’s the content of the ideology of the professional class and how does it hurt working people? What are their guiding principles?

The first commandment of the professional class is the idea of meritocracy, which allows people to think that those on top are there because they deserve to be. With the professional class, it’s always associated with education. They deserve to be there because they worked really hard and went to a good college and to a good graduate school. They’re high achievers. Democrats are really given to credentialism in a way that Republicans aren’t.


That was an essential point that I try to make in Listen Liberal: that there is no solidarity in a meritocracy. A meritocracy really is every man for himself.

That’s a very interesting point. His claim is that the Democratic Party’s technocratic wing is in essential agreement with the Rand Paul-style objectivists. I’m not sure how you can justify other components of the Democratic platform other than on cynical, political grounds using that as a basis.

But it really does explain what’s going on here in Chicago.


Which Side Are They On?

The editors of Wall Street Journal, no particular fans of Donald Trump, wonder what side the “protesters” who attempted to disrupt the California GOP Convention are on:

It’s counterintuitive, but we’re beginning to wonder if all of those protesters showing up at Donald Trump rallies aren’t secret supporters. They couldn’t possibly be doing more to persuade millions of Republicans to vote for him, if only to defend the right to free speech and association.

The protests are picking up in volume and disruption as the candidates campaign in California ahead of the June 7 primary. Protesters blocked traffic, punched vehicles and cursed Trump supporters in Costa Mesa Thursday, and hundreds blocked the entrance to the GOP convention in Burlingame on Friday. About two dozen people tried to rush barriers near the Hyatt Regency, and Mr. Trump and his aides had to get out of their cars and walk into the convention.

“I think it’s going to get worse if he gets the nomination and is the front-runner. I think it’s going to escalate,” Luis Serrano, an organizer with California Immigration Youth Justice Alliance, told the Los Angeles Times. “We’re going to keep showing up and standing against the actions and the hate Donald Trump is creating.”

Even Americans who don’t support Mr. Trump may hear this and wonder who is really creating hate. The spectacles are made-for-ratings cable TV fodder, and Mr. Trump knows it. Every protester who breaks the law or waves a Mexican flag as a political statement in favor of illegal immigration might as well be voting for Mr. Trump.

Strategically, all of these actions, i.e. blocking access, rushing barriers, and waving Mexican flags, are counter-productive. They’d be much better off with completely peaceful protests and ensuring that the flags that were waved were American flags, emphasizing how American they are.

Presumably, the most benign interpretation is that they’re romantics who are less concerned about the practical effects of their actions than they are about blowing off steam. More likely is that they are radicals who are attempting to provoke a response. I think that gravely over-estimates their power, even in California.