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August 15, 2010

Latest Posts from Economist's View

Latest Posts from Economist's View

"Free Parking Comes at a Price"

Posted: 15 Aug 2010 01:06 AM PDT

Tyler Cowen:

Free Parking Comes at a Price, by Tyler Cowen, Commentary, NY Times: In our society, cars receive considerable attention and study... But we haven't devoted nearly enough thought to how cars are usually deployed — namely, by sitting in parking spaces.
Is this a serious economic issue? In fact, it's a classic tale of how subsidies, use restrictions, and price controls can steer an economy in wrong directions. Car owners may not want to hear this, but we have way too much free parking.
Higher charges for parking spaces would limit our trips by car. That would cut emissions, alleviate congestion and, as a side effect, improve land use. Donald C. Shoup, professor of urban planning at the University of California, Los Angeles, has made this idea a cause... [...continue reading...]

I don't have much to say about this in particular, just a general point about moving to market based allocations of some goods and services, particularly those controlled by government.

As the price of a good or service rises, it begins to price some people out of the market. I don't mean that they choose to consume other things instead, I mean that no matter how much they want it, they can never have it. It's not a matter of desire, or willingness to pay, they simply cannot raise the needed funds -- it's just not possible to afford the good or service in question.

Because of this there are some goods and services controlled by government, national parks come to mind, where we choose to allocate goods by other means than the price system, lotteries, waiting time, random draws, that sort of thing. It generally occurs when we think equity is a primary consideration, i.e. that everyone should have a relatively equal shot at consuming a good or service.

For example, suppose we believe that everyone should at least have a chance to swim in the ocean. Willingness to wait indicates desire for the good in the same way that willingness to pay does, and this can be used to allocate the good or service. That is, willingness to circle for a period of time looking for a parking place so you can go to the beach -- which varies with demand for parking in that area -- indicates the depth of desire to do this activity and thus has desirable allocative properties -- and we can eliminate the externalities Tyler is worried about through a tax on carbon and congestion at the pump. The supply of parking, which is controlled by government, could be determined by the carrying capacity of the beach, which is itself influenced by considerations such as habitat protection that private markets may not handle well in any case. And, of course, public transportation could be provided as an alternative, but that's not available to everyone so some parking would likely be needed. Perhaps parking wouldn't be all that expensive, or maybe it would given the prices Tyler cites in the article for places like California, but the example is intended mainly to illustrate that prices aren't the only allocation mechanism available, and that sometimes other alternatives are desirable. There are certainly cases where price is a barrier and we choose to allocate goods by other means.

As we begin to price public areas with market based mechanisms -- places owned by all of us -- we need to think hard about equity and make sure we don't exclude certain segments of the population from access to these goods, services, and places. Sometimes market based allocations are fine, but not always.

Why the Unemployment Rate May Go Up

Posted: 15 Aug 2010 12:34 AM PDT

Calculated Risk explains why he expects the unemployment rate to increase in the near future:

Why do I expect the unemployment rate to increase?, by CalculatedRisk: ...Here are a few reasons why I think the unemployment rate will increase (some overlap):

1) The main reason is the general slowing economy. There is a general relationship between GDP and the unemployment rate (see Okun's Law), and since I expect a 2nd half slowdown (from a sluggish 1st half), I also expect few payroll jobs to be added in the 2nd half - and that suggests the unemployment rate will rise.

2) With the end of the housing tax credit, I expect residential construction employment to decline further over the next few months.

3) The 4-week average for initial weekly unemployment claims has increased recently. This is the highest level since February.

Weekly Unemployment Claims Click on graph for larger image in new window.

This graph shows the 4-week moving average of weekly claims since January 2000.

The four-week average of weekly unemployment claims increased this week by 14,250 to 473,500.

The dashed line on the graph is the current 4-week average. This is the highest level since February and suggests weakness in the labor market.

4) Few teens joined the labor force this summer. Perversely this low level of teen participation appeared to push down the seasonally adjusted unemployment rate. If this did impact the unemployment rate (it isn't clear), the impact will be unwound over the next couple of months.

5) The Labor Force Participation Rate decreased from 65.0% in May to 64.6% in July. This was a key reason the unemployment rate decline to 9.5% in June from 9.7% in May.

Some of this decline in the participation rate might be related to the expiration of the Federal unemployment benefits - some people whose benefits expired, and were unable to move on to the next tier, might have just given up. Note: this isn't an argument against unemployment benefits!

Just over a week ago the qualification dates for the various tiers of Federal unemployment benefits have been extended through November 30th. This extension was also made retroactive to June 2nd. Some people who have given up might rejoin the labor force to collect additional benefits. If this happens, the participation rate might increase in August - and that will probably push up the unemployment rate.

Yet what sort of urgency do we hear from policymakers over this problem? Little, if any.

links for 2010-08-14

Posted: 14 Aug 2010 11:02 PM PDT

Sachs: Market Reforms, 20 Years Later

Posted: 14 Aug 2010 07:09 PM PDT

This a comparison of developments in Russia and Poland over the last twenty years by Jeff Sachs. I don't know as much as I should about the biases Sachs might bring to the table due to his role as an advisor to Poland, who took his advice after the break-up of the Soviet Union, and his resignation as an advisor to Russia when he felt his prescriptions were being ignored (he is known for the "shock doctrine"):

Market Reforms, 20 Years Later, by Jeffrey D. Sachs, Commentary, Scientific American: I recently had the pleasure to revisit Warsaw, Poland, and St. Petersburg, Russia, two decades after the start of market reforms in which I had participated as an economic adviser. ...
Warsaw has enjoyed a building boom ... despite the economic slowdown in western Europe. St. Petersburg glories in the architectural treasures of the past but with much less evidence of current dynamism. ...
I have often been asked since then why market reforms took stronger hold in some places than others. The answers, rooted in the complex interplay of geography, politics, history and culture, are well worth understanding.
The greatest dividing line in outcomes has been the Soviet border. Countries such as Poland, Hungary, the Czech Republic and Slovakia—which had been outside of the Soviet Union but under Soviet domination—were eager to dash toward membership in the European Union. That membership process usefully steered their internal politics and legal reforms and prompted incoming foreign investments from Germany, Italy, Austria and Scandinavia.
Conversely, Russia was not dashing to Europe but was instead grappling with its own past and future. The collapse of the Soviet system was not followed by a consensus on a new economic and political model within Russia... Russian statecraft continued to be guided by the centuries-old practice of bureaucratic rule that cast a wary eye on market forces.
Culture has also shaped the dynamics of reform. ...Poles maintained a healthy skepticism toward state power... Out of 180 countries evaluated by the ... index of perceived public-sector corruption, Poland stands as the 49th least corrupt. ...
In Russia, on the other hand, corruption has run rampant during the past 20 years... The institutions of civil society, suppressed by centuries of tsarism and obliterated by Soviet-era state brutality, remain weak... Russia, not surprisingly, lands at a dismal 146th on the ... corruption list.
One of the sad parts of the story was the failure of U.S. presidents George H. W. Bush and Bill Clinton to support Russia's embattled reformers at crucial moments. ...American officials were insensitive to the growing Russian corruption and remained passive when they could have helped reformers to keep it in check. After all, the U.S. has its own corruption problems, ranking a rather dreary 19th on the ... list, below most other high-income countries.
I left St. Petersburg feeling that so much more economic reform was still possible ... throughout Russia. The people's high education and technical expertise do not adequately translate into new businesses and higher incomes. The bureaucracy keeps its traditional grip, even maintaining the internal registration system from the time of the tsars that constrains Russians from moving from city to city. Small businesses are similarly encumbered with arbitrary regulations. Russia's gains in political and economic liberalization are undoubted, but this country with so much talent has yet to combine the best of its cultural heritage, its technical skills and the advantages of greater economic freedom

Roubini: Gordon Gekko Reborn

Posted: 14 Aug 2010 11:03 AM PDT

This post talked about the negative consequences of the erosion of societal norms that regulate market behavior in the health care industry when significant market failures are present, but health care isn't the only place where norms are eroding or absent altogether. Nouriel Roubini says we should give up on the idea that teaching morality and values in business school will regulate behavior appropriately, it's never worked and it won't work now. The only choice is a strong government hand:

Gordon Gekko Reborn, by Nouriel Roubini, Commentary, Project Syndicate: In the 1987 film Wall Street, the character Gordon Gekko famously declared, "Greed is good." ... The "Greed is good" mentality is a regular feature of financial crises. But were the traders and bankers of the sub-prime saga more greedy, arrogant, and immoral than the Gekkos of the 1980's? Not really, because greed and amorality in financial markets have been common throughout the ages.
Teaching morality and values in business schools will not tame such behavior, but changing the incentives that reward short-term profits and lead bankers and traders to take excessive risks will. The bankers and traders of the latest crisis responded rationally to compensation and bonus schemes that allowed them to assume a lot of leverage and ensured large bonuses, but that were almost guaranteed to bankrupt a large number of financial institutions in the end. ...
[A]ny reform of regulation and supervision will fail to control bubbles and excesses unless several ... fundamental aspects of the financial system are changed.
First, compensation schemes must be radically altered through regulation... In particular, bonuses based on medium-term results of risky trades and investments must supplant bonuses based on short-term outcomes.
Second, repeal of the Glass-Steagall Act, which separated commercial and investment banking, was a mistake. ... Similarly, the move from a lending model of "originate and hold" to one of "originate and distribute" based on securitization led to a massive transfer of risk. No player but the last in the securitization chain was exposed to the ultimate credit risk; the rest simply raked in high fees and commissions.
Third, financial markets and financial firms have become a nexus of conflicts of interest that must be unwound. These conflicts are inbuilt, because firms that engage in commercial banking, investment banking, proprietary trading, market making and dealing, insurance, asset management, private equity, hedge-fund activities, and other services are on every side of every deal (the recent case of Goldman Sachs was just the tip of the iceberg).
There are also massive agency problems in the financial system, because principals (such as shareholders) cannot properly monitor the actions of agents (CEOs, managers, traders, bankers) that pursue their own interest. ... At the same time, there is a double agency problem, as ... individual shareholders ... don't directly control boards and CEOs. These shareholders are represented by institutional investors (pension funds, etc.) whose interests, agendas, and cozy relationships often align them more closely with firms' CEOs and managers. Thus, repeated financial crises are also the result of a failed system of corporate governance.
Fourth, greed cannot be controlled by any appeal to morality and values. Greed has to be controlled by fear of loss, which derives from knowledge that the reckless institutions and agents will not be bailed out. ... Not only were "too big to fail" financial institutions bailed out, but the distortion has become worse as these institutions have become – via financial-sector consolidation – even bigger. If an institution is too big to fail, it is too big and should be broken up.
Unless we make these radical reforms, new Gordon Gekkos – and Charles Ponzis – will emerge. For each chastised and born-again Gekko – as the Gekko in the new Wall Street is – hundreds of meaner and greedier ones will be born.

No matter what we do, we will never be able to guarantee that we will never have another crisis. Regulatory and institutional reform can make a crisis less likely, but it's almost a certainty that someday, tomorrow or decades from now, another crisis will occur. For that reason, we need to institute reforms that insulate the broader economy from collapse of the financial sector. I would have added strict limits on leverage to the list as a means of limiting the damage when the next meltdown does occur.

Frustration with TypePad

Posted: 14 Aug 2010 10:17 AM PDT

I'm a little bit behind today. The reason is that I redid the "Tweet" link at the bottom of each post. I had been using the code that TypePad offers for advanced templates, but the code is faulty is two ways. First, it doesn't shorten URLs so most of the tweet is the address rather than the text. Because the URLs are generally relatively long, the tweets were essentially missing the post titles and were not very informative as to content. Second, if the address happened to be longer than 140-3=137 characters, as they can be easily under TypePad's address system, the code would truncate the URL making it dysfunctional. A tweet that has only part of the address isn't very useful.

I let TypePad know about this on several occasions, even tried to embarrass them by asking why they left faulty code up after being informed about it, but they basically said they didn't care. It's annoying. This isn't a problem with TypePad's standard templates, only advanced templates, and as I've explained to them,  the fix is relatively easy if you have access to the internal database that holds the shortened codes (which are generated automatically if you send posts to Twitter, as I do).

The bottom line is that I can no longer recommend TypePad for people who plan to use advanced templates. There are other bits of code they offer that don't work either (e.g. the pictures for the social media buttons). I've informed them, but nothing happens. It's pretty clear that they have no intention of giving advanced templates the same level of support that they give standard templates. It's also pretty clear that they don't much care about code that doesn't work. That wasn't always true, but it is now.

Anyway, having faulty code on my site has bugged me in a way that doesn't seem to bother the people at TypePad. It annoyed me every time I thought about it, and Twitter came out with a new button a day or two ago that allowed me to fix this, so I did. I still have to turn it into a JavaScript pop-up rather than a full page as it is now, but my tests failed with one older browser type so I am going to hold off on that until I get this resolved, especially since it works just fine as it is. Also, it's now possible to amend TypePad's code so that URLs are only shortened if the title plus URL crosses the 140 character limit, and I thought about doing it for them. But since they didn't do anything for me, I see no reason to do their job. I will, however, probably fix it on my own site once I get the chance. For now, however, it adopts the Twitter standard and shortens all URLs even if there's room for the full address and the full title.

TypePad used to be very good at their advanced template support. Unfortunately, instead of concentrating on their core business, blogging, they are trying to be Facebook and Twitter by adding things that are poor imitations of what Twitter and Facebook can do. So long as they try to be what they aren't, a social media provider rather than a blogging service, their core business will continue to suffer. Too bad, I used to recommend TypePad highly.

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