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Chronic weakness in Europe and what it means.

Here's Matt Yglesias discussing Uber:

App-based ride hailing was a game changer in this context, not just because it offered a somewhat better way to get a ride, but because in Uber's earliest cities it exploited loopholes in the way taxi regulations were written to put vehicles for hire on the road that would not have been allowed to operate as cabs. Uber then leveraged early success into getting rules changed in other cities.

In all cases, however, the basic value proposition was twofold. On the other hand, the app offered a somewhat more convenient way to get a ride. But on the other, much larger hand, the app undermined an earlier anti-consumer regulatory apparatus, greatly expanding the number of rides available and reducing their cost.

I thought about this post when reading an article by Alex Roy, discussing how Tesla might be able to transform the automotive industry:

As a standalone car, The Tesla Model S P90D Ludicrous is no more than a charismatic oddity--a handsome electric sedan with hints of Jaguar and Aston Martin in the sheetmetal and a quicker sprint to 60 mph than a Ferrari Enzo. But it's also a ground-up rethink of what cars can, and should, be, and as part of Tesla's larger ecosystem it represents to its buyers a blinding white beacon leading us into the automotive future.

Here's an illustration: Make a list of everything that sucks about car ownership--purchasing, software updates, refueling, maintenance--and then realize that Tesla is upending those processes. Fueling: Charge it, for free. Glitch in the UI, or you want more range and performance? Tesla offers wireless updating to fix and/or boost the car you already own. The Germans and Detroit's Big Three don't do this because of dealer franchise agreements. Tesla doesn't have dealers. You go to a Tesla-owned factory store where pricing and service are standardized.

I'd be a happy person if I never again had to visit a car dealer or auto repair shop. Around here, many of the businesses are dishonest (due to information asymmetry). So why doesn't the market provide a solution? In the case of car dealerships it's because government regulations won't allow automakers to do an end run around auto dealers. Tesla is changing that. And with improved technology, the electric car industry may even be able to replace independent repair shops with manufacturer repairs done under long warranties.

But at least we can get rid of the dealers. Does anyone enjoy talking to car salesmen?

(6 COMMENTS)

Scott Alexander has written a fantastic review of David Fischer's Albion's Seed. The book is about early immigration to the Eastern United States. Alexander gives a nice summary of each of the 4 immigrant groups, along with some really interesting facts about them. In the process, he comes off as Dave Barry without the exaggeration.

Some of my favorite excerpts from the Alexander post (whenever italics are used, they are Alexander's) follow.

On the Puritans:

Fischer ends each of his chapters with a discussion of how the society thought of liberty, and the Puritans unsurprisingly thought of liberty as "ordered liberty" - the freedom of everything to tend to its correct place and stay there. They thought of it as a freedom from disruption - apparently FDR stole some of his "freedom from fear" stuff from early Puritan documents. They were extremely not in favor of the sort of liberty that meant that, for example, there wouldn't be laws against wasting time. That was going too far.

On the Cavaliers (who settled Virginia):

The whites who survived tended to become "sluggish and indolent", according to the universal report of travellers and chroniclers, although I might be sluggish and indolent too if I had been kidnapped to go work on some rich person's farm and sluggishness/indolence was an option.

Virginian cavalier speech patterns sound a lot like modern African-American dialects. It doesn't take much imagination to figure out why, but it's strange to think of a 17th century British lord speaking what a modern ear would clearly recognize as Ebonics.

And Virginian nobles weren't just random jerks, they were carefully cultivated jerks.

On the Quakers:

3. The Quakers' marriage customs combined a surprisingly modern ideas of romance, with extreme bureaucracy. The wedding process itself had sixteen stages, including "ask parents", "ask community women", "ask community men", "community women ask parents", and "obtain a certificate of cleanliness". William Penn's marriage apparently had forty-six witnesses to testify to the good conduct and non-relatedness of both parties.
4. Possibly related: 16% of Quaker women were unmarried by age 50, compared to only about 2% of Puritans.

It occurs to me that William Penn might be literally the single most successful person in history. He started out as a minor noble following a religious sect that everybody despised and managed to export its principles to Pennsylvania where they flourished and multiplied. Pennsylvania then managed to export its principles to the United States, and the United States exported them to the world. I'm not sure how much of the suspiciously Quaker character of modern society is a direct result of William Penn, but he was in one heck of a right place at one heck of a right time

On the Borderers:

250,000 people is a lot of Borderers. By contrast, the great Puritan emigration wave was only 20,000 or so people; even the mighty colony of Virginia only had about 50,000 original settlers. So these people showed up on the door of the American colonies, and the American colonies collectively took one look at them and said "nope".

Except, of course, the Quakers. The Quakers talked among themselves and decided that these people were also Children Of God, and so they should demonstrate Brotherly Love by taking them in. They tried that for a couple of years, and then they questioned their life choices and also said "nope", and they told the Borderers that Philadelphia and the Delaware Valley were actually kind of full right now but there was lots of unoccupied land in Western Pennsylvania, and the Appalachian Mountains were very pretty at this time of year, so why didn't they head out that way as fast as it was physically possible to go?

Borderer medical beliefs: "A cure for homesickness is to sew a good charge of gunpowder on the inside of ths shirt near the neck". That'll cure homesickness, all right.

This one on the Borderers might please noted foe of formal schooling Bryan Caplan:

Rates of public schooling in the backcountry settled by the Borderers were "the lowest in British North America" and sometimes involved rituals like "barring out", where the children would physically keep the teacher out of the school until he gave in and granted the students the day off.

Many facts came as a surprise to me. Here's one set:

Andrew Jackson became the first Borderer president, behaving exactly as you would expect the first Borderer president to behave, and he was followed by almost a dozen others. Borderers have also been overrepresented in America's great military leaders, from Ulysses Grant through Teddy Roosevelt (3/4 Borderer despite his Dutch surname) to George Patton to John McCain.

(4 COMMENTS)

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I often do posts defending the Efficient Markets Hypothesis. Sometimes it's just fun to debate these ideas. But there are also serious real world costs to ignorance of the EMH. Government pension funds have wasted large amounts of public money, and worsened inequality in America, by paying hedge fund billionaires to manage public pensions:

New York City's largest public pension is exiting all hedge fund investments in the latest sign that the $4 trillion public pension sector is losing patience with these often secretive portfolios at a time of poor performance and high fees.

The board of the New York City Employees Retirement System (NYCERS) voted to leave blue chip firms such as Brevan Howard and D.E. Shaw after their consultants said they can reach their targeted investment returns with less risky funds.

The move by the fund, which had $51.2 billion in assets as of Jan. 31, follows a similar actions by the California Public Employees' Retirement System (Calpers), the nation's largest public pension fund, and public pensions in Illinois.

"Hedges have underperformed, costing us millions," New York City's Public Advocate Letitia James told board members in prepared remarks. "Let them sell their summer homes and jets, and return those fees to their investors."

The move is a blow to the $3 trillion hedge fund industry where managers like to have pensions as investors because they leave their money in for longer than individuals, sending a signal of stability to other investors.

Hedge fund returns have been lackluster for some time. The average fund lost about 1 percent last year when the stock market was flat, prompting institutional investors to leave.

Research firm eVestment said investors overall pulled $19.8 billion from hedge funds in January, marking the biggest monthly outflow since 2009.

Performance at some of the funds with which New York City invested was far worse. Luxor Capital Group, a long-time favorite with many pensions, lost an average 18.3 percent a year for the last two years.

Of course if they'd asked me they could have avoided those losses, merely by putting the money into index funds. And the poor performance of hedge funds is not just due to the past couple years, the hedge funds have been doing poorly since the famous bet with Warren Buffett:

After eight years of the 10-year bet, Buffett's chosen index fund holds a commanding lead over a collection of hedge funds even though the hedge funds performed slightly better in 2015. . . .

The low-cost Vanguard S&P 500 Admiral index fund Buffett chose is up 65.7 percent since the bet began. Protege picked five funds that bundle hedge funds that are collectively up 21.9 percent, on average.

It's not often that a public policy change is such a win-win. Having the public sector exit hedge funds will (slightly) improve the nation's underfunded public pensions, and also reduce inequality at the top. It's been a depressing year so far, in fact it's been a depressing millennium so far, but here's one tiny ray of hope. (7 COMMENTS)

Airbnb

Propping up the Leaning Tower of Pisa. Standing on the red bleachers in Times Square. Some experiences as a tourist are more predictable than others.

To combat boring, Trip Advisor-approved vacations, Airbnb just debuted a redesigned app that allows guests to avoid tourist traps. A new backend system and discovery feature promises users the ability to "live like a local."

Guests can now access a series of local guidebooks, curated by hosts and power-users, that offer off-the-beaten-path recommendations for places to eat, drink, and explore. The Guidebooks, available today, provide three million tips across 35 cities, ensuring tourists don't all end up at the same cliché landmarks.

If you search what to do in New York City on a planning site like Trip Advisor, you'll find blasé picks such as the Empire State Building, Top of the Rock Observation Deck, and Broadway. Airbnb, on the other hand, suggests visitors grab a slice of pizza at the popular Bushwick destination, Roberta's, or catch a movie at Nitehawk Cinema.

The sites can be filtered by neighborhood, cost, and open hours. It even integrates Google Maps so out-of-towners can find their way there.

Airbnb

Behind the scenes, Airbnb is attempting to make its reservation system more organic.

A new algorithm mines users' past searches and preferences across millions of data points, and tailors the results using machine-learning. If you prefer hip neighborhoods that are family-friendly, Airbnb prioritizes the places that fit those specifications.

The booking process also takes into account the host's preferences, The new system might make for more compatible matches between hosts and guests, though an Airbnb employee tells us the algorithm does not collect information on personality.

At the announcement in Airbnb's San Francisco headquarters, CEO Brian Chesky also hinted at a big reveal this November, called "Beyond the Home," that could leverage hosts as tour guides.

NOW WATCH: This couple got to spend a night in a shark tank, thanks to Airbnb

Have you seen Magic Leap?

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It really is a magical concept: Put on a pair of goggles and watch lifelike virtual objects invade your real world.

We've heard about this device for years but have still never seen it — we have no idea what it looks like. But according to the lucky few who's tried the mysterious device, it is "so badass you can't believe it."

Wired published a long feature story about Magic Leap on Tuesday. Of all the virtual and augmented reality headsets out there and in development, Wired says Magic Leap is "the most impressive on the visual front — the best at creating the illusion that virtual objects truly exist."

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This secretive device is apparently so impressive that giant entertainment companies like Warner Bros. are backing Magic Leap. It's raised a whopping $1.4 billion in three rounds of investments, with support from powerful players like Google — not its investment arm, the big G itself — and prominent VC firms Andreessen Horowitz and Kleiner Perkins.

Magic LeapMost of the big tech companies are currently developing similar augmented and virtual reality technologies, like Microsoft (HoloLens), Facebook (Oculus VR) and Sony (PlayStation VR).

Apple is also quietly working in this space; the company reportedly has "hundreds" of people working on hardware prototypes for AR/VR technologies.

Yet, despite so much interest around AR and VR in Silicon Valley, it appears Magic Leap — based in Florida, nowhere near California — is ahead of everyone else in this space.

Apple should buy this company.

By most accounts, it sounds like Magic Leap has created a technology that won't be easily replicated.

The key difference in Magic Leap's product is something called "lightfield" technology. When Tech Insider met with Magic Leap last year, the company only told us this relates to the way the technology beams light into your eyes, but would not elaborate further than that. All we know is that lightfield technology is responsible for making the virtual images you see through the headset look incredibly bright and realistic.

Even more important though is the technology has the potential to one day replace all the gadgets you carry around with you and all the screens in your home. If you could wear a lightweight pair of glasses that could beam whatever content you need straight into your eyes, why would you ever need to use a phone, computer, or even a TV ever again? That kind of technology could be massively disruptive to Apple's core hardware business one day.

That said, there's still so much we don't know about what Magic Leap is working on. How much will it cost once it's ready for consumers, and what will that even look like? Will it be fashionable? Will it be covered in wires? Will you be able to go anywhere? What's the battery life like? Will this be banned in certain places?

We reached out to Magic Leap with these questions, but it's been incredibly mysterious about everything so far.

Magic Leap

Apple will eventually need a hot new product. The iPhone is still golden, but the iPad has matured, the Watch hasn't made a huge splash, and the rumored car is still years away. (Plus an Apple Car likely won't be able to reach the scale of an affordable consumer gadget like the iPhone.) Having a leg-up in the mixed reality space would be invaluable, and Apple, with its $216 billion in cash, can certainly afford it.

NOW WATCH: Consumer Reports just rated Samsung's new Galaxy phone better than the iPhone

Barbecue season is around the corner and its the time to freshen up your beef knowledge.

The Cattlemen's Beef Board created an infographic that shows every type of beef cut and how each is best cooked. 

While almost all cuts can be prepared on the grill, there are a few alternative methods like cooking skillet-to-oven for rib eye and tenderloin. Some of the leaner meats, such as sirloin and tri-tip can simply be stir fried, while thicker cuts like ribs and brisket are slow-cook only. 

Cattlemen’s Beef Board and National Cattlemen’s Beef Association

 

NOW WATCH: These striking images show just how overcrowded China's population really is

From Christopher Ingraham:

The top five most-searched states are, in order, California, Texas, Florida, Illinois and Pennsylvania. And to answer Tyler Cowen’s original question, the bottom five states, in descending order, are Idaho, Vermont, North Dakota, South Dakota, and, at the absolute bottom of the 50-state barrel: Wyoming.

And searches relative to population?:

You can see that the biggest overperformer is, oddly enough, Alabama — it’s the 24th most populous state, but the 15th most frequently-searched state. It’s hard to say what’s driving the discrepancy, but Google’s data offer some clues. For instance, Google’s nifty Correlate tool shows that many Alabama-related searches have to do with sports scores and events — perhaps tied to the popularity of college sports at the University of Alabama. Or, there may be something unique about the state the causes its residents to use the state’s name in Google searches more often — searching for rules and regulations on things like drivers’ licenses and the like.

Other big overperformers include Hawaii and Alaska, Colorado and Connecticut.

On the other side of the ledger, the state that appears to generate the lowest amount of search interest relative to its size is Indiana.

…Louisiana, West Virginia, New Mexico and Idaho also are considerably under-searched compared to their population.

Separately, I received this email from a loyal MR reader:

I am following your most-obscure-state series with some fascination. However, I think the approach is a bit off, because in many cases small states are less obscure than larger ones. Rhode Island is not obscure precisely because most know of it as the smallest state. And even small states produce outlier individuals that elevate their states’ prominence. Rather, I think you should look at obscurity on a per-capita basis — that is, what state is disproportionately obscure compared to its population, economic footprint, &c.

I would suggest Indiana. Our 16th-most-populous state, Indiana is nonetheless relatively obscure for its size.

Consider:

• Indiana is overshadowed by many of its larger neighbors; northwestern Indiana is part of Chicagoland; southeast Indiana is tied to the Cincinnati and Louisville areas.
• The best-known historical political figures identified with Indiana are Benjamin Harrison and Dan Quayle — neither well-known.
• Indiana has far fewer Fortune 500 companies based there than any neighbor except Kentucky (and only one more than Kentucky). Indiana’s big firms tend to be major industrial companies like Eli Lilly and Cummins, important but not consumer-facing and thus contributing to obscurity.
• Indiana is a major producer of many products, agricultural commodities and mineral resources, but it is the top producer of few, and so doesn’t gain prominence for them (in the way that people associate dairy with Wisconsin or cars with Michigan).
• Indiana has only one large city, and it’s the 34th-largest U.S. metro area with about 2 million people. States of similar size tend either have much larger metro areas or they have multiple Indianapolis-sized metros.
• Indiana is not especially diverse — 85% white, and few prominent foreign ethnic minorities concentrated there.
• In education, Indiana’s best known big school is Notre Dame, which due to its Catholic heritage is not especially associated in the public mind with the state. Purdue is a strong school but ranked 61 by US News — lower than you might expect for a flagship in a state Indiana’s size.
• Indiana is a place where a lot of notable people are from but where few stay. Think John Roberts, Allan Bloom, Sydney Pollack, Steve McQueen, Kurt Vonnegut, Joseph Stiglitz, Paul Samuelson. (Indiana’s proximity to Chicago contributes to its obscurity by sucking away some of its greatest talents.)

Sports and culture are probably the only arena in which Indiana escape obscurity In sports, this is due to the Hoosier basketball tradition, Larry Bird, Bob Knight, John Wooden, and the Indy 500.

Culturally, Indiana has produced several highlights. In music, the Jackson 5 are indelibly associated with Indiana. The novels of Booth Tarkington stand out. Cole Porter was born and raised there. The Gaither gospel singers are from and based in Indiana. Vonnegut’s God Bless You, Mr. Rosewater, a minor classic, is set there. Ben-Hur author Lew Wallace was a lifelong Indianan. Indiana has produced some strong comics — Red Skelton, David Letterman, Jim Gaffigan — although they are not popularly associated with Indiana. Jim Davis of Garfield is from there. Films and TV shows set there? Hoosiers, Breaking Away, Rudy, Parks and Recreation.

…Despite these strong points, the relatively large size of Indiana weighs against them and leaves Indiana the most obscure state on a per-capita basis.

Thanks — I continue to enjoy this series and am looking forward to your posts on Rhode Island and Delaware.

The post What is the most obscure state according to Wonkblog and Google? And per capita? appeared first on Marginal REVOLUTION.

In 2013, after all 25,000 high school students sitting state university entrance exams failed, Liberian President Ellen Johnson Sirleaf admitted that the education system was “a mess” and called for a complete overhaul.

Now it seems Sirleaf’s government has decided that rather than overhauling the education system themselves, they’re going to pay someone else to do it for them. Under a pilot program called “Partnership Schools for Liberia,” the Liberian government will outsource some of its primary and early childhood educational system to private companies over the next five years.

One huge contract has gone to a private company called Bridge International Academies — reportedly to the tune of $65 million. And it’s causing some real controversy.

The United Nations’ Special Rapporteur for the right to education, Kishore Singh, has denounced the plan as “completely unacceptable” and “a blatant violation of Liberia’s international obligations under the right to education.” A coalition of teachers unions and civil society groups in Liberia issued an open letter announcing their opposition. Education International, an international federation of unions, has warned that “privatisation vultures” involved in the plan “pose [a] serious threat to Liberia’s public education system.”

…Bridge’s “academy in a box” model has attracted investment from Facebook’s Mark Zuckerberg and the World Bank Group’s International Finance Corporation, which invested $10 million each. Bill Gates and the UK government’s Department for International Development are also investors.

Here is the Vox story.   As they say, big steps toward a much better world…

Here is coverage from prior efforts in Kenya, hat tips go to Dani Rodrik and Alex T.

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The Atlantic, one of America's more respectable publications, has an article entitled "The Pillaging of America's State Universities". Here's the second paragraph:

According to the American Academy of Arts and Sciences' recently completed Lincoln Project report, between 2008 and 2013 states reduced financial support to top public research universities by close to 30 percent. At the same time, these states increased support of prisons by more than 130 percent. New York City's budget office reported in 2013 that incarcerating a person in a state prison cost the city roughly $168,000 a year. California apparently does it on the cheap: It costs roughly $64,000 annually for each prisoner--a bit more than the cost of a year at an Ivy League university (average tuition is $50,000) and far more than at the University of California, Berkeley, ($13,000) or at CUNY ($8,000).

I had to read this twice, before realizing that it was utter gibberish. We are supposed to be impressed that the numbers for prisons are bigger than for Ivy League schools, which in turn are far bigger than for those poor unsupported state universities. In fact, the numbers show exactly the opposite. Before explaining why, let's review the term 'cost', which has two quite different meanings. Sometimes 'cost' means the opportunity cost of producing something, as when we talk about the cost of building a new highway, or a school. At other times, the term 'cost' is used synonymously with "price" as when we say, "Gas costs only 2 dollars a gallon at the nearby Mobil station."

Cole has mixed these meanings together, all within the same paragraph. The cost of prisons refers to the first meaning, the resources used to incarcerate prisoners. The price is of course zero, as prisoners are generally not charged for room and board. In contrast, Cole uses the 'cost' of a public education to refer to the price. The actual cost or providing the service is far higher, with the difference made up by public subsidies. Thus the lower the number associated with the "cost" of going to Berkeley, the higher the state subsidy. When I read Cole's paragraph, I drew the opposite implication from what Cole intended. I ended up being very surprised at the size of the public subsidy (plus donations from alums), which picks up most of the cost of education at Berkeley and CUNY.

This isn't just a small point; it makes the rest of the article almost total gibberish. What we really need is a graph showing public support for higher education (state and federal combined) as a share of GDP, over a long period of time. Because that graph is not provided, it's impossible for the reader to know whether there has been a significant cutback in public support, or not.

And it gets even worse:

The United States currently has one of the lowest marginal tax rates in the industrial world. Transferred resources from the very rich (less than 1 percent of nation's population controls more than 25 percent of its wealth), corporations, and from lower-priority institutions could build a more robust educational system in our country.

The first sentence is gibberish, as the US has hundreds of marginal tax rates. In context, he seems to be referring to corporate tax rates and the top MTR on income taxes (as he refers to corporations and wealthy individuals.) If so, then the claim is absurd. The US doesn't have the lowest MTR, we have the very highest MTR on corporate income, and an above average top tax rate on personal income if you include state taxes (the Federal top rate is 43.4%, and with state taxes included the top rate is closer to 50%).

The Socialist government in France recently tried a 75% top rate on income, and had to quickly abandon that rate. The US had 90% top rates in the 1950s, but the law was so riddled with loopholes that it collected very little revenue. The 43.4% top rate is more effective in actually collecting revenue. Progressives don't seem to realize that there's actually very little revenue left on the table, as higher rates tend to reduce GDP. That's one of the reasons why GDP in Western Europe is far below US levels. And to the extent that they do collect more revenue, it's almost entirely due to regressive taxes like VAT and gasoline taxes.

Even worse, progressives keep forgetting that the money that they wrongly think they can be extracted from the rich, has already been promised 10 times over. Remember that it was going to be used to prop up Social Security, and even expand benefits? And that it's going to be used to provide universal pre-school for free? And that it's going to be used to repair infrastructure and build high-speed rail? And that it's going to be used to pay reparations to African-Americans? Oh, and how about single-payer health care in a system costing 18% of GDP (the current entire federal budget is about 22% of GDP.) Every time progressives find another "unmet need" they keep designating the exact same pot of gold from the rich for that purpose, a pot of gold that's already been spent many times over, and that (as the French socialists recently learned) is probably not available in the first place.

Oh, and they also want to make income more equal, which would further reduce tax revenue.

Even worse, when progressives actually have to face the opportunity cost of their decisions, they get cold feet. Consider New York City, one of America's wealthiest urban centers, with a tax base that places like Detroit and Cleveland can only envy. They just elected a very progressive mayor, and thus you might expect that "infrastructure" will finally be addressed. Exactly the opposite seems to be true:

Mayor Bill de Blasio has postponed work to finish New York's third water tunnel, a project that for more than half a century has been regarded as essential to the survival of the city if either of the two existing, and now aged, tunnels should fail.

The new tunnel has already been completed and is carrying water into Manhattan and the Bronx. But segments that would supply Brooklyn and Queens, home to five million people, though also virtually finished, still await the building of two deep shafts.

If calamity or age forced the shutdown of City Water Tunnel No. 2, which is 80 years old, the primary water supply to much of Brooklyn and Queens would be lost for at least three months, city engineers said, the time it would take for an emergency activation of the sections of Tunnel No. 3 in Brooklyn and Queens that have already been finished.

The entire Brooklyn-Queens leg of the new tunnel was scheduled to be finished by 2021, with $336 million included in the capital budget in 2013 by Mr. de Blasio's predecessor, Mayor Michael R. Bloomberg, for whom completion of the third tunnel was the most urgent and expensive undertaking of his tenure.

So the infrastructure that we supposedly need is started by a Republican, and abandoned by a progressive. The real "unmet need" is not infrastructure; it's higher pay and fatter pensions for public employees. Even California, which spends "only" $64,000 on each prisoner, hires prison psychiatrists at $400,000/year:

Mohammad Safi, a graduate of a medical school in Afghanistan, began working as a psychiatrist at a California mental hospital in 2006, making $90,682 in his first six months. Last year, he took home $822,302, all of it paid by taxpayers.

Safi benefited from what amounted to a bidding war after a federal court forced the state to improve inmate care. The prisons raised pay to lure psychiatrists, the mental health department followed suit to keep employees, and costs soared. Last year, 16 California psychiatrists, including Safi, made more than $400,000, while only one did in the other 11 most populous states, according to data compiled by Bloomberg.

After life in Afghanistan, Safi must be pinching himself to make sure he's not dreaming.

And now imagine what the public employees make in the New York system, where it costs $168,000 per prisoner. That's about $500/day. I'm tempted to make a joke about the "cost" of a room at the Four Seasons in Bali, or Phuket, but I'd better stop before I end up becoming the sort of demagogue that I normally despise.

HT: Lorne Smith

(14 COMMENTS)

» Metropolitan Seattle plans to offer its voters the chance to fund a large new transit expansion program. But are the projects chosen for initial funding the right ones?

Building a regional fixed-guideway transit network is no quick or easy feat, at least in the United States in our era of high costs and relatively slow construction timelines. Seattle’s first light rail line was funded by voters in 1996 but didn’t open its first section for thirteen years; the full extent of the initial line just opened last month, a full twenty years later.

Despite the slow pace, residents of big cities across the country are hungry for more, hoping to spread the benefits of rapid transit to other parts of their respective metropolitan areas. That impulse motivated Seattle residents to approve the $18 billion Sound Transit 2 package (named after the regional transit agency) in 2008, which will extend “Link” light rail north, south, and east, creating a 50-mile light rail network by 2023.

It has also encouraged Sound Transit to propose a third package of projects, expected to be submitted for voter approval this November. Sound Transit 3 (ST3) would support $50 billion in investments, to be completed by 2041.

Excitement about adding light rail—and the region does apparently want it, given the massive ridership produced by the opening of new stations last month—has nevertheless been countered by skepticism about the value of the draft ST3 plan put forward by the transit agency’s planners and leaders.

Their questions are relevant to any region that’s considering major new transit expansion projects: If the projects the plan includes aren’t ideal, are they worth paying for? If the projects are built in the wrong order, are the links scheduled for the back of the line worth waiting for?

Sound Transit 3 and the goal of regional transit

Like many of the regions that have funded major transit expansion packages over the past few decades, one of the basic principles underpinning the projects proposed for funding is that neighborhoods throughout the metropolitan area—from central Seattle to suburban Issaquah—should benefit from improved transit. To a large degree, this makes logical sense, since people living everywhere in the region are contributing to the revenues needed to fund the lines, and they deserve better public transportation, too.

ST3 adheres to the concept of providing transit access to communities everywhere. The network revealed in late March proposes dozens of light rail lines running south to Tacoma, north to Everett, and east to Redmond and Issaquah, as well as a south suburban commuter rail extension and new bus rapid transit routes on the east and north sides of the region (these BRT routes would be completed first). It would also include two new light rail lines within the city of Seattle itself, including a new downtown tunnel, and several infill stations along existing routes.

In total, the light rail route network would extend 108 miles by 2041, making it longer than today’s Chicago L system. The new lines and stations could carry about 300,000 new riders a day. Funding would be derived from a half-cent increase in the local sales tax, an increase in the motor vehicle excise tax, and a property tax. Bonding would be used to fund several of the lines, with back payments continuing for 25 to 30 years after the construction completion.

At an expected cost of roughly $390 per metropolitan area household per year, ST3 may be the most ambitious transit expansion package in the entire country, at least from a fiscal perspective.

The plan is currently under public review; the Sound Transit board is expected to approve a final plan (which could be quite different than the one I’m describing here!) in June. Given Sound Transit’s ability to complete projects on time and under budget, and given the instant success of the light rail connection to the University of Washington that, in a matter of days, increased overall light rail ridership by 63 percent, there are positive feelings in the Seattle region about the local transit authority. It is reasonable to expect that a funding proposal put forward to voters this fall will generate significant support.

Is excellent transit possible in a regional funding scheme?

One of the primary goals of the ST3 package, which was developed after months of consultation and review by agency planners, is explicitly to create a “regional transit spine” that, in Seattle parlance, means light rail basically here, there, and everywhere in the region.

More specifically, the regional transit spine would be a light rail line linking Seattle north to Everett and south to Tacoma. It’s a nice idea informed by the importance of providing transit service everywhere, but it is questionable whether the spine should be a priority over other investments.

The spine would be really, really long. The distance between downtown Seattle and Everett is 29 miles; the other direction from downtown to Tacoma is 33 miles. Light rail along those corridors would likely be the longest downtown-to suburb rapid transit in the country: Los Angeles’ Blue Line runs 25 miles to Long Beach; Dallas’ Red Line to Plano is about 20 miles; Chicago’s Purple Line to Wilmette is just 16 miles. The longest one-seat ride on the New York City Subway (on the A) is just 32 miles from end to end, including sections on both ends of the Manhattan business districts.

The problem with such a long light rail corridor is that, unlike commuter rail service, rapid transit is just not that fast. Because it is serving areas without major jobs centers or walkable neighborhoods, the long light rail corridor is inherently oriented toward suburb-to-downtown commuters. But at an average speed of just 30 mph, for example, ST3’s proposed connection between Lynnwood and Everett is just not fast enough to compete effectively with car trips on freeways. Projects that focus on urban corridors in dense neighborhoods, on the other hand, are competing with car trips on much slower city streets and providing new options to replace already-used bus corridors.

The lengthy protrusions of ST3’s light rail network are essentially privileging running as far out into the suburbs as possible over better serving the urban core. This is the fundamental question for Sound Transit: Is it more important to provide access to far suburbs or to focus on corridors where transit can do best?

The phasing plan offered by Sound Transit for ST3 suggests that the agency has essentially chosen suburban transit over better urban transit, specifically when it comes to the projects that would be completed first. The light rail projects programmed for completion in the 2020s are extensions in the south and eastern suburbs.

The individual project local transit advocates have been pushing hardest for—a light rail tunnel from downtown to Ballard, a dense Seattle neighborhood northwest of downtown—would have to wait until 2038 for completion. If you weren’t counting, that’s 23 years from now. Perhaps it wouldn’t surprise readers to learn that this news has left many upset.

Indeed, the news has put in question whether Sound Transit’s choices of projects to prioritize make sense. Fortunately, the agency has provided excellent, in-depth information about each of the proposed projects and allowed the public to weigh in based on details.

That Ballard-to-downtown light rail line would be quite expensive, costing about $4.6 billion in 2014 dollars, more than any of the other major capital projects the agency plans. But it would also attract many more riders—about 130,000 per day—assuming estimates are correct. That’s many more than any of the other projects on the ST3 list, as the following table shows.

Project	Location	Length (mi)	Daily riders	30-yr operating cost (2014$m)	Construction cost (2014$m)	Completion
Ballard to Downtown LRT	Seattle	7.1	129,500	1,140	4,606	2038
Tacoma Link to College Streetcar	Suburbs	4.4	15,000	390	463	2041
West Seattle to Downtown LRT	Seattle	4.7	33,500	660	1,952	2033
Kent/Des Moines to Federal Way LRT	Suburbs	5.3	18,500	420	1,117	2028
145th and SR 522 BRT	Suburbs	8	8,500	450	387	2024
Federal Way to Tacoma Dome LRT	Suburbs	9.7	33,500	930	2,510	2033
I-405 BRT	Suburbs	37	12,000	810	711	2024
Lynnwood to Everett LRT	Suburbs	15.4	39,000	1,590	4,183	2036/2041
Redmond Extension LRT	Suburbs	3.7	8,000	330	1,075	2028
Bellevue to Issaquah LRT	Suburbs	9	13,000	900	1,650	2041
Sounder to Dupont CR	Suburbs	7.8	1,250	90	304	2036
Graham St Station	Seattle		2,000	30	73.5	2036
Boeing Access Rd Station	Suburbs		1,750	30	128.5	2036

Data above from Sound Transit. Costs are average of low and high cost estimates; ridership is average of low and high estimates.

When analyzed from a comparative perspective, as shown in the following chart, the benefits of a Ballard-to-downtown line shine through. The project’s construction costs per daily rider and per population and jobs served in the surrounding areas are the second-lowest in the entire system, and much less costly than most of the suburban extensions the agency is prioritizing.

That’s even more relevant when incorporating the operating costs of and the revenues generated by the lines. The total subsidized cost over 30 years per rider—in other words, how many public funds must be expended for each rider after fare revenues to cover the cost of construction and operations—is a good indicator of project performance.

There, the Ballard-to-Downtown line excels, costing the public just $2.77 per rider, the least of all projects being considered. That’s compared to $5.93 for the Kent/Des Moines extension and $15.88 for the Redmond extension, the two lines ST3 prioritizes in the short term.

Incomprehensibly, the two other projects that also perform well on this metric also wouldn’t open anytime soon: A Tacoma streetcar extension would have to wait until 2041 and a West Seattle light rail line would wait until 2033.

Project	Total 30-yr costs (2014$m)	Construction cost (2014$)/daily rider	Construction cost (2014$)/population and jobs served	30-yr revenues (2014$m)	Subsidized cost (2014$)/30 years of daily riders
Ballard to Downtown	5,746	35,568	15,619	2,409	2.77
Tacoma Link to Community College	853	30,833	16,637	279	4.11
West Seattle to Downtown	2,612	58,269	43,474	623	6.38
Kent/Des Moines to Federal Way	1,537	60,351	102,431	516	5.93
145th and SR 522	837	45,529	12,286	237	7.59
Federal Way to Tacoma Dome	3,440	74,925	188,722	935	8.04
I-405	1,521	59,250	7,054	335	10.63
Lynnwood to Everett	5,773	107,244	92,126	1,088	12.92
Redmond Extension	1,405	134,313	61,753	223	15.88
Bellevue to Issaquah	2,550	126,923	82,500	363	18.09
Sounder to Dupont	394	242,800	131,957	35	30.85
Graham St	104	36,750	7,350	37	3.56
Boeing Access Road	159	73,429	38,939	49	6.74

Data above based on data from Sound Transit. Revenues calculated based on the average rider paying $2 per ride (for Seattle and Tacoma projects) and $3 per ride (for other projects) and 310 weekday-equivalents of revenue annually. (Longer trips cost more on Link light rail.)

Given these attributes, it is hard to understand why Seattleites must wait 23 years for their Ballard line. On the pure metric of the ridership-to-cost ratio, the phasing plan of ST3 should be revised.

Politically, this question of which transit projects to fund first may answer itself. Since the mid-1990s, Seattle transit advocates have reluctantly accepted a concept referred to as “subarea equity,” which essentially states that transit spending be distributed around the region in a manner commensurate with tax revenues from five sub-areas. Though the concept is open to interpretation—some suggest that the idea of geographical equity isn’t a mandate, but instead a guidance tool—the agency has clearly chosen to respect it, at least to a large degree.

It is also true that pushing forward a project like the downtown-to-Ballard light rail line would have negative consequences: It would likely mean more bonding to handle that project’s high costs, and it would by definition mean other projects on the system would have to wait for completion. A new downtown tunnel for this light rail line, which agency representatives say is required for its operation, will be difficult to engineer and complicated to build.

But Seattleites have the grounds to challenge the way Sound Transit is prioritizing projects. Assuming the project list is relatively final, at minimum the Seattle light rail lines and the Tacoma streetcar extension, which perform better than all the others, should be advanced. They’re the best deal for the taxpayer.

More broadly, residents of Seattle—and people living in any central city in a region contemplating a regional transit investment plan—should make the argument that transportation equity not only means serving many parts of the region, but also maximizing return on investment for taxpayers and picking projects that will attract the most number of transit riders.

As the following chart shows, Seattle accounts for less than 20 percent of the region’s population and just over 30 percent of its jobs. While of the ST3 major capital projects, 35 percent of total construction costs would be expended in Seattle, seemingly more than its share, just 27 percent of subsidized costs, when adjusted for revenues and operating expenses, would be spent in Seattle.* And most importantly, the Seattle projects would account for more than 52 percent of total new riders—far exceeding those projects’ share of the costs. In other words, they’re better value.

Data from U.S. Census ACS (2014), On The Map (LEHD), and Sound Transit. The Sound Transit region is made up of King, Pierce, and Snohomish Counties.

Reform is possible

I’m of course hardly the first person to point out the flaws of ST3. Indeed, local transit advocates have identified several potential changes to the plans, including expediting the construction of light rail in Seattle itself, eliminating unnecessarily complicated routes on the north side of the region, and encouraging more grade separation for the most-used sections of the network.

It’s worth noting that Seattle, unlike many American cities, is playing with a favorable transit environment. As the following chart shows, the share of commuters in the city using transit to get to work reached 19.6 percent in 2014, the latest Census estimates. That’s the latest in a quarter-century of upward trends and higher than even the rates recorded in 1980.

Both the city of Seattle and the region that surrounds it are growing very quickly, buoyed by a strong tech sector and a local regulatory environment that has allowed significant new construction. Much of the growth is occurring in transit-friendly, walkable neighborhoods.

With trends like these, the Seattle region really has an opportunity to continue encouraging a less car-oriented culture. Making the right choices about which projects are built, and when, will make a big contribution to this positive trajectory.

* To be clear, the city of Seattle is not a sub-area according to Sound Transit’s rules. But I identified its needs separately as illustrative for this comparison.

Photo at top from Flickr user Atomic Taco (cc).

For lawyers, doctors, and dentists-- three of the most over-represented occupations in the top 1 percent--state-level lobbying from professional associations has blocked efforts to expand the supply of qualified workers who could do many of the "professional" job tasks for less pay. Here are three illustrations:

The most common legal functions--including document preparation--could be performed by licensed legal technicians rather than lawyers, as the Washington State Supreme Court decided in 2012. These workers could perform most lawyer-like tasks for roughly half the cost. Unsurprisingly, legal groups opposed it. A few brave souls from the Washington State Bar Association board resigned in protest, and issued this statement: "The Washington State Bar Association has a long record of opposing efforts that threaten to undermine its monopoly on the delivery of legal services." Proportion of lawyers in the top 1 percent? 15 percent.

Many states allow nurse practitioners to independently provide general and family medical services, freeing up physicians to provide more specialized services. But most larger states do not. Again, typical nurse practitioner salaries are roughly half those of general practitioners with an MD. But, of course, physician lobbies stridently oppose the idea. Proportion of physicians and surgeons in the top 1 percent? 31 percent.

Dental hygienists can perform many of the functions of more far expensive dentists, but regulations vary by state and in all but a few states, it is not possible for hygienists to own and operate their own practice. My analysis shows that just 2 percent of hygienists are self-employed compared to 63 percent of dentists. Proportion of dentists in the top 1 percent? 21 percent.

This is from Jonathan Rothwell, "Make elites compete: Why the 1% earn so much and what to do about it," Brookings, March 25.

I'm working on a paper on inequality for the Association of Private Enterprise Education (APEE) meetings in Las Vegas in early April, and came across Rothwell's piece. Refreshing.

(13 COMMENTS)

Because I focus on economics, and because I don’t agree with Obama on many economic issues, I often end up being critical of his policies.  (Although less critical than most conservatives; for instance I thought Obamacare was mostly a missed opportunity.)  But this WSJ story made me appreciate Obama’s cool, cerebral style:

Tuesday’s coordinated terrorist attacks in Brussels have left at least 30 people dead and more than 200 wounded, shut down the capital of Europe and raised security alarms from Frankfurt to London to New York. (See above.) So maybe it’s time we all get over our inordinate fear of Islamist terrorism.

Believe it or not, that’s the not-so-subliminal message we keep hearing from President Obama, even as he condemned the attacks during his visit to Cuba. “Obama frequently reminds his staff that terrorism takes far fewer lives in America than handguns, car accidents and falls in bathtubs do,” reports Jeffrey Goldberg in a lengthy profile of the President’s national-security thinking in the Atlantic magazine. Islamic State, Mr. Obama is quoted as telling adviser Valerie Jarrett, is “not coming here to chop our heads off.”

When I first started to closely follow public affairs (in the 1970s), right-wingers seemed more rational, whereas the left frequently seemed to ignore cold hard logic, as when considering the costs and benefits of EPA or OSHA regulations.  The WSJ editorial page would tell us “Yes, this EPA regulation will save 15 lives, but at a cost of 3 billion dollars.  Not worth it.”  Now things almost seem to have reversed.  Now conservatives increasingly seem to rely on the “reptilian brain” (and a leading GOP candidate who will not be named (to avoid a horror show in the comment section) seems to rely on almost nothing but his reptilian brain.)

Some commenters will tell me that even if (objectively) terrorism is not a big problem for the West, fear of terrorism creates bad policies.  I agree, but that fear is fixed in quantity.  Triple the annual number of deaths from terror, or cut them by 2/3rds, and it has no effect on the level of fear.  (Perhaps there is a homeopathy analogy here.)  America has had almost no problem with Islamic terror in the past decade (just two sizable attacks in the US, AFAIK), and yet the hysteria is just as bad as ever.  Jet travel is 10 times safer than in the 1960s, but people are just as terrified of flying as in the 1960s.  I feel safer in a car, in my reptilian brain, even though my rational side knows I’m in much more danger.

So while terrorism leads to bad things like NSA overreach, and the Keystone cops antics of the TSA, we can’t prevent that problem by stopping terrorist attacks.  We’ll never get the attacks down to zero, meaning we’ll always be petrified of terror.  Our brains want to be terrified; if it’s not one thing, it will be another.  In the 1950s it was the Cold War.

After I wrote this, Tyler Cowen directed me to some data on the amount of terrorism in Europe.  Notice that as more Muslims have moved to Europe, the rate of terrorism seems to have declined:

Even if you just focus on Islamic terrorism, which can strike unexpectedly at any place, the 1980s were worse than the 1990s, the 2000s, or the 2010s.  And yet the fear is greater than ever.

When I was young, I recall WWII vets saying that Vietnam was no big deal; the death toll was barely a 10th of WWII. And the Iraq War’s death toll for Americans was less than a 10th of Vietnam.  Yet many pundits viewed Iraq as America’s greatest foreign policy disaster.  Each year, unnecessary deaths bother us more than they did the year before. This trend has been going on for decades, and will continue until some huge catastrophe once again makes us numb to massive death totals.

I hope we keep becoming softer.

PS.  I just noticed that David Henderson also has a post praising Obama, very much worth reading.  I wonder if Obama will end up being like Clinton, where (after the fact) we realize that things could have been much worse, and eventually did become much worse.  Let’s hope not.

PPS.  To say that terrorism is not now a major problem in America or Europe, is not the same as saying it’s a problem to be ignored.  It’s quite possible that it will become a major problem in the future.  I’m agnostic on the proper response to ISIS, for example.

 

 

 

I was stunned to see a recent paper on fiscal multipliers use a 90% confidence interval, which seemed far too lenient.  After all, economics and many other sciences suffer from problems such as data mining, publication bias, and inability to replicate findings.  I’d like to see the standard statistical significance cut-off point raised from 95% to something stronger, maybe 98%.  When I did this recent post I wondered if I was making some elementary error, as econometrics is not my strong suit.

It turns out the problem is even worse than I assumed.  Indeed Ryan Murphy recently published a study of fiscal multiplier research (in Econ Journal Watch), and found that many studies use 68%!!

In recent decades, vector autoregression, especially structural vector autoregression, has been used to study the size of the government spending multiplier (Blanchard and Perotti 2002; Fatás and Mihov 2001; Mountford and Uhlig 2009). Such methods are used in a significant proportion of empirical research designed to estimate the multiplier (see Ramey 2011a). Despite being published in respected journals and cited by prominent members of the profession, much of this literature does not use the conventional standard of statistical significance that economists are accustomed to in empirical research.

Results in the literature on the fiscal multiplier are typically communicated using a graph of the estimated impulse-response functions. For instance, the effect of government spending on output may be reported by reproducing a graph of an impulse-response function of a one-unit (generally, one percentage point or one standard error) change in government spending. The graph would show the percent change in output over time following the change in government spending. To report statistical significance, authors of these studies may then draw confidence bands around the impulse response function. Ostensibly, if zero lies outside the confidence band, it is statistically distinguishable from zero. But very frequently in this literature the confidence bands correspond to only one standard error. In other words, instead of representing what corresponds to rejecting the null hypothesis at a 90% level or 95% level, the confidence bands correspond to rejecting the null hypothesis at a 68% level. By conventional standards, this confidence band is insufficient for hypothesis testing. Not every useful empirical study must achieve significance at the 95% level to be considered meaningful, of course, but a pattern of studies which do not use and reach the conventional benchmark is a cause for attention and perhaps concern. Statistical significance is not the only standard by which we should judge empirical research (Ziliak and McCloskey 2008). It is, however, a useful standard, and still an important one. Here I examine papers in the fiscal multiplier literature which apply vector autoregression methods. Sixteen of the thirty-one papers identified use narrow, one-standard-error confidence bands to the exclusion of confidence bands corresponding to the conventional standard of 90% or 95% confidence. This practice will often not be clear to the reader of a paper unless its text is read rather carefully.

I can’t even fathom what people are thinking when they use 68%.  It seems like something you’d see in The Onion, and yet apparently this stuff gets published.  Can someone help me here, what am I missing?

Top 3 states with highest proportion of Mormons: 1. Utah (Trump polling in 3rd) 2. Idaho (Trump lost by 18 points) 3. Wyoming (losing by 53)

The tweet is here, from @mckaycoppins, via Garett Jones.

The post Mormon fact of the day appeared first on Marginal REVOLUTION.

It was bound to happen eventually. The fact that it took Miami this long to invent a champagne machine gun is actually quite surprising considering that both items played an essential role in the formation of this great city. But it’s finally here. And it can be yours for only $459.

Jeremy Touitou is the man behind the invention, which, he says, is “the world’s first champagne gun.”

The full story is here, via Daniel Lippman, noting that here is Daniel’s recent piece on fact-checking you-know-who.

The post Miami markets in everything appeared first on Marginal REVOLUTION.

Matt Yglesias has a great post documenting the GOP’s shameful support for Donald Trump over the years, and how that’s legitimized his campaign.  Even worse, they still refuse to disavow him—the GOP establishment won’t promise not to vote for him if he gets the nomination.

In my view, they made a calculated bet that he would moderate his views as he got closer to office, just as in the early 1930s the NYT said that a certain German nationalist politician (who I am not allowed to name) would likely moderate his views as he got closer to office.  Instead, Trump is acting more and more like a fascist, as he gets more power:

Trump does not seem to understand how democracy works.  The whole point of conventions is to deny the nomination to a candidate who has a plurality of the delegates, but not a majority.  That’s why we have conventions.  It’s just about the only reason to have conventions.  Their purpose is to deny the nomination to a candidate who is supported by 40% (many not even Republican), but hated by a group of 60% who split their votes among other candidates.  They keep voting until someone gets a majority—those are the rules.  We have conventions so that we can stop crazy candidates with mere pluralities of delegates.

His supporters (in the comment section) will insist that he’s not “advocating” violence, just “predicting” it if he fails to get the nomination.  Yes, that’s right, when Trump’s hypnotized followers hear him talk about violence if the nomination is stolen from him, that would not in any way encourage them to actually go out and enact what their Great Leader says is inevitable.  The leader they’ve raised their hands and pledged allegiance to.  Remember Chicago 1968?  Get ready for a long hot summer.

If Trump comes into the convention 100 votes short, and gets the nomination anyway, the GOP party establishment (not the voters!!) will have picked him.  Actually, 60% of GOP voters will have rejected Trump.  The establishment will have forced Trump down our throats despite that rejection.  And America will be a country with one legitimate major party, plus the tiny Libertarian Party, and our own version of France’s National Front.

Oh wait, Trump is even too fascist for Marine Le Pen:

Marine Le Pen, for example, has become a poster child for the modern European far right after leading the French National Front to unprecedented success over the past few years. Many see her as the most obvious European counterpart for Trump. And yet, despite their perceived kinship, Le Pen has personally criticized Trump’s proposal to ban almost all Muslims from entering the United States.

“Seriously, have you ever heard me say something like that?” Le Pen said during one television interview, according to the New York Times. “I defend all the French people in France, regardless of their origin, regardless of their religion.”

So to all you people who said, “How dare you compare Trump to the National Front.”  I apologize—he’s worse.

Have a nice day!

The Economist reports on a new initiative in Switzerland:

Campaigners in many rich countries want to strip private banks of the power to create money. In Switzerland members of the "Vollgeld Initiative" presented the government with enough signatures in December to trigger a national referendum on the subject. Bank deposits, they point out, make up some 87% of the readily available money in Switzerland, vastly exceeding notes and coins. Since money creation is the main fuel of both inflation and growth, they argue, it should not be in private hands, let alone entrusted to institutions that are prone to binge and purge.

Under the existing system deposits sit on private banks' balance-sheets. Under the proposed alternative (a variation on "narrow banking"), accounts would be transformed into something much closer to the safe-deposit boxes nestled in Swiss vaults. Customers would pay the banks a charge for storing their cash. Any loans banks make would have to be funded by shareholders or by borrowing of their own, not by deposits.

The central bank, meanwhile, would survey the economy and judge how much cash was required to maintain stable inflation. Rather than tweaking interest rates to influence private banks' lending, it would simply hand out (or siphon away) the necessary cash itself, to the government, the public, or as loans to private banks.

The system would be safer for depositors, since banks could not lend out and lose their money. That would allow governments to withdraw the implicit protection banks currently enjoy as the guardian of voters' deposits. Even big banks could be allowed to fail, since the losses would not reverberate through the system so much. That possibility would nudge lenders into behaving more prudently.

The Swiss government responds officially to every issue to be put to a referendum. On February 24th it released its verdict on the Vollgeld Initiative (the actual vote will not take place until next year at the earliest). It is not a fan. As the central bank issued more money, the government points out, its liabilities (cash) would rise without any increase in its assets. This, the government fears, would undermine confidence in the value of money.

I don't know enough about the plan to take a position, but there are two features that I really like:

1. It eliminates the problem of moral hazard by removing deposit insurance from time deposits and making demand deposits 100% safe, since they would merely represent holdings of base money. To make loans, banks would attract funds by paying interest on non-insured time deposits.

2. The central bank would stabilize the price level by adjusting the quantity of money, not the interest rate target. Zero interest rates will become more common in the future, and hence the Keynesian approach to monetary policy (interest rate targeting) will be increasingly ineffective. There is no zero lower bound problem for changes in the money supply.

Ideally, we'd remove deposit insurance from all deposits, and let banks hold less than 100% reserve backing for checking accounts. But while this initiative is not perfect, it is certainly better than the status quo, where banking is riddled with moral hazard.

A bigger issue is the question of how money is injected into the economy. It should be given to the government, not the public. And the lack of assets on the central bank's balance sheet would not be a problem. When the money supply needed to be reduced, the government would simply sell bonds and give the money to the central bank, which would extinguish the money.

If newly created money were simply given to the public, then I could not support the plan. That would be helicopter money. Some libertarians are confused on this issue; giving the money to the government is a far more libertarian method than giving it to the public. After all, the central bank is part of the government. If you shifted from giving new money to the government to giving it directly to the public, it would be exactly equivalent to creating a new welfare program and funding the program via government borrowing. Does that sound libertarian?

Whenever a plan sounds like a free lunch, thoughtful people should be skeptical. There should be a clear line between monetary policymakers and fiscal policymakers. I don't want to give the central bank discretion over what type of welfare regime a country will enact. That's for the legislature to decide.

PS. This interview contains a wealth of useful information on the initiative.

PPS. Are you a fan of David Graeber's book on debt? I confess that I have not read the book, but George Selgin and Brad DeLong deliver a one-two punch that will be difficult for Graeber to recover from.

(14 COMMENTS)

When the University of Chicago polls 50 top economists on subjects like fiscal stimulus and the minimum wage, I am often appalled by the results.  In contrast, I wish Eliezer Yudkowsky were made King of the World (assuming there was a King of the World, which I’m opposed to).  This is from Scientific American:

Horgan: If you were King of the World, what would top your “To Do” list?

Yudkowsky: I once observed, “The libertarian test is whether, imagining that you’ve gained power, your first thought is of the laws you would pass, or the laws you would repeal.”  I’m not an absolute libertarian, since not everything I want would be about repealing laws and softening constraints.  But when I think of a case like this, I imagine trying to get the world to a condition where some unemployed person can offer to drive you to work for 20 minutes, be paid five dollars, and then nothing else bad happens to them.  They don’t have their unemployment insurance phased out, have to register for a business license, lose their Medicare, be audited, have their lawyer certify compliance with OSHA rules, or whatever.  They just have an added $5.

I’d try to get to the point where employing somebody was once again as easy as it was in 1900.  I think it can make sense nowadays to have some safety nets, but I’d try to construct every safety net such that it didn’t disincent or add paperwork to that simple event where a person becomes part of the economy again.

I’d try to do all the things smart economists have been yelling about for a while but that almost no country ever does.  Replace investment taxes and income taxes with consumption taxes and land value tax.  Replace minimum wages with negative wage taxes.  Institute NGDP level targeting regimes at central banks and let the too-big-to-fails go hang.  Require loser-pays in patent law and put copyright back to 28 years.  Eliminate obstacles to housing construction.  Copy and paste from Singapore’s healthcare setup.  Copy and paste from Estonia’s e-government setup.  Try to replace committees and elaborate process regulations with specific, individual decision-makers whose decisions would be publicly documented and accountable.  Run controlled trials of different government setups and actually pay attention to the results.  I could go on for literally hours.

And I also liked this, which makes the current political circus seem pretty unimportant by comparison:

There is a conceivable world where there is no intelligence explosion and no superintelligence.  Or where, a related but logically distinct proposition, the tricks that machine learning experts will inevitably build up for controlling infrahuman AIs carry over pretty well to the human-equivalent and superhuman regime.  Or where moral internalism is true and therefore all sufficiently advanced AIs are inevitably nice.  In conceivable worlds like that, all the work and worry of the Machine Intelligence Research Institute comes to nothing and was never necessary in the first place, representing some lost number of mosquito nets that could otherwise have been bought by the Against Malaria Foundation.

There’s also a conceivable world where you work hard and fight malaria, where you work hard and keep the carbon emissions to not much worse than they are already (or use geoengineering to mitigate mistakes already made).  And then it ends up making no difference because your civilization failed to solve the AI alignment problem, and all the children you saved with those malaria nets grew up only to be killed by nanomachines in their sleep.  (Vivid detail warning!  I don’t actually know what the final hours will be like and whether nanomachines will be involved.  But if we’re happy to visualize what it’s like to put a mosquito net over a bed, and then we refuse to ever visualize in concrete detail what it’s like for our civilization to fail AI alignment, that can also lead us astray.)

I think that people who try to do thought-out philanthropy, e.g., Holden Karnofsky of Givewell, would unhesitatingly agree that these are both conceivable worlds we prefer not to enter.  The question is just which of these two worlds is more probable as the one we should avoid.  And again, the central principle of rationality is not to disbelieve in goblins because goblins are foolish and low-prestige, or to believe in goblins because they are exciting or beautiful.  The central principle of rationality is to figure out which observational signs and logical validities can distinguish which of these two conceivable worlds is the metaphorical equivalent of believing in goblins.

I think it’s the first world that’s improbable and the second one that’s probable.  I’m aware that in trying to convince people of that, I’m swimming uphill against a sense of eternal normality – the sense that this transient and temporary civilization of ours that has existed for only a few decades, that this species of ours that has existed for only an eyeblink of evolutionary and geological time, is all that makes sense and shall surely last forever.  But given that I do think the first conceivable world is just a fond dream, it should be clear why I don’t think we should ignore a problem we’ll predictably have to panic about later.  The mission of the Machine Intelligence Research Institute is to do today that research which, 30 years from now, people will desperately wish had begun 30 years earlier.

Vote Eliezer Yudkowsky, King of the World

PS. Long ago I used to read the paper version of Scientific American, and their economics articles were consistently awful. Have things improved?

The most ridiculous result of the Chicken Tax is surely the Ford Transit Connect, which is produced in Turkey and Spain. All Transit Connects are imported with rear windows and rear seats with seat belts, making them passenger vehicles. Once they arrive in the United States, Ford rips out and recycles the windows, the seats, and the rear seat belts. Ford also blocks the rear windows with solid panels. Doing this transforms them into light trucks.

This is from Michael Hammock, "Bizarre Tales of Tariffs," one of the two Econlib Feature Articles for March. Read the whole thing. (5 COMMENTS)

But just because voters are ideologically mixed does not mean they are centrists at heart. Many voters support a mix of extreme liberal policies (like taxing the rich at 90 percent) and extreme conservative policies (like deporting all undocumented immigrants). These voters only appear "centrist" on the whole by averaging their extreme views together into a single point on a liberal-conservative spectrum.

This makes those who celebrate voter centrism rather like the fabled statistician who drowned in a river that was 2 feet deep on average. Even if voters are centrist on average, they can be quite extreme on many particular issues.

The result? Reforms that empower voters may not push politicians further to the center -- instead, they may encourage politicians to pander to extreme views popular among voters. Indeed, where they have been enacted, many changes that reformers favor -- like public funding of elections and top-two primaries [DRH note: as we now have in California] -- have resulted in politicians doing just this. By seeking to further empower voters in the name of reducing polarization, well-meaning reformers may actually be encouraging dangerous extremism.

This is from David Broockman, "How well-meaning political reformers are helping to elect President Trump," Washington Post, March 7.

Broockman is an assistant professor of political economy at the Stanford Graduate School of Business. He's sharp.

I somehow think that co-blogger Bryan Caplan would like this article a lot.

HT@ Stephen M. Jones.

(4 COMMENTS)

The new pitcher, called the Brita Infinity pitcher, will be able to track how much water is flowing through the pitcher. When approximately 40 gallons of water have passed through the pitcher’s purification filter, the pitcher will then send a signal to the Dash Replenishment Service to reorder more filters.

The new Brita Infinity pitcher will sell on Amazon for $44.95. A three-pack of replacement filters costs between $15 and $20. Brita says the pitcher’s two lithium metal (non-rechargeable) batteries should last nearly five years, even if stored in a cold environment. You know, like your fridge. The pitcher holds up to eight cups of water, and is BPA-free.

Here is more, with a photo, via the excellent Samir Varma.

The post The smart wi-fi water pitcher appeared first on Marginal REVOLUTION.

No, they didn’t forget to fill in the map for Scandinavia, those are the actual metrics.  Source here.

The post European place names with the word “saint” in them appeared first on Marginal REVOLUTION.

No Hollywood film has even come close to portraying the insanity of politics.  Here is the latest headline:

Christie Deeply Insulted by Rubio Voicemail

Wow, why would Rubio deeply insult Christie, when he needs his support?  So I read on:

And after losing the race, the call came from Rubio.

In his voicemail, the junior Florida senator sought Christie’s support and assured him that he still had a bright future in public service — and Christie didn’t appreciate the words, sources close to the governor said.

Instead, Christie, 53, took the message to be patronizing and deeply disrespectful, and wanted to know why 44-year-old Rubio would be telling him about his future, and he two politicians never held a direct conversation.

Shame on Rubio.  I don’t think I’ve ever been that deeply insulted, not even by my most vicious commenters.  I can’t even imagine the stress that Christie has to go through being a public figure.  No wonder he put his ego ahead of the well-being of America.  Who wouldn’t, if in his shoes?

Meanwhile, as always occurs in Presidential campaigns, the former head of the CIA is now speculating that the military would refuse to obey orders from one of the two leading Presidential candidates:

Michael Hayden, the former head of the NSA and CIA, thinks some of presidential candidate Donald Trump‘s campaign promises are so unlawful that the U.S. Armed Forces could not follow them as orders.

These include Trump’s claim that people deserve to be waterboarded even if it doesn’t work and that he would target the families of terrorists. The internationally recognized Geneva Conventions bars such action.

“If he were to order that once in government, the American armed forces would refuse to act,” Hayden said Friday during an appearance on “Real Time with Bill Maher.” “You are required not to follow an unlawful order that would be in violation of all the international laws of armed conflict.”

So I guess we can cross our fingers and hope for a mutiny by the armed forces and the CIA against the Commander in Chief.  (And for God’s sake make sure the White House is well stocked with strawberries.)

When reading the following quote from Megan McArdle, my heart soared as I read “continuous loop on every television screen”, and then plunged when I finished that sentence:

Rubio, and also Ted Cruz, who attacked him very successfully on electability, showed Donald Trump some things I’m not sure he realized: that bullies can be bullied; that being the frontrunner means everyone’s going to come at you; and that there is a reason that those boring, low-energy experienced politicians take care not to say things that they will have to answer for in the media, or which can be used against them in attack ads. (Highlights from Trump’s lengthy remarks include praising Mommar Gadhafi, who accepted Libya’s responsibility for the Lockerbie bombing that killed almost 200 Americans; explaining his reluctance to release his tax returns on the grounds that he gets audited all the time; and saying that he hired foreign workers for his Palm Beach club because Americans won’t do those jobs. If these are not soon running in a continuous loop on every television screen in a primary state, then the Republican Party is fielding presidential candidates too stupid to govern.

Putin, Gadhafi, are there any murderous dictators that Trump doesn’t like?

And here’s Jonah Goldberg (I used to think “liberal fascism” was an oxymoron, but it does sort of fit Trump):

Before he ran for president, if you played the word-association game with 100,000 Americans, I’d venture that not one of them would have said “Christian!” when asked, “What first comes to mind when you think of Donald Trump?”

Apparently, according to Trump, that’s only true of normal Americans. The IRS is different. It’s like the eye of Sauron searching the land for “strong Christians.” When its cruel gaze landed upon the failed casino magnate, beauty-pageant impresario, thrice-married and confessed adulterer who’s talked about how his own daughter is so hot he’d date her if she wasn’t his daughter and bragged about how it doesn’t matter what critics say about you so long as “you’ve got a young and beautiful piece of ass,” and who told Howard Stern that his ability to avoid getting the clap while sleeping around was his “personal Vietnam” the IRS immediately saw the truth of the matter.

Suddenly, the alarms at the IRS Christian persecution squad started flashing. Over the P.A. system came: “Code Red! We’ve got a ‘strong Christian’ in sector 7!”

Now don’t get me wrong, I’m not making light of the IRS’s well-earned reputation for inappropriately scrutinizing conservative Christian groups. (But let’s not forget, they target them because they are conservative. And for most of Donald Trump’s audit period he was a major Democratic donor.)

What I am doing is unapologetically mocking the idea that Donald Trump, a bankruptcy impresario and formerly mob-tied businessman, who likes to mock the disabled at that, was singled out by the IRS for his tendency to ask “What would Jesus do?”

Oh, and keep in mind, according to Trump, this potential Christian persecution started on George W. Bush’s watch.

I could go on for hours listing everything ludicrous about Trump’s attempt to claim he is being crucified on a cross of shady tax shelters.

But what is so dismaying is the way Trump supporters took the bait instantaneously. I won’t bore you with my Twitter feed, but I was amazed by how many people (1) immediately bought Trump’s explanation as plausible, (2) claimed I was defending the IRS’s persecution of Christians, (3) actually believe that Trump gives a ton to Christian causes. (I mean in the past. I’m sure he’s written a lot of checks this year. I personally can’t wait to see the Trump Student Center and Hall of Greatness at Liberty University.)

So Trump has paranoid delusions of being persecuted by America’s tiny non-Christian minority.  Heh, what could go wrong?

Seriously, I see the same thing as Goldberg’s twitter feed.  I have commenters who are smart enough to discuss the nuances of monetary policy, and yet also believe that Trump’s being persecuted by “the Jews” who run the IRS.  There are “books” proving all this stuff.  If we have learned anything over the past few months it is that there is no “g”, no general intelligence; within each cranium there coexists amazingly diverse types and levels of intelligence.

There is literally nothing Trump could say, no matter how mindbogglingly stupid, that would drive his poll numbers below 30%.  America faces 8 more months of insanity, if not 5 more years, or God forbid 9 more years.  And if the forces of sanity do somehow cobble together enough delegates to deny Trump the nomination, he’ll cry foul and tell his supporters to stay at home, giving the House, Senate and Presidency to the Dems.  And that nightmare is the best outcome!

Have a nice day.