Tyler Cowen's Blog, page 406

Uncovering Union Violence

Union violence against non-unionized workers and their employers is an under-reported story. Everyone knows it happens but they look the other way. It’s hard to look the other way, however, when the violence and vandalism is videotaped and put on the web–that’s what two Philadelphia developers did and the result is making waves far beyond the workplace.

Since the first videos went up in spring, the tide of public sentiment has turned, and the Pestronks won a court order restricting the picketers’ behavior. But in coming years, the Goldtex battle and the techniques employed there may be seen in grander, historical terms: as the moment that started the unraveling of Building Trades’ vast economic and political power, and perhaps of Philadelphia’s entire power structure.

The above-market wages, featherbedding and absurd work rules make low-cost development difficult:

…According to Gillen, the economics of our Trades unions hinder middle-income developments and force developers toward high-end luxury residences. Yet Building Trades flaunts its power with labyrinthine work rules and outrageous demands. Most famously, the Comcast tower was equipped with two sets of pipes—one “green” and functional, the other old-fashioned and disconnected—to feed the union beast. But the Trades are an everyday drag on the local economy. Union plumbers must call in the electricians if a single wire needs to be moved.

As is usual, in these situations, the rents do not go the workers alone but instead are partially distributed to inside developers who accede because they get monopoly power:

…The Pestronks say they’ve been told by people within the development community that certain established builders get better labor rates than they were offered. Multiple sources inside Philadelphia’s development community say that information is correct. “It isn’t like the unions ever work for market rate,” says one developer, who requested anonymity for fear of retribution from the Trades. “But instead of coming in 40 or even 50 percent over market, they’ll come in at 20 percent. Maybe throw in some government subsidy, and it’s just enough to get the deal done.”

The arrangement has dark ramifications for the city’s economy. “The issue,” says one elected official, who also asked for anonymity, “is that a younger developer or an out-of-town developer gets a vastly different price than someone who has a relationship with the unions. There is a kind of old-boy ne­twork involved. And there is an element of protectionism to it. The established developers complain about the unions. But they cut deals with them and enjoy the fact that the unions reduce any competition they might face.”

The politicians also get their share of the cut:

..Inquirer reporter Bob Warner has published a series of stories quantifying the amount of money Johnny “Doc” Dougherty donates to local politicians. Dougherty, the boss of Local 98, annually funnels $2 million into state and city races, circumventing campaign contribution limits by funding political action committees that lavish his favored candidates with cash. The Trades have it in their power to acquire huge stakes in any city politician. A review of 2011 political campaign filings shows City Council representatives Bill Green, Mark Squilla and Bobby Henon each received roughly 20 to 25 percent of their funding from Trades-related sources.

Read the whole excellent piece. Hat tip to EconJeff who notes that the article is flawed only by a bit of lazy history suggesting that the 40 hour work week and good working conditions are primarily due to unions (there is also a bit of weak economics in a suggestion that the wages of builders and city rents should be closely related). Still it’s a very astute article that connects the dots in the iron triangle.

How to protect workers against robots

Noah Smith has an excellent proposal:

First of all, it should be easier for the common people to own their own capital – their own private army of robots. That will mean making “small business owner” a much more common occupation than it is today (some would argue that with the rise of freelancing, this is already happening). Small businesses should be very easy to start, and regulation should continue to favor them. It’s a bit odd to think of small businesses as a tool of wealth redistribution, but strange times require strange measures.

Read the whole thing.

Don’t pay for all of your kids’ college education

…a new study…found that the more money (in total and as a share of total college costs) that parents provide for higher education, the lower the grades their children earn.

The findings — particularly grouped with other work by the researcher who made them — suggest that the students least likely to excel are those who receive essentially blank checks for college expenses.

The Inside Higher Ed piece is here.  The NYT piece is here.  Here is a summary of the research from the researcher, Laura Hamilton.  Here is the paper itself, forthcoming in the American Sociological Review, available to subscribers and university systems only I suspect.

I should note that this piece includes all of the appropriate controls, but still we do not know how good those controls are and perhaps parental paying practices are proxying for other features of the situation.

Richard McKenzie writes a tribute to James Buchanan

You will find it under the fold…

At a conference organized in the early 1990s to celebrate Professor James M. Buchanan’s Nobel Prize in Economics, the speakers were asked to tie their comments on economic education to Professor Buchanan’s prodigious works.  My opening line crystallized the importance of my serendipitously coming within Professor Buchanan’s orbit of influence: “When I was in Professor James Buchanan’s microeconomics class in the fall of 1969, he taught me very little.  I say that with pride here in this august setting because Professor Buchanan would be the first among you to realize that I could not offer a higher compliment. He understands, as he got me to see, that the measure of good teaching is not how much you teach, but how much is learned by students – and then how much students can do with what little is taught and learned.  The first principle in economics should be economy in the principles covered,” a point rarely driven home for young economists today.

With his death at age 93, much will be written about Professor Buchanan’s prodigious scholarship that has changed the way people view political and government arenas.  My perspective is more personal, that of a student who came to know an admirable side of Professor Buchanan that his critics and devoted readers will never know.  Professor Buchanan was my dissertation director.  Most dissertation directors take weeks, if not months, to return first drafts of their students’ dissertations.  In my case, I vividly remember placing all 250 pages of my first draft on Professor Buchanan’s desk just before 5 PM one day, only to find a marked-up version, as well as an untold number of typed single-spaced pages of comments, the very next morning!

After graduating and taking an assistant professorship, I started churning out a stream of papers, anxious to move up the academic ladder. But I had an advantage that other young professors could only wish for.  I had Professor Buchanan in my corner, giving generously of his time to review and comment on my work, and all with unbelievable promptness.   I would send Professor Buchanan a paper, and he would have it back to me in no time at all, with pages of comments – long ago, when papers and messages traveled at the snail’s pace of the Post Office.  He was so prompt and predictable on getting papers back that on occasion I would put a paper in an envelope and then go to one of my colleagues and say something to this effect: “Notice that I am putting this paper in the mail to Jim Buchanan today.  I am willing to bet you a cup of coffee that I will get this paper back with one or more single-spaced pages of comments a week from now.”  Without fail, I won the bets and had any number of cups of coffee off Professor Buchanan’s tireless generosity with his time and wisdom with a former student.

I once told Professor Buchanan’s longtime assistant Betty Tillman how remarkable it was that he would get my papers back so promptly and with obvious attention to detail.  I was struck by her reaction, “Honey, I hate to tell you this, but he doesn’t just do it for you.  He does it for everyone.  There’s hardly a day that goes by that he doesn’t get at least one paper in for review, and he almost always has his comments written by the next morning.”

Professor Buchanan’s comments on my papers followed a somewhat predictable format.  He would always start by saying something positive about the content, perhaps focusing on how well the paper was written, if lost for positive comments on content. He would then add his incisive comments, which sometimes forced me to set the paper aside.  But on one paper I remember well that he didn’t start with his usual positive remarks.  He wrote to this effect: “Dear Dick, we all write good papers and bad papers.  With some papers we pursue publication.  With others, we trash them.  In the process of writing any number of papers, we acquire great wisdom in deciding which papers are which.  You will acquire great wisdom in deciding what to do with this paper.”  I didn’t need for him to say more, which he didn’t.  I never tried to revise that paper.

Today, I am pleased to call James Buchanan my professor for pressing on me a remarkably simple but important point that escapes so many colleagues across the country:  Being a professor is a privileged position.  It demands scholarship, but it also demands that you give of yourself in ways that will never show up on your resume, or in your obituary.

Richard McKenzie is the Walter B. Gerken Professor of Economics and Management Emeritus in the Merage School of Business at the University of California, Irvine.

 

What should we be afraid of?

That is the topic of the new Edge symposium and many of the answers are interesting.  Here is the take from Bruce Sterling, who fears that when it comes to the Singularity there is “no there there”:

Since it’s 2013, ten years have passed since Vernor Vinge wrote his remarkably interesting essay about “the Singularity.”

This aging sci-fi notion has lost its conceptual teeth. Plus, its chief evangelist, visionary Ray Kurzweil, just got a straight engineering job with Google. Despite its weird fondness for AR goggles and self-driving cars, Google is not going to finance any eschatological cataclysm in which superhuman intelligence abruptly ends the human era. Google is a firmly commercial enterprise.

It’s just not happening. All the symptoms are absent. Computer hardware is not accelerating on any exponential runway beyond all hope of control. We’re no closer to “self-aware” machines than we were in the remote 1960s. Modern wireless devices in a modern Cloud are an entirely different cyber-paradigm than imaginary 1990s “minds on nonbiological substrates” that might allegedly have the “computational power of a human brain.” A Singularity has no business model, no major power group in our society is interested in provoking one, nobody who matters sees any reason to create one, there’s no there there.

So, as a Pope once remarked, “Be not afraid.” We’re getting what Vinge predicted would happen without a Singularity, which is “a glut of technical riches never properly absorbed.” There’s all kinds of mayhem in that junkyard, but the AI Rapture isn’t lurking in there. It’s no more to be fretted about than a landing of Martian tripods.

For the pointer I thank Michelle Dawson.

Assorted links

1. Is sleep reduction the new low-hanging fruit?

2. Appreciation of Julio Cortázar.

3. What constitutes evidence of cheating?  And more here.

4. What do the numbers from Japan show?

Points I made about charter cities and free cities

I do favor experimentation in these directions, but often at Liberty Fund conferences, and indeed more generally, I play the role of contrarian.  I am not supposed to report the comments of others, but here are a few of the points I made in the discussions over the weekend:

1. It is striking that charter cities — a partial unpacking of nation-states — are proposed for a region, namely Central America, where Central American unification has been an ongoing proposal for hundreds of years.  Could it be that Central American nation-states were not optimally carved up in the first place?  Are cross-national unification and charter “unpacking” really polar opposites as proposals, or do they have more in common than it might at first appear?

2. Under what conditions would, in equilibrium, landowners capture most of the value created by a charter or free city?  Well-governed land would seem to be very scarce.

3. To what extent do charter cities require the active support or at least implicit support of a major hegemon?  Great Britain and then the U.S. backed Hong Kong and Singapore.  The U.S. took over Puerto Rico.  Yet Portuguese Goa and French Pondicherry are no longer real entities in part because no powerful government stood behind them.

4. To what extent are landlocked charter cities viable, or will their rents get swallowed up by larger and adjacent neighbors, much as India gives Nepal somewhat of a raw deal on transport?  Are successful charter and free cities more likely to be on the water?

5. Are the most likely countries to approve charter cities those which plan to use them as “special purpose vehicles” to keep offshore oil and gas revenues out of the hands of the legislature or other domestic “interest groups”?

6. More generally, what kind of selection process will rule which charter cities are approved and which wither on the vine?  How much will this selection process make the original idea worse (or better)?

7. When it comes to local land rights and the like, to what extent can the new legal authority of a charter or free city operate independently of the original legal system?  Or must the new legal authority defer to the documents, maps, and other decisions of the previous authority?  How many of the new legal decisions can in fact be disembedded from the previous legal authority?

8. Are charter and free cities likely to work better or worse with free or restricted immigration?  Which are they likely to evolve?

Assorted links

1. The culture that is Sweden (a screaming video).

2. Iranian markets in everything, Ayatollah air freshener edition.

3. The Japanese Kobe beef pizza for $66, by Domino’s by the way.

4. Kevin Drum responds to Jim Manzi on lead and crime.

5. Trudie’s advice to would-be economists (old MR post).

6. Is this for real?  Does WalMart really carry this?

*Catastrophic Care*

That is the new book by David Goldhill and the subtitle is How American Health Care Killed My Father — and How We Can Fix It.  I don’t actually like that subtitle, but still this is the best popular health care book from recent times.  It has a crystal clear account of what has gone wrong and how to fix it, with the author settling upon a version of the Singaporean system.  I would describe Goldhill as a market-friendly Democrat who is skeptical about ACA and for the right reasons.

Recommended.

What made Buchanan special as an economist?

Matt asks this question.  I am a bit on the run, so I will do this in link-less form, but all the sources should be easily googled.  Here goes:

1. He developed the “theory of clubs,” which sets out the conditions under which private associations supply excludable public goods at optimum levels.

2. For his time he had the best and most rigorous analysis of the incidence of public debt.

3. With Gordon Tullock he pioneered the economic analysis of voting rules in terms of transactions costs and external costs imposed on others.  Any current blogosphere discussion of say the filibuster will rely on this approach, though we now take it so for granted we don’t realize how impressive it was at the time.

4. He had pioneering economic analyses of bicameralism, logrolling, and other aspects of legislatures, again with Tullock.

5. Along with Harsanyi, he formulated aspects of the “original position” before Rawls did and he was a major influence on Rawls.  By the way, I have seen Buchanan numerous times with top professional philosophers, and he has no problem holding his own or better.

6. He helped pin down, including on the technical side, the economic concept of externality.

7. He provided the most important revision to optimal tax theory since Ramsey, namely the point that supposedly efficient methods of taxation can be too easy to use.  That was in The Power to Tax, with Brennan.  His piece on static vs. dynamic versions of the Laffer curve, with Dwight Lee, is also significant.

8. He provided a public choice analysis of why Keynesian economics would not lead to the appropriate budget surpluses during good times and thus would contain dangerous ratchet effects toward excess deficits.

9. He thought through the conflict between subjective and objective notions of value in economics, and the importance of methodologically individualist postulates, more deeply than perhaps any other economist.  Most economists hate this work, or refuse to understand it, either because it lowers their status or because it is genuinely difficult to follow or because it requires philosophy.  Yet it stands among Buchanan’s greatest contributions even if a) I do not myself agree with his approach, and b) I do not think it is easily summarized or even well-explained.  Buchanan took Knight and Shackle very seriously and he understood that the typical pragmatic dismissal of their caveats was not in fact  well-founded.

10. His Hayekian work on “order defined only through the process of emergence” and “economics as a science of exchange and catallactics” is a very important take-down of the scientific pretensions of much of economics.  It doubted whether the notion of efficiency could be independently conceptualized at all.  Again, this work is disliked or ignored.  Buchanan may be going too far, but it is a very important and neglected perspective.

11. He thought more consistently in terms of “rules of the games” than perhaps any other economist.  This point remains underappreciated and underapplied.  It makes technocracy out to be a fundamentally different endeavor.

12. He did important work in the history of economic thought, reviving interest in the Italian school of public finance and public choice.

13. His late papers with Yoon on the work ethic, increasing returns, and economic growth remain underappreciated.  I also admire his work with Yoon on the anti-commons.

There is more, but that is a start.  Try his article on why pollution should be taxed for Pigouvian reasons.  I could add that Buchanan understood the importance of monetary rules, and favored a regime where the supply of money would be elastic in response to negative economic circumstances.