Who Needs the FCC?

Posted on by

The WaPo reports,

Many of the FCC’s existing functions could be farmed out, Jamison wrote in the blog post. Subsidies for phone and Internet service could be handled by state governments, while the Federal Trade Commission could handle consumer complaints and take action against abuses by companies. There are some details that were not addressed in the blog post due to time constraints, Jamison said Tuesday, such as the possible need for new state-level powers to address broadband monopolies.

The story refers to Mark Jamison, an adviser to President-elect Trump.

I think it would be a great idea to reconstitute the FCC for the 21st century. Recall my essay, Sidestep the FCC and the FDA. There, I argue for replacing the FCC’s spectrum licensing system (which Jamison would retain) with an arbitration board to deal with disputes among spectrum users.

Unlike the FCC, the arbitration board would presume that any spectrum could be used for any purpose. The board would set ground rules for users to deal with one another to resolve potential conflicts. These ground rules might specify which user has priority until an agreement can be reached. The ground rules might set expectations for how negotiations ought to be conducted and resolved. If parties are unable to resolve disputes, then the board would rule on that specific dispute.

My thinking reflects a view of spectrum that I encountered over 15 years ago, which says that there really is no such thing as “interference” if you have the right hardware, software, and protocols in place.

Regulation and Sustainability

Posted on by

Concerning a new EPA regulation, Jennifer Ko writes,

many industry and environmental groups have failed to address one important aspect of biofuel regulations—the effect that increased ethanol use will have on dwindling water supplies in the United States. Jay Famiglietti, a senior water scientist at the U.S. National Aeronautics and Space Administration, questions the prudence of policy decisions that drain stressed water supplies to irrigate water-intensive crops. Many of the nation’s top ethanol producing states sit in the “breadbasket” of America where farmers irrigate crops, such as corn, using water from underground aquifers. In Kansas, the main source of water—the largest basin of freshwater in the United States—is dwindling rapidly, in part due to the water used up by massive acres of crops earmarked for ethanol production.

If policymakers fail to consider the relationship between energy and water, Famiglietti warns that “consequences will be huge.”

Pointer from Mark Thoma.

In Specialization and Trade, I argue that market prices tend to do a better job than environmentalist intuition at indicating sustainability. Water tends to be under-priced, in part because agricultural interests lobby for low prices. They also lobby for higher ethanol mandates. And the EPA, which is supposedly here to protect the environment, helps the agricultural interests.

Regional Variation in Medical Treatment

Posted on by

Amy Finkelstein, Matthew Gentzkow, and Heidi Williams write,

Our findings confirm that supply-side factors are important, while also revealing that patient preferences and health status together account for a large share of variation. Once we address the endogenous measurement issue with patient health, we find that roughly a quarter of the geographic variation in log health care utilization can potentially be attributed to observable patient health. Whether the remaining patient component reflects preferences or unmeasured health remains an open question

Pointer from Alex Tabarrok, who suggests that the supply-driven variation represents an upper bound (a high one) of sorts on inefficient use of medical procedures. I disagree. There also can be demand for medical services with high costs and low benefits, fueled by third-party payments.

I continue to believe what wrote a decade ago in Crisis of Abundance. That is, the fundamental reason that health care spending is very high in this country is that we obtain a lot of medical services that have high costs and low benefits. You can address that either with top-down rationing or with having patients face a larger share of the costs and being forced to make choices.

Erik Hurst on the Labor Market

Posted on by

In a podcast with Russ Roberts. Self-recommending.

An excerpt (there were many to choose from):

in earlier periods, manufacturing jobs were, you know, slowly going away. But at the same time, population was growing. So new young people could come into the market, and they adjust; and they don’t see, there isn’t enough jobs in manufacturing, and they kind of reallocate to other sectors. In the early 2000s, we lost, as I said before, about 4 million manufacturing jobs, in the early 2000, 2004, 2005 period. You know, from 1980 to 2000, we lost about 2 million manufacturing jobs over that 20-year period. And here we lost, you know, very quickly. And it might be that when shocks happen quickly, it just takes people longer to adjust. Some people get displaced; and then they have to work through, you know, accumulating new skills, moving to a different sector, moving to a different location. And if the young are more likely to do that than older workers, then we have to have enough young to kind of clear the market. And that might just take a little time. So, I don’t think this is going to be a long-run problem. I just think it’s–you know, we are seeing the medium run responses to this right now.

Trumpophobes: Is this really 1933?

Posted on by

Some of my Facebook friends say that it is. Here are some of the events that took place in Germany in 1933.

The Reichstag Fire Decree is passed in response to the Reichstag fire, nullifying many German civil liberties.

Hundreds are arrested as the Nazis round up their political opponents

Dachau, the first Nazi concentration camp, is completed (it opens 22 March)

The Reichstag passes the Enabling Act, making Adolf Hitler dictator of Germany

The recently elected Nazis under Julius Streicher organise a one-day boycott of all Jewish-owned businesses in Germany.

The Law for the Restoration of the Professional Civil Service is passed, forcing all “non-Aryans” to retire from the legal profession and civil service

The Gestapo is established in Germany

The Nazis stage massive public book burnings throughout Germany

All non-Nazi parties are forbidden in Germany

My challenge to all Trump-ophobics is this. Look at this list of events, and come up with something comparable that you expect to occur under President Trump. Make your prediction in the form of a $100 bet. I will take the other side and give you 50-1 odds. That is I pay $5000 if, for example, Congress passes something like the Enabling Act.

Note that Bryan Caplan and Scott Alexander have also expressed a willingness to bet against Trumpophobes.

Social Science is Mis-named

Posted on by

John Tierney writes,

In a classic study of peer review, 75 psychologists were asked to referee a paper about the mental health of left-wing student activists. Some referees saw a version of the paper showing that the student activists’ mental health was above normal; others saw different data, showing it to be below normal. Sure enough, the more liberal referees were more likely to recommend publishing the paper favorable to the left-wing activists. When the conclusion went the other way, they quickly found problems with its methodology.

I prefer the term social disciplines for economics, political science studies, sociology, anthropology, psychology, and history.

I believe that it is true in general that one’s instinct is to focus on methodological flaws when results conflict with your priors and to ignore methodology and instead focus on results when a study finds congenial results. Probably this affects natural science as well, but my guess is that in natural science results are often more robust, so that if you do not like the results you cannot just carp about the methods.

In fact, it probably would be a good idea of journal editors would send out papers stripped of their results for peer review. That is, the referee should recommend for of against publication of a paper based on the methods used and the question asked, not on the answer obtained.

Outline for an Econduel

Posted on by

The topic is, “Should we think of economics as a science?”

Against

Thinking of economics as a science is incorrect as a description and unwise as a prescription. As a description, the claims that economists make are not as robust as claims made in natural sciences. As a prescription, claiming that economics is a science leads to a belief in the capability of economic policy-making that is unwarranted and dangerous.

For

It is true that it is not possible in economics to make claims that are as precise and verifiable as in chemistry of physics. But economics still contains valuable laws, such as the law of supply and demand. And economists still should attempt to follow the scientific method as best they can. If no one believes that economics is a science, then that opens things up for all sorts of bad intuition and nonsense to enter the policy debates.

I have more thoughts, but nobody reads blogs on Thanksgiving, anyway.

Wither Factor-Price Equalization?

Posted on by

Elisa Giannone writes,

The interaction of SBTC [skill-biased technical change] and agglomeration economies imply that more educated locations have larger skill premium. High and low-skill workers have some degree of complementarity, so, agglomeration effects raise the wages of all the workers. The differential increase in the wages of high-skill workers makes the migration patterns for high and low-skill workers diverge: high-skill workers migrate to educated cities more than do low-skill workers. Migration has a twofold effect. First, the more workers migrate to a location, the marginal productivity of each will decrease, hence, the returns will decrease. Second, when more high-skill workers move to a location, productivity goes up because of agglomeration effects, raising the wages of all the workers, but especially the wages of the high-skill workers.

Pointer from Tyler Cowen.

She points out that within the U.S. since 1980, wages have stopped converging across cities, and this is mostly due to divergence among high-skilled workers. So we are not getting factor-price equalization, and she wants to try to explain why. Her explanation strikes me as quite complex (it includes more than just what is in the quoted paragraph) and a bit just-so-story-ish, but that is what happens when you observe a phenomenon that challenges a core interpretive framework.

If you believe in factor-price equalization, then you predict that workers with similar skills will tend toward the same pay in different locations. The word “similar” often gives me pause. As consumers, we value different amenities. In my prime, I could have earned a higher wage working in Manhattan, but relative to the people who chose to work there, I valued the amenities less. I wonder how much of the apparent divergence can be traced to the interaction of consumer preferences with other factors. I am guessing that assorattive mating fits in somewhere.

California’s Housing Shortage

Posted on by

Mckinsey folks estimate it at 2 million. Pointer from Alex Tabarrok.

The market clears, of course, but at a price point that is very high relative to income.

Presumably, this is a supply problem. You do not cure a supply problem with mortgage subsidies or rent controls.

They have several suggestions for how to fix it. First,

In California cities with populations of more than 100,000 people, we conservatively estimate that there is capacity to build 103,000 to 225,000 housing units on vacant land that has already cleared the multifamily zoning hurdle (Exhibit 8). One-third of this opportunity is in Los Angeles County. This estimate applies only to vacant and already-zoned urban land capacity and does not account for whether it is economically feasible to build housing onthis land.

Los Angeles County is a big place, and the vacant parcels seem to be all over the map. That leads me to worry about transportation issues. And it leads to their second recommendation.

We estimate that by increasing housing density around high-frequency public transit stations, California could build 1.2 million to 3 million units within a half-mile radius of transit. . . in our “high case,” 34 percent, or one million units, would be in the Bay Area; 8 percent, or 245,000 units, in the Sacramento area; and 30 percent, or 903,000 units, in the Los Angeles area.

An interesting paragraph about the disincentive to approve new housing appears in a footnote:

One reason for this is the small share of property tax that is allocated to the city from a residential development. The city must provide municipal services for the development, yet a large share of the development’s property taxes flows to non-city entities such as the county, the school district, and special-purpose districts such as fire and water districts. In addition, affordable units built by non-profit organizations are exempt from property tax, since such units qualify for the “welfare exemption” outlined in the state constitution. For a given parcel, local governments would often rather approve developments that generate more revenue, such as retail projects, than housing. This “land-use fiscalization” is commonly cited as a barrier to residential development in California.

On the permitting process in general, there is this:

California stakeholders could study other systems to get a fact-based view of “what good looks like”—for example, a robust, participatory, and transparent land-use process where outcomes are measured in days or weeks, rather than years or decades.

The report strikes me as very good.

Along similar lines, see Richard Epstein.

Another piece, recommended by Steve Teles, is David Schleicher’s City Unplanning.

Each time a community board approves a new development, the city could provide a time-limited property tax rebate to residents in the board’s district equal to a percentage of the “tax increment” created by the development (the tax increment is the increase in tax revenues caused by increasing property values18). The payments would head off local opposition to new development

Books of the Year, 2016

Posted on by

1. Sebastian Mallaby, The Man Who Knew. A very readable biography of Alan Greenspan. It corrects many misconceptions. It offers useful lessons on the history of economic policy, on the role of economists in Washington, and above all on the effect of politicians on economists. I have a review essay forthcoming.

2. Thomas Leonard, Illiberal Reformers. A highly original and devastating account of how American economics was “born bad,” so to speak. The founders and early stars of the American Economic Association were filled with hubris and racism, quite the opposite of Adam Smith and the English liberals. Here is my review essay.

3. Yuval Levin, The Fractured Republic. There is at least implicit in Levin’s book the claim that libertarianism has unwittingly served the cause of statism by helping the left in its project of undermining intermediating institutions such as the family and organized religion. I wrote a review essay and, in addition, I decided to read and review Robert Nisbet’s 1953 work, The Quest for Community, which is a major influence on Levin.

4. Erwin Dekker, The Viennese Students of Civilization. This book offers some novel and provocative analysis of early 20th century Austrian economics. It is marred by Dekker’s lack of facility with the English language, a problem which Cambridge University Press does not seem to have bothered to address. Here is my review essay.

5. Joel Mokyr, A Culture of Growth. Mokyr takes the view that leading Enlightment thinkers helped to pave the way for industrialization by putting forth notions of progress aided by the combination of science and commercial innovation. It is marred by Mokyr’s heavily academic writing style, with citations and asides constantly interrupting the flow. I can barely imagine even specialists plowing through the entire book, much less general readers. My review essay is forthcoming.

In addition, I would like to mention two other books. One is my own Specialization and Trade, which I was happy with and has actually grown on me since it appeared this summer. The other is Martin Gurri’s The Revolt of the Public, which appeared in 2014 but only came to my attention this year. As I argued in my review essay, Gurri is one of the few analysts who can legitimately claim to have anticipated something like the Trump phenomenon.