Tag Archives: economics

City Observer’s Weekly Roundup

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City Observer has a nice weekly roundup with way more stuff than I could actually hope to read in a week. This example covers everything from car “demonization” to affordable housing to real estate capital gains.

I’ve been in the process of trying to form opinions on these issues for many years. On cars, I think they are demons. At least, private cars and all the waste and environmental and social hell they have unleased on the entire world. We should design cities and connections between them so we almost never need them. Then we can keep a few share cars and taxis around. On affordable housing, I don’t have the answers that have alluded everyone else forever, but in general I like focusing on the idea of supporting well-functioning markets that are able to set appropriate prices. When you distort prices with large subsidization schemes in a world of finite resources, you end up with distorted systems and unintended consequences. Better to find ways to remove hidden distortions, subsidies, and discrimination, constrain supply less, help people get around efficiently, and generally help them make an income and build assets so they can afford what housing costs. In the U.S., all the tax deductions and exceptions for homeowners and subsidization of inefficient low-density infrastructure are forms of distortion that maybe should be phased out. But please don’t take away my personal subsidies all at once, because I was counting on them when I made my last round of housing and financial decisions.

bricks and mortar Amazon

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We all know that traditional retail is dying because Amazon can deliver anything to your front door. Now, in a strange irony, Amazon is opening some physical stores.

Last year, Amazon opened its first physical bookstore in the University Village shopping mall in Seattle. The store features thousands of books, a tiny sampling of those on Amazon’s website, most of them with customer ratings of four stars and above.

The books sell for the same price in the store as they do on Amazon’s site. Because book prices regularly change on the site, visitors to the store scan books using a mobile app to find out how much they cost.

Although the store is called Amazon Books, it prominently features a growing array of Amazon-made devices, including the Kindle tablet, the Fire TV set-top device and Echo, its home speaker and virtual assistant.

economics of parking and commuting

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The economics of commuting and parking are gradually shifting.

What tenants want in an office building is changing, and the old model of the isolated suburban office park is going the way of the fax machine. That’s according to a new report from Newmark, Grubb, Knight and Frank [PDF], one of the largest commercial real estate firms in the world.

The old-school office park does “not offer the experience most of today’s tenants are seeking,” according to NGKF. As a result, the suburban office market is confronting “obsolescence” on a “massive scale.” More than 1,150 U.S. office properties — or 95 million square feet — may no longer pencil out, the authors estimate, though a number of those can be salvaged with some changes.

“Walkability and activated environments are at the top of many tenants’ list of must haves,” the report states. Office parks in isolated pockets without a mix of uses around them must have “in-building amenities” –including a conference center, a fitness center, and food service — to remain competitive, according to NGKF: “If tenants are not going to be able to walk to nearby retail or a nearby office property to get lunch, they had better be able to get it at their own building.”

Meanwhile the economics of city center parking is also shifting, but city politics are often holding back the changes.

The idea that building more parking capacity will only increase the number of cars in a neighborhood, or conversely, that removing parking spaces can reduce the number of cars often gets short shrift at neighborhood zoning meetings, but the evidence here suggests this is basically how things work.

When parking lots go away, parking conditions tighten, driving becomes more unpleasant, and some people respond to this by ditching their cars. Rather than enduring permanent traffic jam conditions, neighborhoods simply level down to a new equilibrium with fewer parking spaces, fewer cars, and higher “alternative” mode share as parking gets tighter…

Because [Philadelphia] City Council and the PPA set the prices for curb meters and residential permits so much lower than the rates for off-street parking, drivers have a strong incentive to seek out free or cheap curb parking first, before ultimately relenting and parking in a garage when things get desperate. The George Costanza parking strategy is a great example of a “smart for one, dumb for all” practice that makes sense in terms of individual incentives, but in the aggregate just adds up to a lot of unnecessary traffic congestion.

So Philadelphia, a first step would be to get rid of mandatory parking minimums in private development and just let the market decide. A second would be to let the market decide prices for on-street parking too. The politics of this can be difficult in residential neighborhoods, because that is where the voters are, whereas the office workers are a mix of voters and suburban commuters. But many of Philadelphia’s residential neighborhoods are pretty close to employment centers, making walking a very viable option. Most of the others are very well served by public transportation (that is, public transportation is pretty frequent and goes pretty much everywhere, which is not to say it is always fast or clean or the people running it all have a fantastic attitude). Protected bike lanes and secure bike parking might help people make those trips that are a bit long to walk, and also help people access public transit stops better. There is also the phenomenon of reverse commuting, where service industry jobs in the suburbs can pay better than those in the city, so city residents have an economic incentive to make the trip, but these commutes can be tough and are much easier by car. Boosting the minimum wage and promoting tourism in the city might help a little here, but the service industry is probably not the employment growth industry of the future, The long-term solution here is the thorny one that has alluded our country for decades – educate our children, provide them with the mental tools and marketable job skills they need to make an income, and help them build assets.

car dealers sabotaging electric cars

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The New York Times says car dealers are actively subverting peoples’ attempts to buy electric cars, even when they really want them. One reason they cite is that electric cars need less service like oil changes, and dealerships actually make a lot more money from service than from sales. This may be a rational explanation. But part of the explanation may also be that people can get sucked into longstanding institutional cultures even when they are highly irrational. I face this quite often in my work, and I have faced it around the world – groups of people can be incredibly motivated to defend the status quo, even in the face of incontrovertible evidence that there are better ways, and even when the people in question are young, intellgient, well-educated and well-intentioned. Sometimes the facts just do not matter. I don’t have the answer to this, if you do please let me know.

Georgescu-Roegen

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From Wikipedia:

Nicholas Georgescu-Roegen, born Nicolae Georgescu (4 February 1906 – 30 October 1994) was a Romanian American mathematician, statistician and economist. He is best known today for his 1971 magnum opus The Entropy Law and the Economic Process, where he argued that all natural resources are irreversibly degraded when put to use in economic activity. A paradigm founder in economics, Georgescu-Roegen’s work was seminal in establishing ecological economics as an independent academic subdiscipline in economics…

He was a protégé of the renowned economist Joseph Schumpeter. His own protégés included foundational ecological economist Herman E. Daly and Kozo Mayumi who further extended Georgescu-Roegen’s theories on entropy in the study of energy analysis…

The Entropy Law and the Economic Process, described by the Library Journal as “…a great seminal work that challenges economic analysis”, is a wide-ranging technical and philosophical exposition which promotes the case that economic activity can not be adequately described without taking into account the implications of second law of thermodynamics. It notes that the discovery of the second law in the mid nineteenth century resulted in the downfall of the mechanistic dogmas of Classical Physics. Whereas the equations of Newton‘s Laws of Motion were symmetrical with respect to time, the new law introduced the concept of irreversibility. Although the processes of living organisms appear to violate the second law, Schroedinger demonstrated in What is Life? that there is no inconsistency – organisms feed on low-entropy sources of energy to build and preserve their complex structures, and dissipate the energy in a higher entropic state. It argues that social and economic endeavours are an extension of these biological processes and are governed by the same principles.

how to think about human capital

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Here is a Morningstar study on how to think about your personal human capital in investment and retirement planning decisions.

Financial assets such as stocks and bonds are only one component of an investor’s total economic worth. Other assets, such as human capital, real estate, and pensions (e.g., Social Security retirement benefits) often represent a significant portion of an investor’s total wealth. These assets, however, are frequently ignored by practitioners when building portfolios, despite the fact that they share common risks with financial assets. This paper provides evidence that industry-specific human capital, region-specific housing wealth, and pensions have statistically significant exposures to different asset classes and risk factors. Through a series of portfolio optimizations we determine that the optimal allocation for an investor’s financial assets varies materially for different compositions of total wealth. These findings suggest that narrowly focused portfolio optimization routines that ignore human capital and outside wealth are insufficient, and that a holistic definition of wealth is necessary to build truly efficient portfolios.

Richard Thaler

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Here’s a Vanguard interview with Richard Thaler on what behavioral economics is all about.

Losses have about twice the emotional impact of an equivalent gain. Fear of losses (and a tendency toward short-term thinking—I’m sneaking in a third one here) can inhibit appropriate risk-taking.

For example, investing in the stock market has historically provided much higher returns than investing in bonds or savings accounts, but stock prices fluctuate more, producing a greater risk of losses. Loss aversion can prevent investors from taking advantage of the long-term opportunities in stocks.

The second bias that causes a lot of trouble is overconfidence. Most people think they are above-average investors, and as a result they trade too much and diversify too little. Overconfidence can also lead people to invest during what appears to be a bubble, thinking they will just get out faster than others. Research shows that the more individuals trade, the lower their returns. Not surprisingly, men suffer from this problem more than women.

carbon pricing

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Here is Christine Laguarde on The Path to Carbon Pricing.

The transition to a cleaner future will require both government action and the right incentives for the private sector. At the center should be a strong public policy that puts a price on carbon pollution. Placing a higher price on carbon-based fuels, electricity, and industrial activities will create incentives for the use of cleaner fuels, save energy, and promote a shift to greener investments. Measures such as carbon taxes and fees, emissions-trading programs and other pricing mechanisms, and removal of inefficient subsidies can give businesses and households the certainty and predictability they need to make long-term investments in climate-smart development.

At the International Monetary Fund, the focus is on reforming its member countries’ fiscal systems in order to raise more revenue from taxes on carbon-intensive fuels and less revenue from other taxes that are detrimental to economic performance, such as taxes on labor and capital. Pricing carbon can be about smarter, more efficient tax systems, rather than higher taxes.

Carbon taxes should be applied comprehensively to emissions from fossil fuels. The price must be high enough to achieve ambitious environmental goals, in alignment with national circumstances, and it must be stable, in order to encourage businesses and households to invest in clean technologies. Administering carbon taxes is straightforward and can build on existing road fuel taxes, which are well established in most countries.

This is one of the few policies that probably almost all economists would agree on – taxing externalities. Instead of allowing businesses individuals to profit while imposing a cost or harm on others, you make them pay that cost as a tax. This has dual benefits – first, it creates an incentive to reduce the negative behavior, second it raises revenue that can replace a tax on work or income. It’s good for the economy, the environment and people.

We do have politicians from one of the two major U.S. parties talking about climate change, and we have a big international summit coming up. So there are opportunities. We should get something done, and then build on it by finding other harmful materials and behaviors we can tax, like fuels that cause air pollution, building materials that cause water pollution, packaging that is not designed to be recycled, and dangerous consumer goods like motor vehicles that kill a million people a year. This is not unprecedented – we did it with cigarettes. By the way, to get this done, we need a constitutional amendment making it crystal clear that a person is a human and a human is a person, and a corporation is not a person for the purposes of political speech.

 

Viktor Glushkov

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Viktor Glushkov was a Soviet computer science who developed an idea for a cash-free, computer-controlled economic system. The theory is seductive because the idea was to improve information flows and feedback loops while reducing lag times. In other words, if you could collect perfect information and make it perfectly available, the economy could be perfectly efficient and in perfect balance. It didn’t work out, running into the crushing Soviet bureaucracy and technological limits. But in theory at least, the technology would be less of a constraint today.

Glushkov’s initial proposal included one particularly controversial provision. He envisioned that the new network would monitor all labor, production, and retail, and he proposed to eliminate paper money from the economy and to rely entirely on electronic payments. Perhaps Glushkov hoped that this idea would appeal personally to Khrushchev. The elimination of paper money evoked the Marxist ideal of money-free communist society, and it seemed to bring the Soviet society closer to the goal of building communism, promulgated by Khrushchev at the Twenty-Second Party Congress in 1961. The Academy president Keldysh, who was much more experienced in top-level bureaucratic maneuvers, advised Glushkov to drop the provision, for it would ‘only stir up controversy.’ Glushkov cut out this section from the main proposal and submitted it to the Party Central Committee under a separate cover. If ideology were to play any significant role in Soviet top-level decision-making, this was its best chance. Glushkov’s proposal to eliminate money, however, never gained support from the Party authorities.

zero waste

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How could you have a zero solid waste (aka garbage) lifestyle?

Now, take a look into your trash can. If you mostly see food packaging and food scraps…not good.

There’s an easy fix to this, and it’s called a zero waste lifestyle. Today, I’ll share my tips on how to avoid this kind of garbage – and hence – reduce the amount of your trash that ends up in the landfill.

THE ZERO WASTE SHOPPING ESSENTIALS

Zero Waste shopping requires some preparation and a little investment. You’ll need:

  • Reusable grocery bag. It’s no surprise that plastic bags are enormous harm to our environment. It’s easy to make the switch to reusable bags. Just be sure to stash a few where you’ll remember to take them before shopping.
  • Cotton/Hemp Muslin Bags. These are great for produce, nuts, beans, grains, etc. You can find them on Amazon.com or DIY.
  • Glass/Stainless Steel containers. They work best for meat, seafood and poultry by keeping food fresh.

I love the idea. I have trouble seeing myself washing glass containers (how many fit in my dishwasher?), lugging them back to the store, and convincing someone to refill them. That sounds heavy for one thing, and I go to the store on foot. I tend to think my not driving to the store negates the environmental harm of a few plastic bags. Still, I like the idea. As we travel to stores less and have more stuff delivered, it could start to make sense. You have a standardized container for everything. At the same time the delivery company delivers your new containers full of stuff, it is willing to pick up your dirty used containers and take them away to be washed, sterilized, and reused. We used to all do this with glass bottles, of course, but the economics of plastic packaging seems to be more advantageous. Of course the economics work, in part, because the consumer rather than the manufacturer is paying the disposal cost, and we are all collectively paying the environmental cost. If we had the political will, we could regulate or tax these external costs and see if that tipped the system back towards reuse. Or we can wait and see if automation and the increasing popularity of home delivery tips the economics again.