Truly Nuts

Tuesday, March 31st, 2015

We’re spending thousands of dollars of water to grow hundreds of dollars of almonds, Alex Tabarrok notes — and that is truly nuts:

As you may have noticed at the grocery store, almonds are in demand right now whether raw or in almond milk. Asian demand for almonds is also up. As a result, in the last 10 years almond production in California has doubled. That’s great, except for the fact that almond production uses a huge amount of water and water in CA is severely mispriced and thus misallocated. [...] More water is used in almond production than is used by all the residents and businesses of San Francisco and Los Angeles combined. Here’s a chart from Mother Jones:

Water Misallocation in California

FOMO

Sunday, March 29th, 2015

Facebook is giving us a new way to keep up with the Joneses, and a new way to worry that we may not be keeping up, the fear of missing out:

Today, where you are, how you are feeling, what you are doing, and what you have done have suddenly become valuable social currency — just as they were before the 20th century.

Then, most people lived in small communities. Everyone knew everybody else in the village. That meant everyone would just as likely know what you did with your time as how many possessions you owned, and how expensive and how good those possessions were. That meant, for signaling your status to others and establishing your place in the village’s social hierarchy, what you did was as important as what you owned. To signal status, the conspicuous consumption of leisure — that is, experiences — was equal to the conspicuous consumption of goods.

It was the arrival of cities that changed all that. The mass migrations of the 20th century, from small communities where everyone knew everyone else to large metropolises where you barely knew your neighbor, meant that what you did with your time became virtually useless as a way to signify status. In the relative anonymity of urban and, to a lesser extent, suburban life, your neighbors, friends, colleagues at work, and the people you passed on the street were much more likely to see what you owned than know what you did.

A material possession could deliver far more status than an experiential purchase. And so, in the 20th century, the conspicuous consumption of leisure was not nearly so effective as the conspicuous consumption of goods at telling others who you were.

Social media has turned this on its head. Now only a few people, relatively, might see your new sofa, or the car parked in your driveway. But with all your friends and followers on Twitter, Facebook, Pinterest, and Instagram, many more will now know you are partying in Ibiza, are in the front row of a Jay-Z concert, or that you have just completed a Tough Mudder assault course. And these people are more likely to be in your peer group, the people, in other words, whose opinion you are most interested in.

The Null Hypothesis for Income and Wealth

Thursday, March 26th, 2015

Arnold Kling shares the sort of evidence that Robert Putnam should confront, from a working paper by David Cesarini and others:

We use administrative data on Swedish lottery players to estimate the causal impact of wealth on players’ own health and their children’s health and developmental outcomes. Our estimation sample is large, virtually free of attrition, and allows us to control for the factors — such as the number of lottery tickets — conditional on which the prizes were randomly assigned. In adults, we find no evidence that wealth impacts mortality or health care utilization, with the possible exception of a small reduction in the consumption of mental health drugs.

Our estimates allow us to rule out effects on 10-year mortality one sixth as large the cross-sectional gradient. In our intergenerational analyses, we find that wealth increases children’s health care utilization in the years following the lottery and may also reduce obesity risk. The effects on most other child outcomes, which include drug consumption, scholastic performance, and skills, can usually be bounded to a tight interval around zero. Overall, our findings suggest that correlations observed in affluent, developed countries between (i) wealth and health or (ii) parental income and children’s outcomes do not reflect a causal effect of wealth.

The Economics of the California Water Shortage

Friday, March 20th, 2015

The New York Times paints an apocalyptic image of California’s drought, but California has plenty of water, Alex Tabarrok notes — just not enough to satisfy every possible use of water that people can imagine when the price is close to zero:

As David Zetland points out in an excellent interview with Russ Roberts, people in San Diego county use around 150 gallons of water a day. Meanwhile in Sydney Australia, with a roughly comparable climate and standard of living, people use about half that amount. Trust me, no one in Sydney is going thirsty.

So how much are people in San Diego paying for their daily use of 150 gallons of water? About 78 cents. As Matt Kahn puts it, “Where in the Constitution does it say that the people of California have the right to pay 0.5 cents per gallon of water?”

Water is such a small share of most people’s budgets that it could double in price and the effect on income would still be low. Moreover, we don’t even have to increase the price of water for residential or industrial uses. As The Economist points out, “Agriculture accounts for 80% of water consumption in California, for example, but only 2% of economic activity.”

What that means is that if agriculture used 12.5% less water we could increase the amount available for every residential and industrial use by 50% — grow those lawns, fill those swimming pools, manufacture those chips! — and the cost would be minimal even if we simply shut down 12.5% of all farms.

Moreover, we don’t have to shut down that many farms, we just have to shut down the least valuable farms and use water more efficiently.

Designing Private Cities, Open to All

Tuesday, March 17th, 2015

Alex Tabarrok and Shruti Rajagopalan argue for private cities, open to all:

Gurgaon was a small town 25 years ago, but today it’s a city of some two million people filled with skyscrapers, luxury apartment towers, golf courses, five-star hotels and shopping malls. Often called “the Singapore of India,” Gurgaon is home to offices for nearly half the Fortune 500 firms.

Gurgaon, however, grew not by plan but in a fit of absence of mind. After the state of Haryana streamlined the licensing process, it left developers in Gurgaon to their own devices with little intervention from any national, state or local government. As a result, almost everything that works in Gurgaon today is private. Security, for example, is privately provided for almost all housing, shopping and technology complexes. Over all, about 35,000 private security guards protect Gurgaon, compared with just 4,000 public officers. Gurgaon also has India’s only private fire department, filling an important gap, because it must be capable of reaching Gurgaon’s tallest skyscrapers.

Continue reading the main storyContinue reading the main storyContinue reading the main story

But not all is well. No developer in Gurgaon was large enough to plan for citywide services for sewage, water or electricity. For a price, private companies provide these, but in inefficient ways. Sewage doesn’t flow to a central treatment plant but is often collected in trucks and then dumped on public land. Tap water is often delivered by private trucks or from illegally pumped groundwater. Reliable electricity is available 24 hours a day, but often using highly polluting diesel generators.

Compared with the rest of India, Gurgaon fares well but its functioning is far from ideal. Is there a middle ground between China’s ghost cities and the anarchy of Gurgaon? Surprisingly, privately planned cities may be an answer. And one of the oldest is in India.

Jamshedpur was founded by Tata Steel, as a company town, in 1908. It has landscaped parks, paved roads and even a lake, but it’s no playground for the rich. It’s a working town. Nevertheless, it is the only city in the state of Jharkhand with a sewage treatment plant, and it’s one of the few cities in all of India where residents enjoy reasonably priced, reliable electricity and safe tap water. In a survey by the marketing research company Nielsen, residents ranked the city among the best in India for its cheap and reliable provision of sewage, water, electricity, public sanitation and roads.

Jamshedpur works because Tata owned enough land so that it had the right incentives to plan and invest in citywide infrastructure. Tata has also had to maintain good services in order to attract workers. In Gurgaon, private developers built lots of infrastructure, but only up to the property line. By extending the property line to city-scale, the incentives to build large-scale infrastructure like sewage, water and electricity plants are also extended.

Management Theories of Roman Slave-Owners

Sunday, March 8th, 2015

Most Romans thought cruelty to slaves was shocking, Jerry Toner says:

They understood that slaves could not simply be terrified into being good at their job. Instead, the Romans used various techniques to encourage their slaves to work productively and willingly, from bonuses and long-term inducements, to acts designed to boost morale and generate team spirit. All of these say more than we might imagine about how employers manage people successfully in the modern world.

Above all, the story shows how comfortable the Romans were with leadership and command. They believed that there is a world of difference between having the organisational skills to run a unit and actually being able to lead it. By contrast modern managers are often uncomfortable with being promoted above their staff. I worked in a large corporation for a decade and I had numerous bosses who tried to be my friend. Raising yourself over others sits uneasily with democratic ideals of equality. Today’s managers have to pretend to be one of the team.

The Romans would have scoffed at such weakness. Did Julius Caesar take his legions off-site to get them to buy-in to his invasion of Gaul? Successful leaders had to stand out from the crowd and use their superior skills to inspire, cajole and sometimes force people to do what was necessary. Perhaps we would do well to learn from their blunt honesty.

Why They Lost The Wheel

Saturday, March 7th, 2015

Once, in ancient times, the Middle East teemed with carts and wagons and chariots, but they were totally driven out by the coming of the camel:

Good harnesses for camels were designed in Central Asia and, in the 19th century, in the Australian desert, but these did not affect the Middle East.

The only way to make use of this immensely strong beast for transport was to throw the load, averaging anywhere from 300 to 500 pounds, on its back. Thus the pack camel came to compete directly with the ox cart for heavy transport.

The ox cart was equally slow, and in the competition the camel had certain positive advantages. It ate otherwise unusable desert plants, which made its upkeep inexpensive. Little wood, a valuable commodity in the largely deforested Middle East, was required by ancient saddling technology. And its care and breeding could be left to the nomads and thus not be a burden upon the farmer or merchant.

These advantages meant that camel transport was about 20 percent cheaper than wagon transport, according to the edict on prices issued by the Roman emperor Diocletian in the third century A.D. Therefore, simple economic efficiency caused the camel to supplant the wheel, not some mysterious reversion to primitive life.

(Hat tip to commenter Harold!)

The Best Lifestyle Might be the Cheapest Too

Friday, March 6th, 2015

If you were to build a city from scratch, using current technology, what would it cost to live there? Scott Adams thinks it would be nearly free, because we know how to build homes that use zero net energy, greenhouses could provide food, etc. His ideas sound rather utopian, but one of the less utopian ones occurred to me a while ago — only I wouldn’t want Astroturf:

Now assume the homes are organized such that they share a common center “grassy” area that is actually artificial turf so you don’t need water and mowing. Every home opens up to the common center, which has security cameras, WiFi, shady areas, dog bathroom areas, and more. This central lawn creates a natural “family” of folks drawn to the common area each evening for fun and recreation. This arrangement exists in some communities and folks rave about the lifestyle, as dogs and kids roam freely from home to home encircling the common open area.

That sort of home configuration takes care of your childcare needs, your pet care needs, and lots of other things that a large “family” handles easily. The neighborhood would be Internet-connected so it would be easy to find someone to watch your kid or dog if needed, for free. My neighborhood is already connected by an email group, so if someone sees a suspicious activity, for example, the entire neighborhood is alerted in minutes.

This is one facet of New Urbanist design, as in the Mueller Community, which sprang up to replace the Austin municipal airport after it closed 16 years ago:

A research team from Texas A&M University polled Mueller residents and what they found was striking. After moving here, respondents said, they spend an average of 90 fewer minutes a week in the car, and most reported higher levels of physical activity.

The poll results seem to validate new-urbanist gospel: good design, like sidewalks, street lighting, extensive trails and parkland, can improve social and physical health. Several mornings a week, a group of retired guys power walk through Mueller.

“We’ve lost weight. We’re certainly more fit than we used to be,” says Don Dozier, a retired accounting professor. He and his wife, Janelle, moved here in 2008 from a conventional subdivision south of Austin that had no sidewalks. “I think probably the main thing is that we have made an incredible number of friends,” he adds.

This social engagement is what a lot of residents mention. Frosty Walker, a retired TV cameraman, recalls the cul-de-sac where he used to live in northwest Austin.

“It was one of those situations that you would come into your house, and if a neighbor came, the garage door went up, the car went in the garage, the garage door went down,” Walker says. “You would see each other and wave every once in a while, and that was pretty much the extent of your relationships.”

You can never be progressive enough, NPR reminds us:

Mueller seems to have it all: electric cars, solar panels, green buildings, walkability and native landscaping. But what happens when one of Austin’s most progressive, welcoming neighborhood confronts racial incidents involving some of its own African-American residents who don’t feel so welcome?

Thanks, Price Controls!

Tuesday, March 3rd, 2015

Alex Tabarrok shares his (and Tyler Cowen’s) latest video, on price ceilings:

10% Less Democracy

Monday, March 2nd, 2015

Garett Jones suggests we try 10% less democracy and see how that works out.

Politicians behave differently near the end of their term, when they play more to voters’ irrational biases, including their anti-market bias, make-work bias, anti-foreign bias, and pessimistic bias.

Jones cites an unusual source — Jennifer Hochschild, Professor of Government and of African and African-American Studies at Harvard — on epistocracy:

Three uncontroversial points sum to a paradox:

  1. Almost every democratic theorist or democratic political actor sees an informed electorate as essential to good democratic practice….
  2. In most if not all democratic polities, the proportion of the population granted the suffrage has consistently expanded, and seldom contracted, over the past two centuries….
  3. Most expansions of the suffrage bring in, on average, people who are less politically informed or less broadly educated than those already eligible to vote….

Putting these three uncontroversial points together leads to the conclusion that as democracies become more democratic, their decision-making processes become of lower quality in terms of cognitive processing of issues and candidate choice.

Jones recommends six-year terms for the House and more autonomous agencies like the Fed.

Mr. Money Mustache

Sunday, March 1st, 2015

I happened to revisit Mr. Money Mustache‘s site last night and then woke this morning to see Tyler Cowen apparently missing the point about MMM’s philosophy. The Vox interview he cites lays it out pretty well:

DK: What’s the most common mistake you see people making with their money?

MMM: You could probably sum it up as taking a very short-term view on money and life: “I have $5 in my wallet right now, so I can afford this coffee,” or “I make more than $399 per month, so I can afford to borrow money for this car.”

Instead, I try to get people to think of things in 10-year chunks at a minimum and then move on to a lifetime perspective. For example, spending $100 per week on restaurants equates to a $75,000 hit to your wealth every ten years, compared to keeping that money and just investing it in a conservative way.

Instead of thinking of income as a temporary stream of cash that keeps you afloat, think of every dollar as a potential permanent lifetime employee that will work for you as long as you keep and invest it. But once you spend it, that particular dollar is gone.

DK: I really appreciate that you phrase your philosophy on money in terms of happiness. What’s a good way to put that into practice, though — if I’m standing at the store and thinking, “That dress would make me happy,” what can I ask myself to figure out if I really should buy it?

MMM: The first trick is to remind yourself that buying something — pretty much anything — is very unlikely to improve your long-term happiness. Science figured this out for us long ago, but not many people got the memo. Go to your junk electronics drawer and look at your old flip phones or your dusty iPad 1. Look at the clothes you’ve recently pruned from your closet that are now headed to the Goodwill. You traded a lot of good dollars for those, not very long ago at all. Are they still making you happy today?

Then think about what would really make you happy. For me, it was the freedom to choose how I spent my days, with no worries about money for the rest of my life. Again, every dollar that you keep for yourself will immediately start paying dividends towards this freedom. Your stress about money drops away, and you can walk away from a job or a boss you’re not fond of — the options start to open up with breathtaking speed as you step away from the financial cliff.

DK: What do you and your family splurge on?

MMM: I feel that we splurge on everything. For example, we live in a house that looks like it came from the pages of a modern architecture magazine, overlooking a park and within walking distance of downtown. I have not just one car, but two of them, which we never even use because we also have six bicycles between the three of us. We also eat ridiculously fancy food at home and take some pretty exotic vacations. Everything seems really over-the-top, considering the fact that we could be just as happy with much less.

But for other people, my life might seem like the opposite of a splurge: “What? Three people live in only 1,500 square feet? Their cars are from 2005 and 1999? That sounds like a really extreme life of frugality!”

The key to all of this is to zoom out a bit and put things in perspective. Both my life and your life are ridiculously abundant and safe compared to almost every human who has ever lived before you in the history of this planet. If we can’t be happy in this incredible place of privilege, we need to punch ourselves in the face and try again.

DK: How did you get started in the area of personal finance? And what informs your views here — did your parents talk money much with you growing up?

MMM: I was born as the stereotypical engineer kid, which means I was always interested in optimizing everything. Money was just one of those things.

It was only after I turned 30 and had enough money to retire from real work that I started getting these incredulous comments from friends and coworkers, like “What do you mean you are retiring? How will you get the money to pay your car loan and your mortgage? I’d be sunk within a month if I lost my job.”

To me, their stories were much more amazing than my own story of early retirement. They were the same age as me or older, and had equal or higher salaries. I couldn’t imagine having a shortage of money in such amazing conditions. Then I looked even higher up the income scale and found the same phenomenon. It turns out that humans are capable of blowing almost any amount of money, without realizing they are doing it.

I do agree with Cowen on one point though:

I’ll note in passing that my “dusty iPad 1″ gave me an enormous amount of pleasure, as does my later iPad.

Japan’s Oldest Businesses Have Survived for More Than 1,000 Years

Monday, February 23rd, 2015

Japan’s oldest businesses have survived for more than 1,000 years:

Century-old American companies like General Electric and Ford appear ancient when viewed alongside modern upstarts like Google and Facebook. But there are a number of Japanese firms — some of which have been around for more than a millennium — that exist on another scale of time entirely. Japan is home to some of the oldest continuously operating businesses in the world, among them a 1,300-year-old inn and a 900-year-old sake brewer.

While this longevity is not confined to East Asia — the Italian gun manufacturer Beretta has operated since at least 1526 and the cymbal maker Zildjian was founded in 1623 in Turkey — these Sequoia-like firms are relatively common in Japan. The country is currently home to more than 50,000 businesses that are over 100 years old. Of those, 3,886 have been around for more than 200 years. As a point of comparison, only one in every four U.S. companies founded in 1994 was still operating in 2004, according to the Bureau of Labor Statistics.

But in the past decade, some of Japan’s oldest businesses have finally shut their doors. Last month, the roughly 465-year-old seafood seller Minoya Kichibee filed for bankruptcy, which came after the news last year that the 533-year-old confectioner Surugaya met a similar fate. In 2007 — after 1,429 years in business — the temple-construction company Kongo Gumi ran out of money and was absorbed by a larger company. Three companies going bust doesn’t quite make a trend, but it seems like there has to be something larger going on if a company that’s been around for more than a millennium suddenly blinks out of existence.

The first question to ask about a company like Kongo Gumi is why it stuck around so long in the first place. For one thing, these companies tend to be clustered in industries that never really go out of style. Kongo Gumi specialized in building Buddhist temples — a pretty dependable bet in nation with a strong Buddhist history. The company’s first temple, near Osaka, was completed in 593, and has been rebuilt six times since then (by Kongo Gumi, of course). “There’s a pattern,” William O’Hara, the author of Centuries of Success, told The Wall Street Journal in 1999. “The oldest family businesses often are involved in basic human activities: drink, shipping, construction, food, guns.”

The other reason these companies proliferate in Japan is because of how the country’s family-run businesses have been passed down through generations. Japanese business owners typically bequeathed entire companies to their eldest sons, and there’s a 10-foot-long 17th-century scroll tracing all of Kongo Gumi’s previous owners. But what fostered corporate longevity was that owners were permitted some leeway if they didn’t trust their offspring to take the helm: They could adopt a son, who would often marry into the family and go on to run the business.

Japan has recently moved away from its traditional banking culture, where banks were supposed to bail out such companies, and many traditional products have lost their allure, too.

(Hat tip to T. Greer.)

Progressive Labor Theology

Thursday, February 12th, 2015

The most durable liberal narrative, Henry Dampier suggests, is that liberalism led to gradually improving labor standards:

The planks of this story are:

  • Work-hour reduction laws
  • Environmental protection laws
  • Minimum wage guarantees
  • Workplace safety legislation
  • Mandatory unemployment insurance
  • Outlawing of child labor
  • Workplace-centered tax collection legislation
  • Abolition of slavery, indenture, and heavily regulation of apprenticeship
  • Transference of workplace training to the regulated school
  • Gender equality legislation
  • Banning of hiring practices that lead to disparate racial, gender, and sexual orientation impact

The trouble with this story is that it did not actually end any of these practices in the world. It simply displaced many of the older labor patterns into the third world, which is where the West shoves all the practices that it finds aesthetically and morally displeasing to make their own countries more appealing to their moral aesthetics.

On occasion, there is a temporary moral craze about labor practices overseas, but those crazes are always short-lived, because the only way that liberalism can be maintained is by shunting the necessary labor that goes into supporting it out of sight, into foreign countries.

The shunting of these labor practices overseas creates a pervasive sense of guilt on the part of those inculcated into the higher strata of liberal spirituality, but part of that guilt can be abrogated by importing more third world inhabitants into living in the purer, more moral states which they inhabit.

Making a great show of how ‘anti-racist’ and ‘tolerant’ these liberals are makes up for their denial of the unpleasant (to their sensibilities) work must go in to supporting their shining cities, which are not really all that shining at all when judged against the great cities of traditional Europe.

Ever Greater Rituals

Tuesday, January 20th, 2015

When there is pressure for leaders to respond to a crisis, they often intensify existing efforts, whether or not they’re relevant to the real problem, Arthur Demarest notes:

To do otherwise requires taking on entrenched practices and asserting power in areas where it often will not be well received. And leaders tend to see major crises more as threats to their own position rather than as systemic challenges for the societies that they govern or the institutions that they manage.

Frenzied grand constructions, wars and great rituals are among the common responses of ancient leaders to crises. These demonstrate powerful responses by the leaders (enhancing their threatened hold on power), but almost never really address the problems themselves. A cynic might characterize the giant U.S. stimulus bill of 2009 as such an effort.

Leaders may recognize that they are not addressing the real problems, but they rationalize their actions with the argument that they must first politically survive in order to later address the hard problems and sacrifices. Of course, they usually don’t ever actually get around to addressing the fundamental problems later, either because they don’t make it through the initial crisis or because, even later, they are not willing to risk sacrificing their own position (or “career”) with needed measures that usually require tough sacrifices by the population.

[...]

The divine kings of the Classic Maya civilization led their societies in religion, religious constructions, and enormous rituals, as well as warfare. When that civilization ran into problems of overpopulation, environmental damage, drought and economic competition in the late eighth century, they could only respond with ever greater rituals and temple construction to appease the (clearly unsatisfied) deities, as well as responding through warfare against other states.

These steps were actually counterproductive, imposing additional costs and damage and not addressing the real problems. Yet, any really helpful response would have involved political change to redefine the very nature [of] leadership and its roles and institutions.

A Beautiful Disaster

Monday, January 19th, 2015

Arthur Demarest — “the real Indiana Jones” — explains why Western civilization is a bubble:

Paradoxically, the key strengths of civilizations are also their central weaknesses. You can see that from the fact that the golden ages of civilizations are very often right before the collapse.

The Renaissance in Italy was very much like the Classic Maya. The apogee was the collapse. The Renaissance status rivalry between cities through art and science and warfare and architecture was a beautiful disaster, and it only lasted about 150 years. The Golden Age of Greece was the same thing: status rivalry with architecture, literature, and all these wonderful things — along with warfare — at the end of which Greece was conquered by Macedonia and remained under the control of foreign powers for 2,300 years.

We see this pattern repeated continuously, and it is one that should make us nervous. I just heard Bill Gates say that we are living in the greatest time in history. Now you can understand why Bill Gates would think that, but even if he is right, that is an ominous thing to say.