Thursday, July 30, 2009

On the Economics of Sidewalks

Today on the Kojo Nnamdi Show, DC residents debated the pros and cons of adding sidewalks to northwest neighborhoods that still lack them. Well, it was mostly pros, from making walking easier to complying with Americans With Disabilities act. The cons were concerned with losing what country-feel they had in the metro area and that few people actually use sidewalks that are installed.

But no one mentioned another problem with adding sidewalks, not surprising because the pros are unlikely aware of it and the cons wouldn't want to admit it: adding sidewalks increase foot traffic and make life harder on those that live there. In economic jargon, sidewalk traffic externalizes costs on surrounding residents.

Sidewalks make walking cheaper and so, no doubt, you'll get more foot traffic. That means more dog walkers, and the increased risk of the dog walker not cleaning up after her animal when he does his business. That means more children running around, and the higher likelihood of noise and damage from particularly active kids. It means more people lingering in a driveway, trampling lawns or flowers, and risk seeing you while being intimate with loved ones (sometimes you forget to close the drapes).

It sounds so selfish, but why should local residents bear the cost of other's enjoyment? The common theme when people called in is that they moved to those areas because the lack of sidewalks made it feel more rural. They were looking for one thing: isolation.

Note: For the record, I'm in favor of the sidewalks only because, in my estimation, the costs externalized onto residents with the sidewalks are likely lower than the costs which must be suffered by people because there are no sidewalks to use.

Saturday, July 25, 2009

The Good, the Bad, and Healthcare

Critics of government backed health care seem schizophrenic: on one hand, they argue government run health care will be really awful. On the other hand, they argue it will crowd out private health care if the two compete. How can it be so bad no one will want it but so good everyone will abandon all other options?

The two seem to be mutually exclusive and on some level they are. For example, the post office competes with FedEx all the time for package delivers. Sometimes people use one, sometimes the other. No doubt that the existence of competition improved the government system, though how much better is not obvious.

There is an area, though, where the government system is quite low quality but people still attend it: public schools. Ignore your personal experiences for the moment. People complain a lot more about public schools than they do about private ones. And while I seem to remember some data that, like FedEx, private schools improve their government counterpart, again the degree is difficult to pin down.

How is this possible? How are public schools so popular but so bad? There's lots of possible reasons but one reason sticks out: it's really cheap. In fact, baring fees and supplies, it's free. Those costs are then burdened onto everyone else and the public subsidizes a low quality service. There is some value to public schools, of course, which is why people still send their kids there. Everyone else, including private schools, indirectly pays for a product they either don't value that much or compete with. So is the nature of taxes.

Health care risks walking down the same path. In fact, it already has. Medicare and Medicaid, by law, buy hospital services at about 20% less than the cost to the hospital. It is one of the reasons why everyday objects, like Tylenol, run several dollars a pill. Hospitals have to make up the difference somewhere. Adopting this policy for everyone follows depressingly close to Bastiat's take on government: "Government is the great fiction through which everybody endeavors to live at the expense of everybody else." A great fiction indeed.

Thursday, July 16, 2009

Fundamental Mistakes

Never before have I seen so many basic errors in such a short amount of time when Douglas Rushkoff went on the Colbert Report to promote his book, Life, Inc. The errors are too numerous to address each one, but two stand out as particularly sloppy.

First he claims that pursuing supposedly noneconomic avenues, such as having friends or taking walks, are drains on the GNP. "[Corporations] crowd out every kind of activity." Instead, people are forced to "support the economy with consumption we don't want or need." Most firm would love it if that were true. If they could control people's lives, they wouldn't have to work so hard to stay competitive. But trade, as my students recently learned, is mutually beneficial. What world does Rushkoff live in where people are forced to buy things they don't want?

In an attempt to criticize measuring wealth through spending, he argued that "if everyone got cancer tonight, that's good for the economy" because people would spend more money. But no one actually familiar with how economists measure wealth would make such a juvenile confusion. GDP and GNP are proxies, convenient estimations because capturing everything is impractical or impossible. We are fully aware that there is more to wealth than what we can count and changes like the one Rushkoff sarcastically propose are nothing more than playing voodoo with the numbers.

Thursday, July 09, 2009

In Praise of Passive Investment

As regulators ponder making it harder for speculators to invest in oil, University of Maryland law professor Michael Greenberg backed such acts against "passive" investing on WTOP radio yesterday. He correctly identifies them as having "no interest in actively controlling these assets, just hoping to make a buck when their prices rise."

I wonder when Greenberg will take arms against other forms of passive investing:
-The university which offers financial aid to smarter or more driven students, betting that their attendance will yield more donations long after they graduate.
-The company which helps pay for its employee's education, hoping the employee will remain with the company even after a minimum staying period.
-The firm which gives its employees on-the-job-training, familiarizing them with a system they could apple elsewhere.
-The patron of the arts who supports a starving artist in the hopes they will be a success later.

In each case, the person hasn't actually become valuable yet, just like the oil that investors jump on (or off of). Speculators (who bet the price will rise) will buy oil now and cash out when it's more valuable. Passive investors in human capital do the same thing.

Wednesday, July 08, 2009

Voting Three Times A Day

Robert Kenner's new movie, Food, Inc., argues that food is too cheap and, thanks to health-related issues from diabetes, will end up being more expensive in the long run. While Kenner is lacking in his rationality (it's hard to make the argument that it's bad to give people more options in the form of cheaper food) he recognizes that consumers are the key to the problem. When he appeared on The Daily Show last week, he reminded Jon Stewart that the consumer "votes three times a day." If consumers want healthier food, they will demand it and producers will provide. They will have to if they want to stay in business. But most Americans aren't demanding these things, even those who know all the messy origins. At the end of the day, people vote for fat and that's their choice.