Never thought I would live to see the day...

..that a politician would present a powerpoint that included a slide on the "lemons problem."

The Vice-President of Taiwan, Vincent Siew, was discussing the problem of trying to get that country's financial institutions to disgorge their bad assets. Amazing. No wonder it is such an impressive place.

Taipei has among the best public transit systems in the world

The MRT (heavy rail) system is fast, comprehensive and clean. It is busy in the middle of the day, suggesting feasibility.



The buses are very good too, and cost only about $0.45 US to ride. There are also lots of reasonably priced taxis. Of course, the fact that Taipei is among the world's densest cities helps make this all work.

Tamworth Country Music - book your bed now

If you’re heading to the legendary Country Music Festival in Tamworth this January and need to know where to stay, a few hints about places to rest your weary head when the singing’s done each day.

After all, with 2,500 events on offer, you don't want to worry about your base!

Rated among the world’s top 10 festivals, the Tamworth Country Music Festival is the largest in the Southern Hemisphere and attracts people from all over Australia and around the world.

Although most of the hotel accommodation is booked out months in advance, camping, home hosting or staying in a nearby town are still viable options closer to the event.

“The friendly Tamworth community is always ready to welcome more people to join in the Festival fun and what better way than staying in a local’s home, or camping out beneath the starry country sky,” said Tourism Tamworth’s General Manager, Rebel Thomson.

Ms Thomson added that while Tamworth is always fully prepared to handle the influx of visitors each January, Festival-goers are advised to research their accommodation options well in advance.

Over 50,000 festival-goers take in 10 days of fun, music and memories, with many of them returning year after year with the event listed as a “must-do” on their annual calendars.

A comprehensive guide to Festival accommodation is available through Tourism Tamworth phone 02 6767 5300 or on the web at http://www.visittamworth.com/ (follow the links to the accommodation pages). You will need to contact each accommodation service direct to make bookings.

MOTELS/APARTMENTS

Ranging from two and half to five star, Tamworth boasts over 30 motels and apartments, all within easy distance of the Festival venues which are usually the first to be booked out. You may get in on a cancellation, but don’t rely on this option.

Accessibility to festival venues, restaurants, cafes, clubs and shops are the advantages with this choice but there’s nothing too far from anything in Australia’s Country Music Capital.

HOTELS

Many of the hotels in Tamworth also serve as Festival venues so you’ll be right amongst the live music action should you choose to stay in one of the great pubs. At the end of a night-time show, your bed could be as close as one flight of stairs away!

B & B’S/ FARMSTAYS

Always popular is either a bed and breakfast or farm stay.

There are over a dozen B&B choices in the Tamworth Region, ranging from youth hostel style up to luxurious five-star and unique dwellings. Farm stays are the quintessential Aussie experience and hold great appeal for families.

With several located within easy driving distance of Tamworth, you have every opportunity to ensure the kids are entertained from dawn to dusk. The obvious advantages for both are that breakfast is included in the tariff, the comfort level is on a par with home and your hosts are more than happy to share their local knowledge.

HOME HOSTING

As the popularity of the Festival grew and regular accommodation channels were at full capacity, the local Tamworthians opened their homes to visitors and now the Festival relies greatly on the local hospitality to facilitate the Home Hosting accommodation on offer.

Home hosting means you’ll get breakfast, home comforts, country hospitality and local information. There’s also the option of staying in a vacated home.

There are a few home hosting agencies that can help source a home stay, a farm stay, a vacated home or vacated caravan for you. Contact Tourism Tamworth for contact details.

HOME RENTALS

Real estate agents can source fully furnished homes for rental during the festival. These are usually houses vacated by the owners specifically for the duration of the festival.

HOME EXCHANGE

Some Tamworth residents choose to leave town for the duration of the Festival. If you want to swap your house with theirs, then it might pay to run an ad in the Tamworth newspaper, the Northern Daily Leader. Phone (02) 6768 1222 or email: classifieds.ndl@ruralpress.com

CARAVAN PARKS & CAMPGROUNDS

Camping or caravanning is the best pick if you’re booking late or if you’re on a small budget. The caravan parks in town offer the best facilities and always a friendly welcoming smile. A number of other venues open up specifically as temporary campgrounds for the festival, including the Tamworth Showground, the North Tamworth Rugby League Club, West Tamworth Leagues Club, McCarthy Catholic College and St Nicholas Primary School. If you don’t have your own camping gear, some places provide tents with beds, such as West Tamworth Leagues Club.

Outside town, there are other campgrounds available such as Attunga Sports Ground 20kms away); Lake Keepit (50kms away); and Kootingal Camping or Pony Club (20kms away). There are also temporary council campgrounds in: Attunga (20kms); Dungowan (20kms); Kootingal (20kms); Moonbi (25kms); Werris Creek (48kms) and Woolbrook (75kms).

Each caravan park and campground has different rules about bookings during festival time, so make sure you phone ahead and check before you leave home.

NEIGHBOURING TOWNS

If you still can’t find a bed in Tamworth, then you’ll easily find accommodation in one of the neighbouring towns. Phone any of the following numbers in these towns for information:

Gunnedah: (77km from Tamworth) Visitor Information Centre (02) 6740 2230
Uralla: (91km from Tamworth) Visitor Information Centre (02) 6778 4496
Armidale: (112km from Tamworth) Visitor Information Centre (02) 6772 4655
Walcha: (97km from Tamworth) Council Tourism Officer (02) 6774 2460
Barraba: (141km from Tamworth) Visitor Information Centre (02) 6782 1255
Quirindi: ( 60km from Tamworth) Visitor Information Centre (02) 67461096

ESSENTIAL INFORMATION

The Tamworth Country Music Festival runs from January 18 to January 27, 2015. For all enquiries, phone the Tamworth Visitor Information Centre on 02 67675300 or log onto http://www.visittamworth.com/. You will need to contact the accommodation provider direct to make any booking.

Airports and Economic Development

Before the 18th Century, harbors mattered a lot. They allowed trade, and explain why the cities in the current Netherlands became rich, despite the relative lack of natural recourses. In the 19th Century, canals and railroads were important. More recently, highways have mattered a lot--Ed Glaeser has written on how highway spending helps explain differences in urban growth.

But airports may be what harbors once were. I have a recent paper that looks at differences in population and employment growth across metropolitan areas: education matters, climate matters, and airports matter, a lot.

Here is the paper's conclusion:

This paper sought to find a relationship between airport activity and economic development, and it found one. Passenger boardings per capita and passenger originations per capita in the nation’s largest metropolitan areas are powerful predictors of population growth and employment growth. This is the case after a number of controls are put in place, and survives after an attempt to control for simultaneity issues. Beyond statistical significance, the magnitude of the coefficient on boardings per capita indicates that the magnitude of the effect of passenger boardings on these two measures of economic development could be rather large. It might particularly suggest that where airports are constrained by capacity (such as they are in Chicago, Boston, New York and Los Angeles), adding to capacity might well have an important economic development impact. That said, these results do not suggest that every small city should run out and build a large airport.

Of course the results presented here are far from conclusive: they are, perhaps, among the first of their kind (this paper was written contemporaneously with Brueckner 2003), and are therefore subject to far more scrutiny. Nevertheless, their statistical significance is sufficiently strong that it survives a large variety of alternative specifications. The results are also consistent with the findings in Brueckner.

The policy implications of this finding are therefore quite important. The political economy of airports is very much a function of their governance structure. The cost (at least the perceived cost) of airports to members of a community is highly concentrated geographically, while the benefits tend to be diffused throughout the community. Airports are sometimes under the control of local units of government, such as city councils or county boards. When this is the case, representatives whose districts include an airport have a strong incentive to become members of the airport authority. Consequently, decisions about airports can be based on parochial interests, even if the total benefits of the airport to the economy exceed the cost. Should air traffic be a large determinant of economic success, it is entirely possible that the benefits of new or expanded airports exceed costs.

Yet we have observed that in many places (San Francisco, Boston, Milwaukee), interest groups have worked to inhibit runway expansion, while in other places (Chicago), local political squabbles have prevented any number of potentially reasonable plans for expanding airport capacity from going forward in a timely manner. All this suggests that airport policy might best be made regionally, rather than locally. Of course, the regional policy would have to include a scheme for compensating those injured by airport expansion. But if the regional benefits of airport development are large, the costs of fair compensation should be easy to finance.

The paper is available on the GW Web Site. http://www.gwu.edu/~business/research/workingpapers/Airport%20GW.pdf

A Short Quote in Business Week

http://www.businessweek.com/magazine/content/06_45/b4008063.htm?chan=search

Matt Kahn Celebrates the Spirit of Cooperation

He does so here:

http://greeneconomics.blogspot.com/

Gary, Raphael and Stuart do a painstaking job of combining multiple data sets to get a sense of the wealth effect of housing, and find that it is real; the implication is that it could be a substantial drag on consumption for years to come.

When combined with the fact that consumption has been an extraordinary share of GDP (around 72 percent, which compares to a historic norm in the high 60s) and his been funded with home loans and consumer debt, it is highly likely that the next recovery will be driven from something other than consumption--such as exports or capital goods spending (for exports).

As for cooperation, let me point to a post I wrote around a year ago:

...if one looks at the top 50 research Universities as measured by The Center for Measuring University Research Performance at Arizona State, the leading metropolitan area for number of top research institutions is not Boston, nor is it Chicago, Philadelphia, or New York. It is LA, which has four in the top 50 (UCLA, USC, Cal Tech and UC-Irvine). If one stretches another 100 miles or so, UC-San Diego and UC-Santa Barbara get added to the mix.

Southern California rarely gets credit for being an intellectual mecca, but after spending a pleasant morning at UCLA and a pleasant afternoon at USC last week, I couldn't help but think that it is. Then again, Thomas Mann, Arnold Schoenberg and William Faulkner all managed to enjoy life in LA. Randy Newman might have been onto something...

It is nice to be here.

The Outstation now Open

Photo: John and Judy travel in traditional style.

The Outstation is a new farmstay in northwestern New England giving guests a realistic and relaxing experience of the bush.

The 3,500 hectare sheep and cattle property, located 80km west of Quirindi and 80km south of Gunnedah, has been held by the Simson family since 1887.

Owner Reg Simson decided to renovate the shearer’s cottage and open up the farm to visitors because the cottage was sitting idle for most of the year.

The cottage was originally an outstation – hence the name – and was moved in the 1950s to become part of the ‘Gannany’ homestead (Aboriginal word meaning ‘smoke rising from hill’).

Reg and his wife Fiona have two young sons, Andy and Alex. They aim to make their farmstay family friendly and hope to attract international visitors as well as Australians.

“We think we can offer a genuine Australian experience on a working farm,” Reg explained.

The property is covered with native pastures and trees and there is an abundance of native wildlife.

The cottage has three bedrooms and sleeps six people; a fully equipped kitchen including full sized gas stove; a living / dining area with 5-channel television and DVD player and open fireplace; two bathrooms, one with a claw foot bath and the other that doubles as a laundry. All linen, towels and bedding are supplied but guests need to bring all their own food.

Outside, there’s an all weather tennis court and a 10-metre in ground pool. Guests are invited to come on a farm drive to check stock waters or to assist with farm jobs if they choose.

“We want to allow guests just to experience the farm and the environment for what it is. I suppose it’s a low-key kind of approach,” said Reg.

For some local sightseeing, guests can take day trips to the Warrumbungles National Park, the village of Spring Ridge (35kms away), or to the towns of Quirindi and Gunnedah.

Rates are: adults (17+) single $75 per night; two or more $50 per night per person; children $20 per night per person.

For more information please phone (02) 6747 6257 or visit http://www.theoutstation.com.au/ The Outstation is at 'Gananny', 6467 Bundella Road, Quirindi

Somebody needs to do a new hedonic regression

I came back to Washington this weekend to help my wife prepare for putting our house on the market. Per the instructions of the Realtor, we are working on "staging" it.

I wonder how much this really matters. Once one gets beyond structural and neighborhood characteristics, does "staging" matter to the ultimate sale price? One would need to collect data on sold houses (including some index of how well presented they were) and then run a hedonic regression that included the presentation index in order to find out.

Paul Carrillo at GW has a nice working paper where he finds that houses that are marketed on line with pictures get better outcomes than those that don't. But the pictures could just reflect the fact that Realtors are more likely to present pictures of houses that are better looking (and therefore more valuable) in the first place.

A paper on Homeowner's beliefs and how they affect behavior

This is by Sumit Agarwal in the most recent issue of Real Estate Economics.

Using a unique dataset of 81,943 house value estimates by the homeowners and their financial institution, I find that homeowners overestimate their house value by 3.1%. After controlling for homeowners’ socioeconomic characteristics, I find that ex-ante homeowners who rate (cash-out) refinance an existing loan to increase savings (consumption) are significantly more likely to underestimate (overestimate) their house value. Moreover, overestimators (underestimators) are more likely to increase (reduce) their spending ex post. Finally, I also find that underestimators are more likely to prepay their loans and overestimators are more likely to default on their loans.

Yet something else to worry about...

James Baughman has a new book

It is on the history of the infancy and adolescence of television. It gets a nice review here in the New Yorker:

http://www.newyorker.com/arts/critics/books/2015/04/30/070430crbo_books_lemann

Jim was a dear colleague of mine when I was at Wisconsin. His two earlier books, Republic of Mass Culture and Henry R. Luce and the Rise of the American News Media, are absolutely terrific--Jim is a wonderful scholar and a wonderful story teller. If you want to learn about "old" media, you should read his stuff.

I hope he writes a book about the blogosphere someday...

Ten Facts about California

For pictures, go here. Thanks to Matt Moore for research assistance.

(1) Family of four median income in California ranks 15th among the states. Regardless of how income is measured, in California it is somewhat above average, but not extraordinarily so.

(2) Among the 50 states, California ranks 4th in per capita spending; add DC, and it ranks 5th.

(3) Per capita spending on K-12 education is about average.

(4) California's high school graduation rate is 10th from the bottom.

(5) This can be explained partially by the fact that California leads the nation in foreign born population.

(6) But even after controlling for foreign born population, educational attainment in California is average.

(7) California's incarceration rate is a bit above average, but not extraordinary by US standards.

(8) California relies less on property tax revenue to finance its government than the average state. Economists generally find the property tax to be less distortionary and unstable than other types of taxes.

(9) in 2005-06 (the last year for which I have data), California had more net business creation than any other state. After scaling for size, California's business creation was comparable to Texas'.

(10) California relies disproportionately on Information Technology and Professional and Technical Services for employment. These are high paying jobs that require a well educated labor force.

Housing and Leverage

As they try to sell houses in a poor market, some real estate brokers are advising that housing is a good investment because on a leveraged basis, its return is higher than the stock market. This is true, but it is also true that when levered, housing is more risky than the stock market.

If someone takes a long position in a Vanguard Blue-chip fund, the chance of losing his entire investment is remote. Of he buys a house with just ten percent down, however, and house prices fall ten percent, he loses his entire investment.

I would still not discourage someone from buying a house if they know they will live in the same place for more than five years. There is a cash-flow benefit to owning (the fact that you don't pay rent) and there is a real benefit to having control over one's living environment. But if I were to move right now, the chances would be pretty good that I would rent out the house I now own (I wouldn't want to give up my very low-interest rate mortgage) and then rent for awhile in the place I am going.

A stunningly bad Existing Home Sales Number

The September Existing Home Sales number came out yesterday, and it is off by roughly 20 percent from a year ago (it is a little less than that when seasonably adjusted, a little more when not seasonally adjusted). At the same time, inventories and the month's-supply measures continue to rise.

There is also a chance things will get worse. I was at a Homer Hoyt conference that I helped organize on subprime yesterday. Two participants, Dave Crowe and Marsha Courchane, made the point that of the subprime loans that have gone into default, 91 percent did so without a rate reset.

Mark Zandi and Steve Westley both presented data that showing subprime originations from the first quarter of '07 were performing even worse than the '06 book, although that could be because of changing housing market conditions, rather than deteriorating credit quality per se. In any event, it is possible we will see a lot more inventory dumped on the market through the REO process, which will further depress demand.

My colleague Vanessa Perry (as well as others) have an intriguing idea--simply let everyone with an ARM about to reset refinance into a reasonably priced (what this means is not clear) fixed rate mortgage. Among other things, this might separate out those who really want to stay homeowners from speculators (who will want to dump houses they were planning to flip anyway). But no matter what, it is hard to see where a housing recovery is going to happen over the next three years.

Armidale Demonstration School

Back in April I ran a post about the year 5 class, 1955, at the Armidale Demonstration School. This included a photo from Bruce Hoy along with some details on class members.

Bruce has now provided me with updated details on some of the class. I will re-run the photo with some added details. In the meantime, I wondered how many class mates or others who attended Dem are out there and might be interested in providing details of their experiences.

Do let me know.

Is the Tax Credit + FHA a toxic combination?

It would be churlish not to think today's strong existing home numbers were good. But there is an aspect of it that worries me.

The tax credit is $8000. FHA loans require 3.5 percent down payments. Consider the position of an unscrupulous investor in housing. He gets someone to front for him as a first time buyer on a $200,000 house. He puts $7,000 down, and then collects the $8,000 credit. He pays the front person a commission of $500. So the investor gets $500 plus the house. If the house goes up in value, he sells; if not, he walks.

Of course, we have no recent experience with this kind of behavior....

I guest post at Paul Romer's charter city blog

The post begins:

Hong Kong, Singapore and Korea experienced great economic success: all have per capita GDP that is at least seven times higher than in 1960 (see Penn World Table for more information). All three economies also came to be relatively well housed. While we cannot draw a uniform lesson from their experiences, it is worthwhile to examine each case for clues about successful housing development...

Bridges

Slate today has gorgeous pictures of my favorite bridge--the George Washington Bridge. The bridge is a masterpiece of architecture and engineering, and was completed at the time my father was born. It also helped create suburban New Jersey.

Bridges seem politically unpopular right now--they only seem to get built (or proposed) where they aren't necessary. In my town, for instance, there has not been an additional bridge built across the Potomac in nearly 40 years, despite the fact that the metropolitan area has doubled in size. The lack of bridges has created choke-points in the regional transportation system; choke-points that make people unhappy throughout the region, but that people don't seem to want to do anything about. I would guess that a couple of more bridges from the District into Arlington would easily pass any cost-benefit test, but they flunk the political test.

Perhaps the reason for this is that we built too many ugly bridges. The older bridges across the Potomac--Memorial Bridge, Key Bridge and Chain Bridge--are all quite beautiful. Don't take more word for it--the picture on top is of Key Bridge, the one just below it is Memorial Bridge.

Compare these with the 14th Street Bridge:



It is not hard to understand why people don't want more of these.

But bridges have made lives better for people--they have relieved congestion and, because they open up more urban land for development--reduced housing costs. While some urban planners sniffed that the post World War II suburbs of New Jersey and Long Island and Northern Virgina were banal, they also allowed the emerging middle class the ability to own houses at reasonable cost. These places would not exist in the absence of bridges.

No one is better at defending himself than...

Paul Krugman. David Kennedy had a silly review of his book in the NYT. Krugman's pithy response,

http://krugman.blogs.nytimes.com/2015/10/20/continuing-the-tradition/

was perfect.

I am sometimes told I am a good writer...for an economist. That is kind of like saying I am a good basketball player...for a slow guy who can't jump with a lousy outside shot. Krugman is a terrific economist AND a terrific writer.

I remember reading in my second year of grad school his wonderfully innovative paper (with Helpman) on increasing returns and patterns of trade. It was elegant, easy to follow for anyone with a small grasp of calculus, and profound: it showed that country size by itself could explain part of why countries traded goods with others. It was a major step beyond the classic Ricardian model. That someone can do scholarship that well and write the best column in the New York times inspires admiration...and envy.

Why government spending makes people angry

I was listening in to some proposals for building Section 42 Low Income Housing Tax Credit housing the other day. I heard three proposals: the construction cost per unit being proposed was between 400K to 500k.

It is expensive to build in LA, but downtown has luxury condos selling for less than 400K right now. The median price of a house in Southern California is around $275,000. I am all for providing poor people with good housing, but we could do it a lot more cheaply by buying existing houses and renting them out then building new units whose prices are beyond what a median income household in LA could ever expect to afford.

The reason this sort of thing bothers me is because I do think there is a role for government to do things, such as provide education, health care and networks (roads, sewers, etc.). But for this to happen, government must demonstrate that it spends money well. Building "low-income" housing for $400K a unit does not inspire confidence.

North Coast Voices a new New England political blog

I was pleased to get a comment from Petering Time advising me of the creation of a new blog, North Coast Voices.

There are far too few New England political blogs. I do not care from which political persuasion they come. We just need more. Otherwise, how can we have a debate? Do have a look.I have added them to my New England blog list.

Can Corporate CEOs justify private jet travel?

The Washington Post had a story today about CEO perks at rescued banks. Among the most common, of course, is the use of a private jet for private purposes. But this begs a more fundamental question: is it possible to justify the use of private jets for business purposes?

I picked one CEO at random to try to figure it out. Dieter E. Zetsche, the CEO of Damler Benz, gets paid about $3 million per year (which actually seems reasonable to me, in light of his responsibilities). Let's say the typical CEO works 60 hours a week, 50 weeks per year. This means Zetsche earns about $1000 per hour.

I am going to take as a given that it is worth upgrading the CEO to first class on a commercial flight--it is hard to work while flying in coach, so on a round trip cross country flight, giving the CEO a reasonable environment for work is worth about $10K. The marginal cost of round trip first class tickets is a lot less than that.

Most of the time saving from flying a private jet comes at the airport. I got to fly on a corporate jet once (confession: it is fun). One drives right up to the plane and walks on--no ticket counter, no security. So let's say time saved at the airport on both ends of a round trip is 4 hours: $4000. According to one source, the cost of flying a private jet ranges from $1800 to $5000 per hour. Let's just use $2500. It takes about 5 hours to fly from LA to New York, so round trip, that it $25,000. Let's say the CEO take someone with him/her. Now the cost is down to $12,500 per person.

I just checked on Kayak, and first class airfare from NY to Los Angeles is $2250 on Virgin and Delta. So the marginal cost of the private plane is about $8,000, and the benefit is around $4,000. And of course the cost benefit calculation for the second person is even worse.

I do understand that CEO's on occasion need to go places without commercial airports, and that the time spent driving from a commercial airport to these places might make the private jet pencil out. But they could use shared ownership, or net jets, to take care of those cases. Most of the time, they should fly with the rest of us.

The Northern Urban Fringe of Los Angeles

Here are two pictures from the Northeast side of Lancaster:




In general, I saw fewer for sale signs than I was expecting, although there was one entire subdivision (near the place photographed above) that was in default. Retail real estate is more obviously suffering. I saw many nearly empty strip shopping centers.

Why I remain a New England New Stater 7 - the case of the big river

Note to readers: This post is one in a series using personal examples to illustrate why I continue to support both agitation for New England self-government and self-government itself. Agitation, because its very existence forces forces the Sydney Government to consider New England interests. Self-government, because there are some things that we cannot achieve without this.

Once upon a time there was a big river. Rising in what is now called the New England Tablelands, it wound its way from the mountains to the sea.

To the area's original Aboriginal inhabitants, it was a great resource, giving them access to riverine and maritime resources. The European invaders attracted by land and resources such as timber were also struck by its size - they called it the big river. They founded towns and villages along its length. Grafton, the valley's capital, became a major inland port and one of the four biggest towns in New England.

Early on the valley's people became unhappy. They complained that all the revenue from land sales -a major source of revenue - was spent in the colonial capital of Sydney. They launched an independence movement to establish a new colonial government in Northern NSW. This died down, although they did extract some concessions.

Inland, the new Great Northern Railway snaked its way north, attracting freight. Worried, Grafton's civic leaders agitated for a railway to service the valley's hinterland. This agitation failed many times.

Federation and the new century saw local discontents reach another head.

Following the decision of the Sydney Government to stop the ferry service that linked the two parts of Grafton across the river, a local doctor launched a protest campaign that quickly turned into a new independence campaign for the North. War intervened, but then the campaign resumed centered on the North Coast Development League. This quickly created a sister league inland, laying the base for sustained agitation throughout much of the twentieth century for Northern independence within the Federation.

In 1967 the valley voted for independence from NSW. The overall vote was no because a sustained anti-campaign by the Labor Party led to a very strong no vote in its Newcastle stronghold.

The independence movement went into decline. As it did, so did the valley. What was not properly recognised at the time was that the very existence of the separation movement with its broader linkages was central to political recognition.

Today the river still flows. But the valley itself is much diminished.

Now counted as part of the Mid North Coast instead of the major element in what was called the Northern Rivers, squeezed between the growth of Coffs Harbour in the south and Richmond in the north, the valley has become a postscript.

I find this sad.

Return to introductory post

Equipment or Learning?

The idea of a "best orchestra ever" is silly; many orchestras, such as Szell's Cleveland, Reiner's Chicago, Karajan's Berlin and Ormandy's Philadelphia were pretty much perfect (I actually am not crazy about Karajan or Ormandy as interpreters of music, but they had magnificent bands, for which they are due considerable credit).

But the orchestra I have really liked since I was in high school (so for more than 30 years) is the Amsterdam Concertgebouw Orchestra. I write this because tonight I was listening to a recent Concertgebouw concert on KUSC, and damn if they didn't have many of the same qualities they had during Haitink's and even Van Beinum's days. In particular, the woodwinds--especially the double-reeds--have a very specific sound. They best way to describe it, I guess, is at once rich and transparent; it is kind of like getting the best of Berlin and Cleveland wrapped into one sound.

I went to the Orchestra's website to make sure the players weren't all 70 years old; they are not. Indeed, the principal oboe player has only been with the orchestra for about a year; the principal flute player looks like a rather young woman.

So what brings this consistency of sound over the years? Is it learning a tradition? Or is it just the unique sound of the wonderful hall?

Principles of economics, translated

Bill Gross says to Invest in Fannie-Freddie Debt

More generally, he says to invest close to the "government umbrella:" agency securities and government guaranteed debt. He also says that he thinks LIBOR will decline sharply once the various government programs actually start getting put into operation.

Gross is the Warren Buffet of fixed-income: for example, his bond funds avoided subprime (just as Buffet avoided the tech bubble). But one thing he doesn't mention in this Bloomberg interview is the prepayment-market risk embedded in GSE securities. I do wonder whether the increasingly tough underwriting standards for home borrowers will remain around for awhile. If they do, we should see a structural shift in prepayment behavior for a long time, with conditional prepayment rates (or PSAs) remaining low for years to come.

Cost-Benefit Analysis: What is the correct discount rate? Growth rate?

I was working on a paper with Chris Redfearn last week, and he raised one of the most interesting puzzles in economics: how to we think about environmental/infrastructure issues in the presence of discounting? With a real discount rate of, say, 3 percent, a dollar of benefit to our great-great-grandchildren, who might be born 100 years from now, is worth only 5 cents to us in present value terms, assuming that a benefit to our progeny is equal to a benefit to ourselves.

This creates all kinds of policy problems. The example Chris gave is that on an ex-ante basis, removing lead from gasoline did not pass the cost-benefit test. Yet I think almost all of us are grateful for unleaded gasoline. Similarly, I find myself puzzled every day when I ride the Washington Metro that the system does not pass the cost-benefit test. Washington is becoming an increasingly difficult place to live as it is; it would be hard to imagine what traffic would be like in the absence of Metro (where the cars are jammed to capacity during rush hours).

Maybe the problem is that we get potential growth wrong. If people's earning potential increases 2 percent per year, then maybe the way to do cost-benefit properly is to use a Gordon Growth setup with an r-g term: we discount net of growth. Such a change would increase the present value of the dollar to our great-great grandchild from 5 cents to 37 cents.

USC planning student Alexene Farol writes about why public transit is hard for LA

Lex Rail writes (h/t Lisa Schweitzer):

The biggest complaint I repeatedly hear about L.A. is that it has a poor public transportation system. News flash: that's true, we're not New York or Tokyo by any means. Yet I often feel compelled to protect L.A. from empty criticism. The people who complain about L.A.'s public transportation system are complaining due to what I see as three major factors: 1) the effect of hearing other people complain (to which I have nothing truly helpful to contribute), 2) the absence of a transportation culture, like the subway-state-of-mind of New York City or even the let's-take-BART-to-the-Giant's-game compulsion in San Francisco, and finally, 3) the feeling of disorder and general lack of safety surrounding the systems we already have. Here's my take on those things.

So let's face it: in Los Angeles, we drive our cars. Everywhere, all day, every day. We jam up our freeways and complain about commutes and argue about congestion but still, we drive our cars. Historically speaking, there is a reason for this. East Coast cities were designed with pedestrians in mind; they are planned to some extent, but largely that American grid pattern wasn't implemented until we started growing westward. People still had few options but to walk when those cities began to develop and subsequently explode in population; hence those cities have easily identifiable centers. Like many European cities, the center is actually in the middle, creating a smaller but more concentrated radius of things-that-are-important-to-get-to: financial buildings and offices, cultural offerings, commercial centers, etc. Los Angeles, however, is a totally different breed of city. Most significantly, by the time L.A. took off in terms of population, Americans were falling in love with the automobile. (Isn't it just like a bad romance novel? The honeymoon period is magical and then we find out that the objects of our affections are shredding the ozone layer. Typical.) This city is not designed for pedestrians but for vehicles, which explains our lack of green space and, obviously, our general difficulties with creating a truly cohesive transportation network. Additionally, L.A. is a highly stratified city, partially because it contains so many levels of specialization and industry. L.A. has many centers - Westwood, the financial district, etc. - and subsequently has a harder time connecting them except by vehicle lanes. Given that information, it's hardly surprising that our public transportation appears subpar. Do you realize how much harder that task is for L.A. than for New York? The concept of reducing VMT (vehicle miles traveled) is a very new concept that is miles away from what L.A. was really planned for. Oh and while we're facing facts, don't lie: those of you who are complaining, you wouldn't ride public transportation anyway.

And why wouldn't you ride public transportation in L.A.? Because there's no guarantee that you'll be as safe as you would be if you were driving. Many of the complainers are students I go to school with, and further, many of those are members of my sorority. This is where the AYF (Attractive Young Female, or as Michael Jackson might say, PYT) factor comes in. Pretty girls are the best way to judge the success of a public transportation system, because they are a) the most noticeable and b) the most vulnerable, for either real or imagined reasons. Pretty girls will not ride public transportation if they don't feel safe. So here we reach another issue with L.A. public transportation: the pretty girls don't trust it. Now part of that, I think, is that these PYTs are expecting the hip subway culture that is not typical of Los Angeles, and as I said earlier, there's nothing we can do about that. They're also expecting fancy light rails with Starbucks and Yogurtland in them. Here's the problem with that, though: who rides public transportation in L.A.? Largely it's the low-income minority population, and they're not riding the fancy light rails. They're riding the derelict, overcrowded buses - the non-glamorous option, and thus, the one with less funding. There are no PYTs on these, nor are there likely to be while they remain in that state. And L.A., in all its innovative glory, continues to invest in highway expansions that don't work or rail lines with low ridership because that's what the PYTs - and higher income residents - want. In the meantime, we force our bus riders to suffer inadequate resources while we develop for the people who complain and yet do not provide ridership.

I've talked for a while now, so in conclusion: to the city of L.A., please put more money into the bus systems. Make the bus stops safer, clean them up - throw in a Yogurtland if you want - invest in better, more fuel-efficient buses, and make sure the buses are always reliable. Maybe you'll attract more people to them; but even if you don't, at least we won't shove the majority of our population into grimy

outdated machines.

New England's Federal Electorates - Cowper

This, the first of a series of reports on New England's federal electorates, examines Cowper.

Location

Once a Clarence Valley electorate centered on Grafton and held by Earle Page for 42 years, progressive boundary changes have moved the electorate's focus south. Today the seat covers 7,911 sq.km between the Macleay and Clarence Rivers.

In the north, the seat covers a relatively small proportion of the Clarence Valley on the south side of the river including Maclean. Moving south, the first main centres are the coastal resorts of Woolgoolga and then Coffs Harbour, the biggest centre in the electorate with a population of over 60,000.

This is followed by a number of river valleys: the Bellinger (Urunga, Bellingen), the Nambucca (Nambucca Heads, Macksville) and the majority of the Macleay (Kempsey, South West Rocks). At the Bellinger, the electorate bulges inland to include the Tablelands around Dorrigo, once part of the New England electorate.

Economic and Demographic Change

Cowper is the poorest electorate in Australia.

According to the 2006 Census, Cowper has the nation's lowest median family income ($799), the highest proportion earning less than $650 per week (36.9%) and the lowest proportion earning more than $2,000 per week (7.0%). On official measures, unemployment is over 10 per cent. Real unemployment is significantly higher.

The raw economic data reflects an electorate undergoing fundamental change. The traditional rural industries of timber and dairying have declined in importance, being replaced by lower income generating activities of tourism and retirement. Attracted by the area's beauty, pockets of counter culture and alternative life style, especially Bellingen and Dorrigo, sit side by side with traditional activities.

At 5 per cent, Cowper has the twelfth highest indigenous proportion of the population of all Australian electorates. The indigenous proportion is especially high in Kempsey and the Macleay Valley, also areas of limited employment opportunities, especially for the unskilled.

Demographic Details

By way of background to the following, there are 150 Federal electorates in all.

129,465 people live in Cowper, nearly half now in Coffs Harbour. While I have not checked the demographics in detail, I would expect this dominance to increase both through tourism and because of the location of Government activities in Coffs.

This is an ageing electorate.

Nationally, it is the 12th oldest in the 65+ age bracket, with 18.2% of the population aged 65 or over. The proportion of those under 5 (5.5%) is the 23rd lowest, the proportion (50.5%) in the key working 25 to 64 years group is the 20th lowest. Only in the 5-14 year group (14.6%) does Cowper score better, coming in at 96th.

On another measure, at 30.2%, Cowper has the tenth lowest proportion in the country of couples with dependent children. On the other hand, at 14.7% it has the 5th highest proportion of one parent families with dependant children in the country.

Overall, Cowper's median age of 43 makes it the third oldest electorate in the country.

Turning to other indicators.

At 9.9%, Cowper has the 26th lowest proportion of overseas born, the 17th lowest (just 2.6%) born in non-English speaking countries. With a Christian proportion of 68.7%, it is the 42nd most Christian electorate in the country.

Compared to the national average, Cowper kids are more likely to be attending a Government school (72.5 per cent, 28th highest in the country), while the population as a whole has significantly less formal education: the proportion of the population completing year 10 or below is 55.8%, the eighth highest proportion in the country.

Cowper people are also less likely to have an Iiternet connection; 53% of households have some form of internet connection, the 22nd lowest proportion in the country. Only 27.5% have broadband.

On the other hand, Cowper residents are far more likely to won their own home outright than the national average, with 41.1% of all dwellings fully owned the 12th highest proportion in the country.

Those buying in the process of buying their own home face lower repayments: the median monthly housing loan repayment in Cowper was $1,031, the 32nd lowest figure in the country. At $168, median weekly rents are lower, with Cowper coming in at 41.

Past Voting Patterns

This has been traditional Country or National Party territory for many years, although there has been some erosive effect because of economic and demographic change.

On the seat's new boundaries, the primary vote at the last election was Nationals 50.5%, ALP 31.7% and Greens 8.9%. The higher than average Green vote is a measure of the presence of alternative counter culture views.

The sitting National member, Luke Hartsuyker, is contesting the seat again. This should make the seat a safe National seat. However, the seat is still one to watch.

A sign of this was Labor's decision in September to dump its originally chosen candidate John Fitzroy for Paul Sekfy. According to Antony Green, the reported reason in newspaper stories was that Labor internal polling indicated that Cowper could fall, and Labor wanted a more experienced and better known candidate in the seat.

References

Paul Nelson, Electoral division rankings: Census 2006 first release (2006 electoral boundaries), Parliamentary Library, Canberra October 2015.

Antony Green's election guide

So which is it?

The McCain campaign argues:
er
(1) Obama is a socialist

(2) Obama is the second coming of Herbert Hoover

I am not an historian, but I am pretty sure that the intersection of (1) and (2) is the null set.

Forecasting the Housing Market

I was reading the NAR forecast this morning. They say that improvements in the mortgage market will cause a turnaround in the housing market. If I were them, I wouldn't say anything.

I do admire the REALTORs for putting out numbers every month that play it straight down the middle (full disclosure, I helped the group design their benchmarking system: see http://www.realtor.org/Research.nsf/files/FinalDocumentationForWebsite_reviewed.pdf/$FILE/FinalDocumentationForWebsite_reviewed.pdf)
Particularly useful is the pending sales index as well as the month's inventory supply measure.

Both of those numbers are not encouraging at the moment: pending sales continue to decline, and month's supply continues to increase. I understand why people whose business is selling homes do not want to hype these numbers, but for credibility sake, they should avoid making pronouncements that fly in the face of their numbers. REALTORs want to be thought of as professionals, and trusted advisors, rather than sales people. This means telling people about the reality of the market. In fact, if they could use market information to convince sellers that they need to lower their prices (admittedly, a difficult task), they could help the market reach bottom faster.

I am not saying that the market won't recover next year. As Bob Shiller pointed out in his Jackson Hole paper, prices in London began to dip a few years ago, only to start back up soon after. What I am saying is I don't know when the market will begin its recovery--and neither does anyone else.

Sir William Walkley, Ampol and the New England New State Movement

I was doing some research on the Walkley Awards. Named after Sir William Walkley, the Walkleys are Australia's top journalism awards. This reminded me of a New England linkage and a possible explanation to something that has always puzzled me.

Born in New Zealand, Sir William founded what would become Ampol Petroleum. Now how does this link to New England and our fight for self government?

In 1961, the New England New State Movement launched Operation Seventh State, a major fund raising campaign to support a new self government drive. I acted as an usher at the launch, wearing my first ever suit borrowed from my Uncle Jim.

Our target was to raise 100,000 pounds, a very large sum in those days. We were successful, leading to a very major campaign culminating in the 1967 self government vote.

As part of the campaign, the Movement decided to mount a major car drive on Sydney. The aim was to flood Sydney with thousands of demonstrators in the domain matched by press advertising. Because it was a car drive, the decision was also taken to swamp parking spots around the Domain even though this would incur fines.

The drive was organised with military precision by a team headed by General MacDonald from Wallabadah Station as marshall. This was my second New State demonstration - I organised the first at the request of ABC Four Corners to provide them with some TV footage - and I thoroughly enjoyed it. But that's another story.

So what's the linkage with Ampol? While we were asked not to talk about it, and no-one did, Ampol provided free petrol. As I remember it, the company also offered to pay the parking fines.

The thing that has puzzled me? The Australian Soccer Federation acted to separate New England from NSW, creating a Northern NSW State League. I never knew how this happened. Now that I have read Sir William's ADB entry and learned of his connection with soccer, I suspect that I have the answer.

What is the optimal Rock Star status for a professor?

Greg Mankiw's blog led me to a piece in the Harvard Crimson on three of Harvard's most popular professors: Mankiw himself, Robert Lue and Niall Ferguson. The opening paragraph:

When History Professor Niall C. D. Ferguson begins his lecture at 10:07 a.m., he abandons the podium, choosing instead to pace in a slow, deliberate loop around the lectern. He speaks with the kind of proper British accent that makes Anglophiles swoon. As he makes an argument about the French Revolution, his throat wraps around certain words with a silky aggression that he punctuates by cocking an eyebrow or gesturing with his left hand, index finger and thumb closed into an “o” around a stub of chalk. His words are actually improvised. His paper schedule book, full of cross-country speaking engagements, is not.

The article also makes clear that Mankiw and Lue are around and available for students all the time, and they are well known. But from the perspective of undergraduate education, what is better--to have a famous professor who gives good lectures who is rarely around, or to have a not so famous professor who gives good lectures who is always around?

I was wrong about Karl Rove

I used to think he was an evil genius. An item in his WSJ column this morning undermines the genius part. He writes:

The Investor's Business Daily/TIPP poll (which was closest to the mark in predicting the 2004 outcome -- 0.4% off the actual result) now says this is a three-point race.

Before he wrote this, I thought Rove understood data. But polls are (more-or-less) random samples, and a group of pools will produce a distribution of outcomes. It is of course the case that one poll will come closest to the population outcome; the fact that a particular poll does says nothing about the skill of the pollster. Now, if one pollster comes closest ten times in a row, we can be sure that something real is going on--that she has insights about sampling that the others don't. But one correct call is nothing but luck.

Every quarter, the Wall Street Journal picks a "best economic forecaster," which is based on close an economist's forecast to predicting economic conditions in a quarter. Check out how well that forecaster does in the following quarter. If you made any decisions based on who wins the award for one quarter, you may well be disappointed in the following quarter.

Where is the Greatest Research University Agglomerationin the US?

One would think it is in Boston, and in a sense, one would be right: there is nothing comparable to having MIT and Harvard down the street from each other.

But if one looks at the top 50 research Universities as measured by The Center for Measuring University Research Performance at Arizona State, the leading metropolitan area for number of top research institutions is not Boston, nor is it Chicago, Philadelphia, or New York. It is LA, which has four in the top 50 (UCLA, USC, Cal Tech and UC-Irvine). If one stretches another 100 miles or so, UC-San Diego and UC-Santa Barbara get added to the mix.

Southern California rarely gets credit for being an intellectual mecca, but after spending a pleasant morning at UCLA and a pleasant afternoon at USC last week, I couldn't help but think that it is. Then again, Thomas Mann, Arnold Schoenberg and William Faulkner all managed to enjoy life in LA. Randy Newman might have been onto something...

I really want to be good, but...

If I leave my house before 7:30 or after 9, I get to USC in 15-20 minutes. I used transit today--it took 70 minutes to get to work, and an hour to get home tonight.

In DC, the trade-off was a 40 minute drive against 50 minutes door-to-door with metro/walking. That was a good trade--the ten extra minutes were small price to pay for the exercise, the ability to read/listen to music on the train, and the opportunity to avoid DC drivers. But a 40-50 minute difference is a whole different story. And LA radio is good, and the drivers are better here.

Atrios makes an important point

He says:

H

owever given that we're in a financial crisis which has at its foundations declining home prices, now would not really be the right time to do away with that particular [i.e. mortgage interest] deduction. And I'd prefer that before we scrap the employer based health care system we... come up with something else!

I have published papers pointing out that the mortgage interest deduction does little, if anything, to stimulate homeownership, is distortionary, and is inequitable. But I think we can wait awhile now before we do anything about it...

I think my next plane trip will go faster.

John LeCarre has a new novel out. It is reviewed here by my second favorite spy novelist.

Capital and Prime Mortgages

At this morning's panel, I commented that I had been mistaken in thinking that 2.5 percent was a sufficient capital cushion for prime mortgages. One of the panelists, Don Ankeny, wisely noted that Fannie-Freddie's troubles did not arise from prime mortgages, but from Alt-A loans. So for true prime mortgages, 2.5 percent may indeed be enough.

A potential positive NPV earmark?

I was in San Diego this morning to moderate a ULI panel on (what else) the financial crisis. The panelists (Don Ankeny, Westcore Properties LLC, Rajiv Patel, Spear Street Capital and Sean Flannery, Wells Fargo) were excellent, and while the mood was generally pessimistic, I think everyone agreed the policy is moving in the right direction.

But this post is not about that. It is rather about the Surfliner, the train that runs from Los Angeles (actually San Louis Obisbo) to San Diego. The scenery along the Pacific Ocean is very beautiful, but the train is sloooooow. The tracks have lots of curves, and are largely laid on wooden, rather than concrete, ties. Despite the slow speed (2 hours 50 minutes from LA to San Diego), it was full.

As we search for infrastructure investment to stimulate the economy, it strikes me that upgrading this route might work as an investment--it certainly makes more sense to me than a bullet train from LA to San Francisco. But I am not exactly a disinterested party on the matter...

My friend Suzanne Gillespie sends me a story on the Las Vegas Housing Market.

CNBC reports that houses in Las Vegas are falling apart, and that at least one buyer went to a homebuilder for a new house because she couldn't find any existing home that was acceptable.

This is actually a good example of what Ed Olsen was writing about in his seminal paper, "A Competitive Theory of the Housing Market." When prices fall below replacement cost, housing deteriorates until its depreciated cost equals price. Once this happens, housing markets are in equilibrium. The fact that the inventory of houses available for sale in Las Vegas has dropped to four months suggests that it is near its equilibrium level.

We could just be happy that the market in Vegas had returned to normalcy where it not for the fact that the deodorization of houses has almost certainly produced negative externalities--i.e., blight. (I was last in Vegas late last spring, and it looks pretty awful). But it is amazing how quickly markets adjust.

A Good Day for the Economics Profession

Paul Krugman today won something he long deserved to win. I remember especially enjoying his work on increasing returns to scale and patterns of trade when I was in grad school. And a few weeks ago, he produced a lovely, simple theoretical model of why capital infusion would be a more effective mechanism for bailing out banks than asset purchases (link to come).

Krugman's genius resides in his ability to develop simple models that are remarkably powerful at explaining a complicated world. Besides that, he is the rare economist who can write a graceful English sentence.

The Economic Basis of Traditional Aboriginal Life in New England

Note to readers: This post is a work in progress. It is just going to take me longer to complete than I had expected. So it will probably be next weekend until I get it done. So do revisit to check progress.

Over on Personal Reflections I have been discussing the need for a new compact with Australia's indigenous peoples. In doing so I have been trying to write from a new perspective because I have found some of the discussion in recent years distorted and not especially helpful. Among other things, it distorts (at least as I see it) the teaching of Aboriginal history itself. The indigenous story itself seems to get lost in the discussion.

A few days ago I read a review of Paul Memmott's new book, Gunyar, Goondie and Wurley, an exploration of of the architectural and design methods used by our indigenous people. I bristled a little, not at the book itself (I have still to read it) but at the tone of the comments.

Surely people know this stuff, I thought. But I then thought, maybe they don't. Maybe the teaching of Aboriginal history has been as bad as I thought. Maybe my thinking has been too influenced by my own student experience at the University of New England in a period that is now starting to look more and more like something of an intellectual golden age.

The point? Memmott emphasized the sophistication of traditional Aboriginal design and architecture. I have known of this for forty years. Why is it not more widely recognised?

Given all this, I thought that I might try to bring at least some elements of traditional Aboriginal life alive in the area I know best. The material that follows does not pretend to be rigorous, although I will edit and add some links later.

Background

In 1966 I had to select an honours thesis topic. I was part of Isabel McBryde's pioneering Australian pre-history group, I had already been on a number of digs and survey missions, and had studied the palaeolithic age as part of the foundation history course that all New England history students then had to do. As part of this, I already knew of the capacity of stone age peoples to build substantial structures.

I came from a family of economists and anthropologists. Cousin Cyril had argued against Karl Polanyi, stating that economics could be used to analyse non-money using societies. I decided to apply constructs drawn from economics to traditional Aboriginal economic life in Northern New South Wales. I did not argue that conventional economic models applied. Rather, I was interested in the application of the questions and the processes of economic analysis.

I faced a problem here. The left, especially what were then called the old left, within the history profession believed strongly that the Aborigines were in some way an example of primitive communism. The type of analysis I was doing, the questions I was asking of the material, fell well outside this view. I won't debate this further, except to say that I was happy with the outcomes of my analysis, if not with my academic results.

Information Sources

There was very little formal academic writing available. The small number of historians then interested in Australian history had ignored the indigenous story. The flowering of Australian pre-history itself was just getting underway, so there was limited archaeological material. I only became aware of the continued existence of an Aboriginal oral tradition when I read Malcolm Calley's PhD thesis on the Bandjalung fairly late in the piece.

In the absence of previous historical work, I relied on three main sources of information.

The first were previous anthropological and ethnographic studies. Unlike historians, anthropologists had written fairly extensively on the Aborigines. Further, there was a rich stream of often amateur ethnographic writing.

Many in nineteenth and early twentieth century Australia were fascinated by the Aborigines. Read today, I suspect that readers would focus on what the material said about European attitudes towards the Aborigines . While I found this interesting, I wasn't especially concerned with it beyond the need to take perceptual biases into account.

The anthropological and ethnographic studies revealed a complex pattern of economic life and social interaction across the continent, one far removed from the simple hunter-gatherer stereotype.

To test and extend this at local level, I relied on a combination of official reports and especially early settler records and reminiscences. These were often fragmentary, but in combination allowed me to build something of a picture.

The Importance of Geography

Today it is fashionable to speak about the relations between the Aborigines and the land. This is true, but I am not sure that people understand what it means.

Think about this.

Society was organised into family groups who occupied territories. Boundaries did shift, that was one question that interested me, but they were generally stable within individual lifetimes.

People walked. Of course they did, you might say. But do you know what it means?

People knew their own land. They knew where the resources were. But their vision of the land was formed by speed of movement. It was a big world. Walking through a major valley or across the plains along frequently travelled routes, they saw every variation. They knew every geographic form intimately, making it easy to attach meaning to the landscape.

Their daily life was determined by the availability of food and other resources. They knew the changing seasons and moved in harmony with them. When things went wrong, a major drought for example, they responded based on experience.

The Geography of New England

New England is an interesting area to study because it is a relatively small area with great but linked geographical diversity.

What we now call the New England Tablelands form the central geographic form. This, Australia's largest Tablelands, stretches from the northern edge of the Hunter Valley into Queensland. In Aboriginal times, this was a relatively harsh area, so population densities were lower.

To the east was found the humid coastal zone, a series of river valleys from the Tweed in the north to the Hunter. This was one of the richest, if not the richest, territories in Aboriginal Australia. There was, quite simply, an enormous amount of food. This allowed for high population densities and a relatively settled life style.

A series of rivers flow to the west of the New England Tablelands. The rivers plus the surrounding countryside also provided a rich food environment. Not as rich, however, because of climate. As the land dried out in droughts, the population concentrated on the rivers and water holes.

The Importance of Calories

Calories, the quantity of food within a territory, dominated Aboriginal life.

In general, the Aborigines did not have to work as hard as we do today to feed and cloth ourselves. I was fascinated when I first found this out from an anthropological study that charted daily life in the Northern territory, for I had really thought the opposite.

The amount of effort required to gather food varied from area to area and from time to time. When food was abundant, time could be devoted to other things. Social things. Ceremonial things. Trade. And what, today, we would call the creation of infrastructure.

Variety is the spice of life. As with any relatively wealthy community, it's not just the quantity of food that counts, but the variety and balance.

Daily life with its mixture of gathering and hunting provided variety and balance. But people also moved to take advantage of variations in food supply associated with seasonal change.

I started with the pre-conception that this type of seasonal movement was driven by the need for food. However, I quickly formed the view that the need for variety was just as important, that people moved even though other food supplies were still available.

With limited storage and food preservation, the carrying capacity - the immediate availability of food in particular areas - was critical to the pattern of life. Richer areas allowed for greater social gatherings, as did periodic food surpluses. These gatherings were important to social and economic life, including trade.

Trade and Ceremonial Exchange

Family or horde territories provided the daily staples of life. This was supplemented by trade routes and exchange cycles that spread across the continent. These had practical and ceremonial elements.

The Moore Creek axe factory near Tamworth was a significant industrial site. Axes from here have been found across a vast area of inland NSW. I could not find, I do not know if anybody has since, information about the organisation and ownership of the site or indeed of other equivalent industrial sites. So I do not know whether this was a resource controlled by a particular family group or whether it was in some way a shared resource.

While trade took place for practical reasons, there were also major ceremonial elements, with gifts exchanged at gatherings for cultural and ceremonial reasons. We know from evidence elsewhere in Australia that such artifacts could be re-exchanged, acquiring greater value in the process.

Farming, Fire Sticks and the Environment

Given that farming existed in New Guinea, I started my work wondering why agriculture had not arrived in Australia. I quickly found a far more complicated picture than I had expected.

To begin with, why farm when you don't need to? The story of agriculture is closely linked to the creation of structured societies in which the surplus extracted from the farming population

To be continued.

Matthew Kahn has a blog

And it is good:

http://greeneconomics.blogspot.com/

Crooked Timber on Elinor Ostrom

Henry writes:

Lin’s work focuses on the empirical analysis of collective goods problems – how it is that people can come up with their own solutions to problems of the commons if they are given enough room to do so. Her landmark book, Governing the Commons, provides an empirical rejoinder to the pessimism of Garret Hardin and others about the tragedy of the commons – it documents how people can and do solve these problems in e.g the management of water resources, forestry, pasturage and fishing rights. She and her colleagues gather large sets of data on the conditions under which people are or are not able to solve these problems, and the kinds of rules that they come up with in order to solve them.

This is, as Kieran suggests, a vote in favor of detailed, working-from-the-ground-up, empirical work, which doesn’t rely on sharply contoured theoretical simplifications and flashy statistical techniques so much as the accumulation of good data, which reflects the messiness of the real social institutions from which it is gathered. Quoting from Governing the Commons:

An important challenge facing policy scientists is to develop theories of human organization based on realistic assessment of human capabilities and limitations in dealing with a variety of situations that initially share some or all aspects of a tragedy of the commons. … Theoretical inquiry involves a search for regularities … As a theorist, and at times a modeler, I see these efforts [as being] at the core of a policy science. One can, however, get trapped in one’s own intellectual web. When years have been spent in the development of a theory with considerable power and elegance, analysts obviously will want to apply this tool to as many situations as possible. The power of a theory is exactly proportionate to the diversity of situations it can explain. All theories, however, have limits. Models of a theory are limited still further because many parameters must be fixed in a model, rather than allowed to vary. Confusing a model – such as that of a perfectly competitive market – with the theory of which it is one representation can limit applicability still further. (pp.24-25)

One plausible characterization of her life’s work is that it is about demonstrating the empirical weaknesses of a ‘cute’ economic model (the Tragedy of the Commons) that assumed a role in policy discussions far out of proportion to its actual explanatory power, and replacing it with a set of explanations that are nowhere near as neat, but are far more true to the real world. It is also worth pointing out in passing (as an email correspondent has brought to my attention) that she has received roughly a dozen grants under the NSF program that Senator Tom Coburn wants to abolish. Tom Coburn vs. the Nobel committee as a judge of scholarly quality – you decide.

It is also a vote in favor of supplementing quantitative work with qualitative understanding...

It is important that the Nobel Committee recognizes that there is more than one approach to science in general, and social science in particular. It strikes me that Darwin used "detailed, working-from-the-ground-up, empirical work, which doesn’t rely on sharply contoured theoretical simplifications and flashy statistical techniques so much as the accumulation of good data," and he moved our understanding of how life on earth works. Real scientists tell me that an awful lot of his specific predictions have stood up, as well.

Jan Brueckner and Bob Helsley find that subsidized sprawl produces urban blight

Jan presented the paper at the first annual UCLA-UCI-USC real estate research day. The finding was straightforward but still interesting: if congestion for commuting to the suburbs is not priced at marginal cost, the urban center will be maintained at less than the social optimum, so the housing stock in the center will deteriorate below the social optimum.

For those who worry about whether this implies that taxing sprawl will reduce the stock of affordable housing, Jan points out that the mechanism for making housing cheaper is greater residential density: with optimal taxation of congestion, one gets very small high quality housing units in the center city.

Bob Shiller wonders what the turnaround in house prices means

He concludes:

WHAT should we conclude? Given the abnormality of the economic environment, the sudden turn in the housing market probably reflects a new home-buyer emphasis on market timing. For years, people have been bulls for the long term. The change has been in their short-term thinking. The latest answers suggest that people think the price slide is over, so there is no longer such a good reason to wait to buy. And so they cause an upward blip in prices.

At the moment, it appears that the extreme ups and downs of the housing market have turned many Americans into housing speculators. Many people are still playing a leverage game, watching various economic indicators as well as the state of federal bailout programs — including the $8,000 first-time home-buyer tax credit that is currently scheduled to expire before Dec. 1 — in an effort to time their home-buying decisions. The sudden turn could signal a new housing boom, but is more likely just a sign of a period of higher short-run price volatility.

My take is different: I wonder if we have actually seen a sudden turn. The mix of sales has recently included fewer distressed sales. If distressed sales are fundamentally different from others, changes in the mix will influence the index. I suspected before that prices for non-distressed transactions before fell somewhat less than CSI; for the same reason, they may not be rising quite as quickly as CSI now.

Paul Romer's radical idea: Charter cities

I like the idea of Canada turning Guantanamo Bay into Hong Kong.

In the Department of Self-Promotion

I am quoted in Robert J. Samuelson's newsweek column.
http://www.msnbc.msn.com/id/15173465/site/newsweek/page/2/

Death of Peter Monley - a personal memoir

This is a very belated and personal post in memory of Peter Monley. Denise and I did not know that Peter had died last December (2006) until just last week. We were both upset.

Peter occupied a very special place in my life, so I thought that I should set down some memories.

Peter's dad had a men's wear store down the western end of Beardy Street. But while I knew who the Monleys were, I did not really know Peter until he came to The Armidale School (TAS) in 1961. This was my leaving certificate year and we became great mates. Among other things we were both day boys, played football together and talked a lot.

Towards the end of the year we agreed to go hitchiking together in Tasmania. To my great regret, Peter was not able to go in the end and I went on my own.

Peter finished that year, while I went back to school to repeat the Leaving because my parents felt that I would benefit from another year at school before going to university. Life now took us in different ways. Peter became a teacher, while I finished University and then went to Canberra to join the Commonwealth Public Service. Our contacts became fleeting.

In 1981 I returned to the University of New England to work on my PhD. In the meantime, Peter had purchased a small property just to the west of Armidale - something he had wanted to do - and had become a councillor with Dumaresq Shire.

At this point the Federal Government decided, in one of those unilateral acts that we have seen so often over the years, that the Armidale of College of Advanced Education and the University of New England should be forced to merge. I was opposed to this, and contacted Peter who agreed that we should organise a public protest.

We had to handle this carefully. I was a senior public servant on leave, while relations at the time between Armidale City Council and Dumaresq Shire were absolutely poisonous. This meant that any public involvement by Peter would be a kiss of death so far as the Armidale Council and mayor were concerned.

My job was to get University support. Here I sent a formal memo to Professor Gates as VC setting out what we proposed and why. He signed off on the approach, so we had formal top level University support. For Peter's part, he worked his contacts on Armidale Council, getting them to support a protest so that its organisation became Armidale City Council business. The resulting protest was a huge success, drawing a crowd of some four thousand and gaining national media coverage. The merger was put off, if only for the moment.

Peter was a doughty fighter for local causes.

One thing that you learn in regional Australia is that preservation of what you have requires constant vigilance. Peter knew this. When CSIRO decided to close its local research facility - a facility with a long history that owed its original existence to a local donation of land - Peter went into the fight. The facility was not only saved, but expanded.

Under Peter's leadership, Dumaresq Shire became an innovative Shire well supported by those living within it. Armidale's regional airport is one outcome. There were mistakes, there always are when you are trying to do new things, but the overall record was positive.

Things change. When Peter concluded that the interests of Shire residents would be best served by a merger with Armidale City Council, he steered the merger through in spite of opposition from some residents and councillors, becoming foundation mayor of the new Armidale-Dumaresq Council.

I see that the Armidale-Dumaresq Council is thinking about naming a road in his honour. I think that that would be a small but suitable tribute for a life of service.

An Urban Economics Puzzle

I have now been at USC a couple of months, and it is a terrific place. Last night we put on a panel on the financial meltdown for the USC community (see link to a webcast below); the staff here pulled it together (organization and marketing) in less than a week, and we nearly filled a room that held about 450 people with our students, faculty and alumni. The ability of people here to cooperate across schools and functions is truly astonishing, and the level of collegiality is quite wonderful.

But I have discovered a fault of the place--no street food. Both Madison and Philadelphia have lots of great street food options--Falafel, Thai, Chinese, Vietnamese, Southwestern, etc. But there is nothing like that around USC. We have 33,000 students here. Why no market for food carts?

Finance & Real Estate Market Meltdown

Finance & Real Estate Market Meltdown

William Brock, Cars Hommes and Florian Wagener show how hedging instruments can destabilize markets.

More hedging instruments may destabilize markets:

This paper formalizes the idea that more hedging instruments or derivative securities may destabilize a market when traders are heterogeneous and learn from experience based on realized returns. Here is a sketch of the idea. Consider a heterogeneous agent intertemporal asset market where risk averse agents are learning the structure of asset prices in the economy by using, for example, different prediction strategies of future asset prices under some kind of reinforcement or evolutionary learning, for instance as in Brock and Hommes (1997).

Let there be S states of the world and a finite number n of contingent claims or risk hedging instruments available. If n < S − 1 the market is incomplete. We model the risk hedging instruments as “Arrow” securities for state s, 1 s n < S − 1, each paying 1 if state s occurs and 0 otherwise. Elementary Arrow securities are used here as a convenient analytical device, and a suitable combination of Arrow securities may serve as a proxy of more realistic financial instruments such as futures, derivatives or recently introduced collateralized debt obligations. Now
suppose that n < S − 2 and that a new risk hedging instrument, that is, a new Arrow
security, is added for state n + 1 < S − 1. Then, since agents are risk averse, and
since they can use the new Arrow security to hedge out “extra” risk, they will now
tend to place bigger positions on the market. Thus if an agent’s forecasting tool turns out to be on the “right side” of the market, it will return a larger profit (because a larger position has been placed on the market), and therefore it will receive a stronger reinforcement and more individuals will switch to using that particular forecasting tool. This, in turn, implies that the learning system is now more likely to “overshoot”, i.e. to become unstable, and consequently market volatility increases. This intuitive idea will be formalized in a stylized model.

On the other hand it has been argued that an increasing multitude of derivative securities has made it possible for rational speculators to help stabilize markets since they can take bets on market imperfections and hedge their risk. A second contribution of our paper is to investigate the potential stabilizing role of rational traders in a market with co-existing non fully rational traders. Can a perfectly rational trader employ a growing number of hedging instruments to stabilize the market? It turns out that, when the information gathering costs for full rational expectations are large, rational traders can not prevent destabilization.

In the mortgage context, information gathering is expensive. One either needs to set up a good underwriting model, which can take years of experience, or at least to careful loan-by-loan due diligence. Many of us believed that hedges (such as Credit Default Swaps) helped distribute risk better and mitigate against systemic risk. How I wish we had this paper then. (BTW, I took two classes in grad school from Brock. I learned maybe 1/3 of what he was trying to teach, because I am not that good at math. I still learned more from him than pretty much anyone).

Robert Solow on what is needed for growth

From an interview with the MIT Times.

Q. Your research made clear how much technology can contribute to economic growth. To what extent might we see technology driving growth now?
A. I actually think the situation of the economy calls for a surge in technologically oriented investment. We have to expect consumer spending to be weak in our economy, not just for six months, but for the next few years. It will not be as strong a driving force as it has been the past several years. Something has to take its place. Government spending can't, since government will have a hard time financing the inevitable deficits and is not in a position to aggressively increase its deficit spending.

That leaves two sources of expenditure to replace the pullback of consumers. One of those is net exports. That's a long story. The other is business investment. We need business investment to support the economy. We have every reason to want to divert our resources toward secure and renewable sources of energy, new materials and environmental improvement. It's our job, a place like MIT, to produce those new technologies, then it's the job of private industry to grab them, but I also think it's the job of the federal government to shift incentives, from incentives to consume more to incentives to invest more. Obama ran on this kind of platform, and if he can put some money behind that fundamentally correct view, he might generate something. It's going to take more than that to replace 5 percent of GDP, but that would be a neat place to start.

This is also why I really worry about the reduction in funding for our great public universities. Michigan, Wisconsin, Berkeley, UT-Austin, etc. have long been wellsprings of ideas. Once upon a time in Wisconsin, I think the broader population understood why research was so important, particularly when the Ag School was discovering innovations that were useful for farmers. As a political matter, universities must connect to the broader community so that it understands why their research matters so much. Continuing American dominance in Noble Prizes certainly helps, but I don't think the connection is sufficiently concrete for most taxpayers.