Tag Archives: off-topic

Price Gouging is Bad

With Texas recovering from Hurricane Harvey, and Florida and the Carribean from Hurricane Irma, the internet is blossoming with takes on how actually price gouging is good. It’s not.

The Econ 101 argument offered in favor of price gouging is that higher prices provide a market signal to entrepreneurs to figure out a way to increase the supply of the desired good. This is indeed the very basic version of how supply and demand works. However, it’s a terrible way to allocate resources during the short term impacts of a natural disaster.

The point of the profit motive is supposed to be to reward people for doing things that benefit society, not to hand them windfall profits for just happening to be in the right place at the right time. This is why few people complain about Apple’s huge profits, since smartphones and laptops are generally considered to be good products. Creating the iPhone was hard and took a lot of time and money, and people generally accept that Apple has earned its profits. Apple also faces fairly robust competition in smartphones from other innovative companies like Samsung.

On the other hand, Martin Shkreli is widely and rightly considered to be a villain, who bought the rights to produce and distribute a drug created by someone else’s hard work and innovation, and then used a market distortion, a government-granted monopoly, to jack up the price. People see that Shkreli is just trying to enrich himself by squeezing sick people in need of medical treatment, and is not really interested in doing anything socially beneficial. In addition, the structural barriers to market entry created by the government-granted monopoly make it nearly impossible for anyone with entrepreneurial spirit to deliver to Shkreli the market smackdown his fiendishness so richly deserves.

The short-term supply shocks and demand panics induced by natural disasters are not quite the same as government-granted monopolies, but they create similar outcomes. For example, the airline industry did not do anything innovative to greatly increase the demand for air travel upon the approach of Hurricane Irma. There is not a large amount of slack in the airline industry that can be brought to market by enormous price increases, a fact revealed by the very ability of the airline industry to increase prices by an order of magnitude in advance of the storm.

Because their occurrence, in both time and space, is unpredictable and their impact is very short-lived, the incentives created by natural disasters align very poorly with good profit motives. No one expects that Delta raising prices to over $3,000 will lead to a burst of innovation or capacity growth in the airline industry, just as no on expects that Jet Blue’s $99 flights to flee Irma will have a long run impact on airline industry capacity or profitability.

Investment in expanding capacity of any industry requires time, money, and other resources. The unpredictable nature and short duration of natural disasters results in there being little long-term incentive to invest in capacity to overcome their short-term impacts. Nobody is going to build an oil refinery and gasoline distribution infrastructure that is only useful and profitable for the two weeks after the time a hurricane happens to hit a major American city.

In addition, many shortages caused by natural disasters are not structural shortages caused by lack of capacity in the supply chain, but panic-induced shortages similar to bank runs caused by fear of future shortages and a resulting desire to hoard. I happened to be in Fort Worth during Hurricane Harvey, and every gas station had a line out into the street, with many running out of gas, despite there being no real supply disruption in the area.

A large increase in the price of gas in such a situation is not the proper response. Again, no one is going to build extra refineries & distribution infrastructure for these random occurrences. A large increase in prices plus hoarding behavior will just lead to unearned profits for “first to the well” hoarders and inability of low-income people to afford resources they may really need.

The proper policy response to short-term disruptions caused by natural disasters is rationing, to ensure everyone has fair access to enough resources while normal supply chains are repaired.

The finance industry understands this, of course, when it itself is subject to short-term panics such as bank runs or similar events in markets for financial instruments. These situations are handled by limiting or suspending withdrawals, i.e. rationing, until the institution can find a way to overcome the panic.

A similar response to natural disasters is appropriate. Rationing, not price gouging, is the right way to distribute resources during short-term shocks.

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Four Southern Cities

This is way off topic, but back in March when the new Census population estimates came out, I tweeted about slow growth in Alabama and negative growth in Mississippi. I’m wondering why they aren’t part of the “new south”, generally taken to be fast growing Sunbelt cities like Charlotte and Atlanta. Why does Atlanta boom, but Jackson doesn’t? Many of the responses boiled down to “because it’s Mississippi” which is sort of circular logic.

I thought it would be interesting to compare population growth since 1860 in four southern cities: Jackson MS, Birmingham AL, Atlanta GA, and Charlotte NC. Since municipal boundaries in the US are illogical, often changing, and hard to trace, I’m using county level data, comparing the populations, based on the 2015 definitions of the metropolitan statistical area (MSA) for each city.

I also added an “Atlanta Redux” where I threw out the 9 counties (out of 29) in the Atlanta MSA that still, as of 2016, have not reached population 30,000. These counties are way out near the edge of the city and were only recently sprawled into the Atlanta MSA. Their inclusion in the regional population back to 1860 probably unfairly inflates Atlanta’s size at the outset of the Civil War, when counties 40 miles out would not have had much plausible connection to the city but still had some population. I’m including both the full MSA and the reduced version to let readers compare.

fsc-popa

Even the redux version of Atlanta was the biggest city of the four in 1860. Not much divergence is seen between Birmingham, Atlanta, and Charlotte until after World War 2. Jackson appears to have always grown more slowly, though this fate would not have been at all obvious to an observer in 1880, when Jackson was over 50% larger than Birmingham.

Plotting the population on a logarithmic scale can help us see patterns more easily, as the runaway growth of Atlanta makes the others look flat by comparison.

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Plotted this way, the post-World War 2 growth of Atlanta and Charlotte doesn’t look unusual; it just looks like a continuation of previous trends. Atlanta, especially the redux version, starts growing a little faster than Charlotte after the war.

More interesting is Birmingham, which grew very quickly for decades after the Civil War, going from about 60% of Jackson’s size in 1870 to 120% of it in 1890. Birmingham even passed Charlotte for a few decades, going from 40% of its size in 1870 to larger by 1910. An observer in 1930 might have expected Birmingham to surpass Atlanta in another 10-20 years, especially the redux Atlanta. Jackson, meanwhile, experienced a strong decade from 1870-1880, but never grew very quickly again.

After 1930, Birmingham, which had been the rising star, began to fade, and was surpassed by Charlotte by 1960. So, what happened to Jackson after 1880? And what happened to Birmingham in 1930? I’ve yet to find out.

Another way to look at this data is to look at the amount of growth in the central county (where the main city is located) and compare that to the growth of suburbs. Here’s the breakdown for these four cities, with the central county on the bottom of the graph.

fsc-Jacksonfsc-Birminghamfsc-Charlottefsc-Atlanta

It is interesting that in Birmingham and Jackson, the central county stopped growing when the MSA as a whole started growing more slowly. However, it’s important to not try to read too much into this – did the MSA grow slowly because the central county was being neglected, or did the central county stop growing because there wasn’t much growth to be accommodated anyway?

One unappealing answer is that there is simply a great deal of luck in these outcomes. Obviously it helps for the city to be well run, but there are many factors making a complex result, and sometimes you just get bad luck. This rudimentary look is obviously not enough to tell us much about why these cities grew at different rates, but if anyone has any ideas, I’d love to hear them.

Sustainability as Penance

An article in City Lab on a vegetable shortage in the UK reminds me of an old idea that I never really seemed to be able to articulate, so I figured I’d finally give it a shot.

There’s a weird vibe about arguments on sustainability sometimes, where it feels like it’s more about impugning the morality of the behavior in question rather than about some technical definition of sustainability. This dubious definition of sustainability has a habit of popping up when people have a preconceived negative opinion of the user in question (LA is bad and unsustainable for importing Owens Valley & State Water Project water!) but not when they don’t (when was the last time you heard about the water shortage on the Delaware River?).

Food is perhaps the most frequent victim. In the article above, it is suggested that poor harvests in Spain due to bad weather are revealing an “unsustainable” food supply system in the UK. It is noted that 50 percent of the UK’s vegetables and 90 percent of its fruit are imported. Further, it is suggested that perhaps UK residents should just eat in-season locally available vegetables like winter roots and leeks, cabbage, Brussels sprouts, and kale (three of which are cultivars of the same plant).

First, let us note that sustainability here has been arbitrarily defined: produce from Spain, not sustainable; produce from the UK, sustainable. Sustainability should be defined by some assessment of our ability to keep producing things without destroying the productive capacity of the system; instead it is defined by arbitrary borders. Why are Spain and the UK the units of analysis rather than something larger (the EU, for example) or something smaller (the constituent countries of the UK, parliament districts, etc)? Why not go full rugged individualist, and say that any produce you consume that you didn’t grow on your own land isn’t sustainable?

Second, there’s a tone of judgment – why do you silly people demand zucchinis and eggplants, instead of just being satisfied with cabbages? Well, aside from this having nothing to do with sustainability, why shouldn’t people in the UK get to enjoy a variety of vegetable and fruit? Most produce in the US is grown in California, because of places with very favorable climates like the Salinas Valley, Central Valley, and Imperial Valley, and available resources for irrigation. Why shouldn’t people in other states get to enjoy that productivity?

Third, it’s quite possible that moving to a system where people are only allowed to consume locally produced food would have a larger environmental impact. Transportation costs and carbon emissions are a small portion of the total costs and carbon emissions of making food. Increasing agriculture on marginally productive land just because it’s close to population centers might increase impacts because a larger amount of land would have to be put into production.

Finally, the unsound footings of this definition of sustainability are laid bare if we try to apply the concept to something other than food. For example, much of the world’s iron comes from mines in remote desert portions of Australia. It would be crazy to argue that all the steel in California should have to come from in-state iron mines, which would be more destructive. It would also be crazy to argue that iron miners in the Pilbara should only get to eat whatever food can be grown in the Australian desert.

Some places, like California and parts of Spain, are good at growing lots of food. Other places, like the UK, are good at other things. There’s nothing wrong with this; letting people do what they’re good at is a good thing. It doesn’t help people in the UK to deprive them of a greater variety of food, and it doesn’t help Murcia to deprive it of a place to sell the food it can grow. This is literally the entire point of trade.

Trump: The First 5 Days

The first 5 days of Trump’s presidency have passed in a blizzard of news, rumors, and outlandish statements. The circus atmosphere that has carried over from the campaign has made it hard to keep up with what’s important, and what’s actually been done versus what’s rumor. So it seems like we should summarize what’s happened, because Trump’s first 5 days have been about as bad as could be expected. Trump has acted, or is expected to act, to make good on many of his worst campaign promises:

  • Authorized Health & Human Services to delay or waive any Obamacare provisions that could be construed as a financial or regulatory burden on states or individuals.
  • Blocked any aid from going to foreign non-governmental organizations that even mention abortion.
  • Ordered expedited review and approval for the Dakota Access Pipeline and invited resubmittal of permit application for the Keystone XL Pipeline.
  • Directed Homeland Security to begin planning and constructing a border wall on the Mexican border, along with additional detention facilities.
  • Prohibited federal grants to sanctuary cities.
  • Expanded the priorities for deporting undocumented migrants.
  • Ordered the creation of anti-immigrant propaganda in the form of a weekly list of crimes committed in sanctuary cities and the creation of a special office for victims of those crimes.
  • Declared his intention to launch an investigation into baseless lies that millions of illegal votes cost him the popular vote in the election.

In addition, four leaked executive orders suggest Trump will take the following actions:

  • Suspend entry into the US from several Muslim nations, and suspends all refugee admissions into the US for 120 days.
  • Repeal the Deferred Action for Childhood Arrivals program, which shielded people who came to the US as children from being deported.
  • Take several actions to reduce legal immigration and expand workplace raids on places that employ workers using visa programs.
  • Take several actions to make social services unavailable to immigrants.

On top of all of that, there have been troubling actions to remove research on climate change from government websites, and order that basic government research go through political reviews before being released.

The actual impact of some of these orders is hard to tell, because they are vague or because Congress would have to appropriate funds. But it seems unmistakable that other than locking Hillary up, Trump intends to carry through on his campaign promises, and many of these actions, particularly those pertaining to deporting, rejecting, and demonizing immigrants, can be carried out without Congress.

In light of all that, it again seems a little ridiculous to talk about transportation and housing, but let’s have a go for old time’s sake:

  • The Senate Committee on Banking, Housing, & Urban Affairs voted to confirm Ben Carson as HUD secretary, with all the committee’s Democrats voting in favor. What they are getting in exchange for voting for a wildly unqualified candidate, other than a share of the blame for screw-ups, is beyond me. I guess all that remains to be seen is if he screws up through benign neglect or malign neglect.
  • About a week ago, it was reported that Trump’s first budget would draw from a Heritage Foundation plan that would zero out funding for the Federal Transit Administration, the New Starts transit capital investment fund, and Amtrak. Then yesterday a leaked document listed 50 priority infrastructure projects, including Amtrak’s Gateway project and 2 Ave Subway Phases 2 &3 (and more mysteriously, the privately funded Cadiz water export project and Huntington Beach desalination plant in southern California). Then that document was claimed to not be from the transition team, just from a consulting firm, and then others insisted it was from the transition team.

So, whatever, believe whatever you want on transportation and infrastructure. That won’t be funded by executive order, so Paul Ryan and Mitch McConnell will have some say in what it is.

As for me, if the price of getting a few transit lines built is total surrender on climate change, immigration, health care, reproductive rights, and basic decency, count me the fuck out.

 

Winter in LA’s Backyard

A little diversion from transportation and housing for the weekend…

Chances are, when you think of the outdoors in LA, you don’t think of snow. Awesome beaches, surfing, amusement parks, palm trees and Palm Springs, ocean-front recreation paths, Hollywood lights… snow? You might be aware of the large mountains on the horizon on clear days, but they often feel further away than they really are.

Rainfall (and mountain snowfall) in LA varies greatly from year to year, to the extent that in some years it feels like winter doesn’t even happen. Considering the last four years, you could be forgiven for forgetting about it. This year hasn’t been particularly rainy, but unlike the last four years, it has been cool and rainy enough to make Mt Baldy shine like the postcard view.

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Mt Baldy, like a mirage from the 405

When there is snow, LA is unique among US cities in its proximity to winter and summer. Glendale is 40 miles from 8,000’ peaks with ski lifts and 20 miles from the beach in Santa Monica. Here’s a short introduction to the less iconic side of that duo.

The Angeles Crest Highway (the 2) provides access to the San Gabriel Mountains, though the eastern portion of it is closed in the winter due to the hazards from snow and rock fall. As it traverses the range, it provides amazing views.

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Running a ski area without snowmaking is an increasing quixotic enterprise anywhere, let alone in a place with highly unreliable snowfall like LA County. This year, Mt Waterman was able to open for the first time since 2011. Mt Waterman had been closed for a few years and was nearly devastated by the Station Fire in 2009, but thanks to some dedicated owners, it’s back.

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There used to be another small ski area just east of Mt Waterman on the 2, called Kratka Ridge. It closed 15 years ago, after being badly damaged by a fire and an avalanche. Southern California is a land of extremes.

The San Bernardino Mountains are a little bit easier to get around, being much more populated than the San Gabriels, which only have towns around the edges. The top of Snow Valley offers great views of the San Bernardino Mountains, the Inland Empire, and the other side of the San Gabriels.

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In my opinion, price per pound you can’t beat the views from Mt Baden-Powell, the third highest peak of the San Gabriels. On a clear day, you can easily see downtown and Santa Catalina Island (just check out my banner picture). But if you’re going now, you’d better bring your winter gear!

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