Moneybox

An issue that even most people who consider themselves interested in mass transit don't pay enough attention to are the severe problems that US transit agencies seem to have in cooperating with each other. Both the New York and DC metropolitan areas, for example, are cursed with multiple commuter rail operators (MARC and VRE in DC, NJ Transit and LIRR in NYC) whose trains dead-end in the middle of the city rather than through-running into the jurisdiction on the other side. This creates some bad problems simply in terms of space management, but it's also poor transit service. Consider Aaron Weiner's piece about efforts to bring some development to Ivy City in DC, an area that's underserved by mass transit in a particularly egregious kind of way: "taunted by transit it doesn’t benefit from: the Amtrak tracks that box in a neighborhood that lacks easy access to any Metro or intercity rail stations, and the whizzing cars along New York Avenue that rarely have occasion to pull off in Ivy City."

The thing is, you couldn't even build Metro access to Ivy City in any kind of reasonable way. But those Amtrak tracks are also used by the MARC Penn Line as it passes from New Carrolton to its final destination at Union Station.

Now as long as the MARC ends at Union Station, adding an infill MARC station in Ivy City wouldn't be very useful to anyone. But if it ran-through to the VRE stations at L'Enfant Plaza, Crystal City, and Alexandria then that'd be pretty useful transit. You'd have connections to all the Metro lines and access to several different employment centers. It's not "easy" (see here and here) to implement through-running, but it's a lot easier than giant new construction projects. It's something that could both substantially increase the value of existing mass transit infrastructure, and also open up the doors to relatively cheap infrastructure additions like this hypothetical Ivy City infill station.

I say yes to every word of this.

As I've said before, when you take off the nostalgia-tinted lenses these are the glory days of American journalism. There is more and better stuff to read than ever before. Some of it is very serious and some of it is not-so-serious, but not-so-serious has always been a large—and important!—part of the mix.

A colleague forwarded on to me a reader query: If you're intrigued by the highly positive reviews of the Tesla Model S, does it make more sense to buy a Tesla or to buy stock in Tesla?

The first general principle that's relevant to this is that you should probably be saving more money. Me? Really? Well, I don't know you and I don't know your finances. But most Americans do not save enough. Many Americans perceive their income to be inadequate to their current consumption needs, but if you are contemplating buying a luxury car that is an excellent sign that your income is in fact perfectly adequate to your consumption needs. Planet 401(k) sucks and I disapprove of it as a matter of public policy, but you owe it to yourself to try to make the best of it, and that means saving probably more than you are now. How much should you save? It's hard to say definitively. This calculator might be helpful. Another thing to think about in particular is "are you maxing out your tax-subsidized accounts?" Again, doing retirement security through tax subsidies is bad public policy. But it's the public policy we have, so you should work with it.

All that said, if your reason for not buying a Tesla is that you realize you need to save more then you should probably save in the form of a low-fee index fund, not a speculative stock.

But let's say you're comfortable and you've got adequate retirement savings. This is really just a question of tens of thousands of dollars burning a hole in your pocket. You are excited about Tesla, excited about the Model S, excited about electric cars, and excited about Elon Musk. You're a believer and you want to show that you're a believer. Even if that's the case, the argument for shares over cars is pretty strong. People talk about the high price of Tesla's cars, but while obviously to be a huge mass market hit they need to make them cheaper, even if they can't ever do this there's no reason you can't be a successful company selling high-end luxury cars. The real problem is scale and infrastructure. People sometimes express this as a problem of "range," but that's not right. A car that can go 200 miles before refueling is a fine car. The problem is that electric cars are hard to refuel. But if lots of people owned electric cars, then parking lots all across America would feature charging outlets and highways would be dotted with superchargers. After all, if you were the only person in North America to own a gasoline powered car you would be the one with the range problem. It's the gas stations, not the internal combustion engine, that make gasoline-fueled vehicles convenient.

All of which is to say that buying a Tesla really only makes sense if you think other people are going to buy one and electric vehicle infrastructure will keep improving. If you need a new dining room table and you see one you love for good price, then you should buy it. The value of the table does not depend on the larger success of the table manufacturer. But the value of a Tesla car sort of does depend on the success of Tesla as a firm. And if you think the firm will succeed, then when you want to buy the stock.

Now note of course that if everyone who loves the Model S follows this advice, the Model S will fail and everyone will lose their money. "Don't be an early-adopter, even of technology platforms you believe in" is not a generalizable maxim. And that, if anything, shows that moralizing about the virtues of prudent savers versus profligate spenders is much too simplistic. To have progress and innovation, firms don't just need access to capital, they need access to enthusiastic consumers who are willing to take risks. When the iPad was first released, it was obvious that saving your money and waiting a year for the improved version was the right strategy. But had everyone refused to buy the original iPad there would have been no iPad 2 and, in fact, no tablet market at all. So even though it's probably financially irrational to rush out and buy a high-end electric car, if you do it you can award yourself a Hero of Innovation Prize with a special commendation in the field of network effects.

American Enterprise Institute President Arthur Brooks has a perceptive op-ed in the Wall Street Journal about the fact that Hispanics have a much lower voter turnout rate than non-Hispanics, and there's considerable evidence that non-voting Hispanics are more conservative than Hispanic voters. What could get those people to turn out and vote Republican? Brooks correctly notes that ranting against the evils of Latino immigration probably doesn't help (not, I might add, does the fact that one of AEI's leading scholars agrees that the genetic inferiority of Hispanics should be a major factor in shaping public policy). But he also correctly notes that Hispanics are very concerned about the fate of the poor, and a Republican Party that wants to win their votes needs to make a pitch on this score.

I think that's all really solid, and I hope lots of conservatives read it.

The problem, of course, is that Brooks' proposed solution looks an awful lot like nothing more than reframing. He argues that social conservatism is, objectively speaking, a pro poor people position. I don't think that's right, but fair enough. The real problem comes on economic policy, where his big idea about helping poor people is to cut Social Security and Medicare spending:

First, make it clear that the safety net for the indigent and needy is not the source of our fiscal problems. It is the safety net for everyone else—the able-bodied, the middle class, and corporate cronies—that is driving our country to insolvency.

Without real reform of Social Security, Medicare and special-interest public spending, we will have insolvency followed by austerity, and this will hit the poor the hardest (just ask a Spaniard). Spending and entitlement reforms are pro-poor policies.

This is the kind of thing that could be true, but Brooks needs to clarify that in order for it to actually be true the GOP would need to change its policies. The budget House Republicans have written cuts $0 in Medicare spending over the next ten years. It cuts $0 dollars in Social Security spending ever. It increases national defense spending. It sharply cuts cuts rates on high-income families. And it balances the budget. So who loses out? Poor people. It is true that starting in Year 11, the House GOP budget begins to cut Medicare spending. But it does so in a way that does very little to protect the interests of low-income retirees. And the cuts to Medicare are not used to avoid cuts in programs for the poor. In fact, the cuts to Medicare are not even used to avoid tax hikes on the poor. The style of tax reform favored by the House GOP ensures that along with spending on programs for the poor being cut, working class families will pay more in taxes.

Just to sum up—the actually existing GOP agenda overwhelmingly suggests that not only do Republicans think that government spending is bad, but also that government spending on the poor is an especially pernicious form of spending. They appear to believe that taxes are bad, but that taxes on the poor are an especially benign form of taxes. As Brooks notes, this works for Republicans as an electoral strategy because white voters by and large are not that concerned about the fate of poor people. But as Brooks also notes, it's a strategy that doesn't work if Republicans want to secure Hispanic votes. But to change it would require an actual turnaround in public policy.

It's a bit hard to know how to read Brooks' op-ed in that light. He's a political operator, not a journalist. It's possible that he's fully aware that the Republican Party is committed to a savage war against the economic interests of poor people and simply thinks that talking nice is the optimal strategy for shifting GOP policy. It's also possible that he's totally clueless. And it's also possible that he is personally committed to this anti-poor person agenda but thinks it's possible to adopt rhetorical strategies that disguise its existence. The fact that just last week the main architect of the GOP's soak the poor budget was given AEI's major award is, I think, suggestive. But whatever is going on in Brooks' head, he's right that economic policy is at the core of the GOP's Latino problem.

Fans of Japanese monetary policy got some odd news during the non-business hours in the eastern time zone. Japan's new GDP data appears to show a triumph of Abenomics with real GDP growing at an annualized rate of 3.5 percent in the first quarter.

That would be the fastest growth rate in the G7 and it's particularly impressive because Japan's slow population growth and declining working age population should lead us to believe that it has a very sluggish underlying potential growth rate. So that's a huge win for Shinzo Abe and Abenomics.

On the other hand, the GDP Deflator (the broadest possible measure of inflation) fell. In fact, it fell by quite a lot. A surge in real growth paired with a falling rate of inflation is what you would expect to result from a policy of highly effective structural reforms—exactly what Abe stands accused of neglecting in favor of stimulus. At the same time, since the key mechanism of Abenomics was supposed to be breaking the cycle of deflationary expectations this makes Abenomics look ineffective.

And yet the mystery deepens, because when you look at the components of growth—exports followed by residential investment followed by consumer spending with non-residential business investment still weak—that very much looks like a successful program of monetary stimulus rather than a positive supply shock.

All in all, I think you'd have to consider this a win for Abenomics. The goal, after all, is to produce real growth not to produce inflation. If you get the growth, you're winning. But it is a puzzling scenario and it least raises the possibility that all the good news from Japan over the past six months has been some kind of giant coincidence totally unrelated to the policy experiments taking place. On the other hand, it always strikes me that people who are skeptical of central banks' ability to raise inflation expectations taking a bizarrely narrow view of the consequences of that. If it's really true that the Bank of Japan can print all the money and buy all the assets it likes without causing inflation, then that shouldn't just lead to pessimism about monetary stimulus it should lead to a policy revolution. Why is Japan bothering with taxes if large-scale money-printing is non-inflationary? Huge money-financed tax cuts would operate as simultaneous fiscal stimulus and supply-side reform, and if they can be enacted without any impact on the price level then why not do it? And I mean that quite genuinely. Since debate seems polarized between those who want increased inflation in Japan and those who doubt that increased inflation is possible, it seems like a no-brainer to finance the government with money-creation rather than taxes.

New housing starts fell considerably—16.5 percent—between April and March, which is leading to some panic on twitter. I’m going to say that this is the month when my once-a-month invocation to pay more attention to the more-accurately-measured building permits series is finally going to pay off. In April of 2012, US jurisdictions issued permits for the construction of 749,000 new housing units. In March 2013, they issued permits for the construction of 890,000 new housing units. In April 2013, they issued permits for the construction of 1,017,000 new housing units. That is an ongoing recovery in the pace of housing construction, exactly what you would expect given the low levels of construction from which we’re recovering, the low interest rates, and continued population growth.

That’s my story and I’m sticking to it. I don’t know what happened to April housing starts. The issue appears to be concentrated in the multi-family segment, where any given project can account for hundreds of units. It’s possible there was some concentrated episode of bad weather somewhere, or mismanagement, or a labor dispute, or just a measurement error. But people are filing the paperwork to build more houses, and they’re getting approval to build them.

Every five years, the Texas Monthly updates its list of the state's top 50 barbecue joints, and today the new one came out.

Something curious I noted about this is that only seventeen of the fifty restaurants on the 2013 list also appeared on the 2008 list. I wish the magazine had attempted to say something about that. Have old stalwarts gone into decline? Or is the overall level of barbecue quality increasing so quickly that places are getting pushed off the list without becoming worse? The Texas economy has grown a lot over the past five years, and it'd be interesting to have some insight on how that's impacted a local traditional industry like barbecue.

I can't speak to this issue personally in detail, but I can say that next time you find yourself in Kerrville, Texas, you should definitely check out Buzzie's BBQ (which desperately needs a new website).

A couple of weeks ago I wrote a piece about how people need to stop throwing the term "disruption" around willy-nilly as part of all-purpose hype. And I want to invoke that principle today because there are a few good stories out that illustrate the disruptive potential of online higher education offerings ("MOOCs") but I don't want people who are understandably turned off by excessive MOOC hype to just close their ears.

But here's a piece about Georgia Tech's plans for a $7,000 online master's degree in computer science:

Georgia Tech said it does not plan to lower admission standards to find 6,000 or so students for this track -- a number than is 20 times larger than its current computer science master’s degree program. Instead, Georgia Tech hopes to attract more qualified applicants from across the world, including inside the military and at companies – places that harbor nontraditional students who could not previously come to a traditional campus or find the money for a full degree, on campus or online.

And here's a piece about Philip Zelikow's MOOC at UVA:

A course survey that drew more than 5,000 responses found that more than 40 percent who took the MOOC were 45 or older. Most held at least a bachelor’s degree, were not alumni of U-Va. and didn’t know anything about the professor.

And here's a longread from Aaron Bady about why MOOCs aren't as good as real college. That's the hallmark of real disruption. The new thing is not as good as the old thing. But it's cheaper and more flexible. And the power of the decreased cost and increased flexibility is that it lets you serve markets that were not previously served. My mother-in-law is pursuing a graduate degree in her field largely through online offerings in Texas since there aren't any graduate-level institutions where she lives. Moving across the country for school is great for teenagers, but it's kind of a pain for the rest of us. And expecting high-quality providers of highly specialized in-person education services to be available in every physical location in America is unrealistic. Whether or not it's the case that the optimal way to benefit from the University of Virginia's educational offerings is to move to Charlottesville, developing an affordable way to gain some of that value without moving to Charlottesville is valuable.

Personally, I've learned a great deal from pre-MOOC online education offerings—Brad DeLong's economic history lectures and Robert Shiller's finance lectures, both available for download on iTunes. My second-best alternative to those things wasn't to enroll at Berkeley or Yale, it was to just hear what those professors had to say. Fortunately in my line of work gaining some extra competence in those areas is beneficial to me even without a formal credential, but lots of people are differently situated and need credentials. Hence MOOCs. What this means for the "traditional college student" of tomorrow, I'm a bit unsure. But these kind of changes, where incumbent providers sneer about inferior products while the new technology serves new markets, are important. That's basically been the story of journalism and technology over the past 15 years, and it's been change for the better.

Does it seem like your neighborhood is full of restaurants and all anyone's doing these days is opening up new small plate venues to sell artisanal pork belly? I thought that was just my coddled coastal mindset, but down in Texas Hill Country my in-laws recently took me to The Grotto in Bandera, Texas, and the NYT had an article about foodie-ism sweeping the rust belt.

At any rate, this seems to check out statistically. The chart above is basically the ratio of money spent at restaurants to the overall level of consumption spending. The data series doesn't go very far back, but after trending vaguely upwards for a while it seems to be really accelerating as the economy pulls out of the recession. This is, I think, the economy's structural response to the End of Retail. As there's less need for physical stores, it makes more sense to use commercial real estate for restaurants. It's another reason we need to take food service seriously as an economic sector.

Gawker's Hamilton Nolan concludes a discussion of the European Depression with his best Zero Hedge imitation:

It's only a matter of time before the Fed stops pumping money into our economy and we deflate along with everyone else and then the demographic retirement bomb hits and we have fewer younger workers supporting the baby boomer retirees and health care costs explode and everyone's cranky and hope seems like a faraway dream and all the Europeans are laughing atus. So enjoy this brief moment of self-satisfaction while it lasts.

I'm always a bit confused by this particular strand of monetary policy pessimism. If our economy will deflate just like Europe's when the Fed stops pumping money into our economy, then the obvious solution is for the Fed to keep pumping money into the economy. It's only a matter of time until the sun runs out of hydrogen atoms to fuse into helium and the entire solar system becomes unviable. It's only a matter of time until the heat death of the universe dooms us all. But unlike hydrogen atoms there is no objective limit on the quantity of money the Fed can create. It should not create so much money as to cause an annoying level of price inflation, but it should create enough money to avoid deflation and should keep doing so forever.

You often here that the Fed is artificially supporting the economy, but that's no more true than saying that America's hard-working police officers are artifically supporting the economy by arresting murderers. You can't have a prosperous economy without a properly functioning state, and conducting expansionary monetary policy is just part of the job of a 21st century state.