2011-03-13T13:45:11+00:00

Marc Levinson, The Box: How The Shipping Container Made The World Smaller And The World Economy Bigger

March 13, 2011March 24, 2021/stevereads/1 Comment

Cover of _The Box_: blueprint of a shipping container.
(Attention conservation notice: 2100 words about a book that will make you jealous: [book: The Box] is a terrific read about shipping containers, of all things. It’s like if you spent every day using your Honda Civic’s gear shift, then one day found that someone had written [book: The Lowly Honda Civic Gear Shift and How It Will Change Everything] and made millions off it. “I should have written that!” you say. But you didn’t write it. Marc Levinson did, and he did it better than you (or I) would. He did it incredibly well, in fact.)

Why do cities form where they do? Why do they grow to the sizes they do? One popular answer has to do with companies’ desire to be near their customers and near their suppliers. Much of Krugman et al.’s [foreign: magnum opus], for instance, is based around this idea. The idea, in turn, depends critically upon transportation costs. Imagine instead that you could get products to your customers, and components from your suppliers, via a teleportation machine that magically conveyed them at no cost to you. Would you still need to locate your company near your customers? It seems unlikely. You might still put your company near where your suppliers are, so that you could draw on a pool of specialized talent when it came time to hire. But that teleportation machine would radically change your business.

We may have arrived at the teleportation era. As Glaeser and Kohlhase put it, “it is better to assume that moving goods is essentially costless than to assume that moving goods is an important component of the production process.”

Imagine the steps involved in moving a dishwasher from Maytag in Newton, Iowa to somewhere in the French countryside 40 to 50 years ago. It might be loaded on a train in Iowa, conveyed to the Port of New York, unloaded from the train by a burly longshoreman, loaded onto a ship, carried across the ocean, unloaded by another burly longshoreman on the Brittany coast, loaded manually into a train, brought to a major French city, then loaded onto a truck and brought to the countryside. Maytag would typically hire a cargo-forwarding company to handle all these details. The shipping costs in many cases were a double-digit percentage of the final cost of the product.

One of the main reasons why these costs were so high is that the process was so labor-intensive. As Marc Levinson lays out in [book: The Box], stevedores would fit miscellaneous bits of cargo in every available nook and cranny of a ship: bags of coffee alongside televisions alongside containers of solvent. They’d have to be laboriously packed and unpacked whenever the shift from ships to trains or trains to ships or trains to trucks happened. The more-than-occasional crate of whiskey or bag of coffee or box of electronics would go missing.

In retrospect the solution seems obvious: find some way to get machines to do this for us. Put everything in uniform containers. Then get cranes to pull the containers off ships and drop them on the backs of trucks. Cut humans out of the process altogether (apart from operating the cranes). Radically reduce the labor-intensity of the process. Do what capitalism does best: replace humans with machines.

To fully exploit the benefits of the process, there must be standardization, and the standardization must extend from ships to trucks to trains. The more specific rules people must remember (“this 30-foot container has a special coupling to clamp it to a 20-foot container, and of course the 20-foot container must sit atop the 30-foot one …”), the harder it is to scale. With standardization, machines can grab the containers, shift them off trains, shift them onto trucks, and keep moving without thinking. (A.N. Whitehead:
“It is a profoundly erroneous truism, repeated by all copy-books and by eminent people when they are making speeches, that we should cultivate the habit of thinking of what we are doing. The precise opposite is the case. Civilisation advances by extending the number of operations we can perform without thinking about them.”)

How else might we keep pushing costs down? Well, if I’m a shipping company that sends a 20-foot container from Iowa to France, I need that container to come back to me somehow. I could just ask the ship to turn around after it deposits its goods in France and bring empty containers back to me, but that’s a ship that’s making no money — it’s just transporting empty boxes. To make back my costs, I need to charge customers for the outbound trip and the empty-box return trip. If I want to minimize idle shipping time, and thereby lower what I can charge customers, and thereby get more customers, I need to fill up that ship on the way back. This is easier when the trade gap between the two trading countries is near zero. Imagine, instead, that this is a ship traveling from China to L.A. The U.S. current-account deficit to China is quite large, meaning that there’s a lot of stuff coming from China and not a lot going back. So if a ship is going to make the circuit from the U.S. to China, it maybe will want to take a side trip from the U.S. to Japan before returning to China.

To lower prices, we’ll also want to put more boxes on board each boat. But here we run into problems: not all ports can handle monstrous ships carrying thousands of boxes. The Port of New York, as it turns out, was designed for the earlier era when stevedores manually unloaded cargo; they were caught completely unawares by the “containerization revolution.” Elizabeth, New Jersey invested many millions in containerizing their port, and they’re now the busiest port in the United States. New York is history.

Imagine the ships growing larger and larger. As Levinson says at the end of [book: The Box], there will someday soon be ships larger than “Malacca-max,” which is the largest size of ship that can fit through the Strait of Malacca. (Should such a ship ever sink, it would take with it a billion dollars in cargo.) As these ships grow larger, and the cost per ton of goods thereby shrinks, it may become cost-effective to centralize shipping to a single port, say, on the East Coast of the United States, even though the goods would then have to travel a much longer distance by train. Levinson discusses the possibility of building a port on rather remote islands north of Scotland and shipping the goods to London from there; again, all of this becomes possible as the ships become larger.

All is not roses and sunshine and cheap iPhones, however. Throughout [book: The Box], we see the longshoremen’s unions fighting tooth and nail against the mechanization of their jobs. I’ve been unable to find numbers on a quick scan, but Levinson suggests that stevedores have lost their jobs in droves. (What’s unclear to me is whether the increased volume of shipping has made up for decreased per-unit labor costs.)

Now that transportation costs are negligible, manufacturers will choose to locate their factories where labor costs are lowest, rather than locating them, say, in New York or Chicago or L.A. I don’t know enough economics to judge whether this is better for the world overall. It’s certainly brought jobs to China, whose suffering throughout the 20th century was the stuff of legend (“Finish what’s on your plate; there are kids starving in China.”)

As Karl Polanyi taught us, mechanization of everything is part and parcel of capitalism, and it is always and everywhere destructive. This may be “creative destruction,” as Joseph Alois Schumpeter put it, but it’s destruction nonetheless, and every capitalist society has done what it could to slow that destruction. I say “slow,” not “stop,” because it’s likely impossible to slow technological adoption. Stevedores seemed to know that they were eventually going to be automated out of jobs, so they negotiated contracts wherein shipping companies paid some of their savings from containerization into a fund for their employees. In the long term, I don’t know how well this worked out for stevedores — how many of them got help transitioning into new jobs, versus how many became decided to leave the labor force early, versus how many took jobs as supermarket checkout clerks because that was the best job they could find given their age and skill set. This mechanization of jobs happens continuously under capitalism, and we can expect it to continue. Librarians may lose their jobs because of Google and e-books; secretaries may lose them because of Microsoft Word and email. Many of these people have spent their lives doing exactly what we teach them that they’re supposed to do: train to become experts at their jobs and spend a lifetime working hard to gain mastery. They reach age 50 or 55, they get automated out of a job, and now what? A just society helps them either transition with dignity to a new job, or, when that seems impossible (for instance, because they’re too old to retrain), it helps them retire with a decent pension. And a decent society provides a high level of general education to everyone, so that it’s easier to transition from one job to another.

You could imagine a fantasy scenario wherein a perfectly rational, perfect omniscient corporation sees, 40 years in advance, that its business model is going to be rendered irrelevant. Better yet, corporations as a whole might, after centuries of watching the same pattern over and over, see that creative destruction is entirely predictable, and they might plan for it to protect their employees. But you can also very easily imagine the opposite (e.g., companies increasingly don’t expect their employees to stick around for more than five years, so there’s an equilibrium wherein companies don’t invest in their employees for the long term). And the opposite is much easier to imagine than the fantasy. Long story short, I don’t see any institution other than the government that’s in a position to guarantee workers job security or a dignified retirement. And given the GOP’s perennial desire to gut Social Security, I have my doubts even that the government is in a reliable position here.

Another classic capitalist pattern is the race to the bottom among state and national governments, and we see it in the shipping context as well. Ports invest millions and billions of dollars to accommodate larger and larger boats, and they take on the risk that no one will use them — or that some other port, likewise investing billions, will steal away all their business. As soon as it’s economically sensible for a shipping company to move to a cheaper port somewhere further down the coast, it will do so, leaving billions of dollars of wasted port investment.

There’s a concern, when reading a book like [book: The Box], that you’ll get a monomaniacal focus on one single cause: that the author, having spent a decade researching shipping containers, will attribute everything in the modern world to that one cause. The big questions we’d want to ask are:

how much international trade moves by ship?
how much has the cost of final goods declined because the costs of shipping declined? How much has the cost of final goods declined for other reasons (like, for instance, because cheap manufacturing labor has become available in China)?
how much did it cost for a given parcel to move, door-to-door, before and after the containerization revolution?
how much did the increase in international trade have to do with containerization, and how much had to do with the rise of the Asian Tigers?

Levinson is not really in a position to answer these questions, both because they’re not his book’s focus and because the data aren’t available to answer many of them. It turns out to be hard to count total shipping costs, door to door, when large companies often got under-the-table discounts for bulk shipments. Levinson’s focus on containers sometimes makes him credit them when other causes seem just as likely — for instance, his assertion that Korean exports trebled thanks to the containerization of their ports. It seems just as likely to me that the rapid rise of the Korean economy, the Korean government’s support for domestic manufacturers (particularly export industries?), and massive capital investments had a lot to do with the rise of Korean exports. I don’t know one way or the other, but Levinson doesn’t address these other possibilities; his book leaves little room for that.

[book: The Box] is a terrific book indeed, and I think in no small part that’s because of his monomania. It’s a tautly told tale about the men who built up their container businesses before the world even knew that standardization would change everything, and at the same time it presents a flood of data in a highly readable way. It’s one of the few books I’ve read that manages to tell a good story and deliver data well. You’ll love it.

Some probably obvious observations on economics, inspired by Apple, which just suggest that I need to read more economics

March 5, 2011/stevereads/Leave a comment

(__Attention conservation notice:__ 1400 words thinking aloud about innovation, Apple-style, and what connection it might have to the standard, boring sort of competition that you read about in introductory economics.)

I’ve become somewhat obsessed with Apple in recent months (see “The iPhone is a gateway Apple product”). They’re an easy company to get obsessed over, because they build the best products. When Google was building the best products, like their search engine or the maps app, I was obsessed with them too. Most of their other products are quite good, but they’re not *perfect* in the way that the iPhone is, in the way that the Google search app is, or in the way that Google Maps is. Every time I use Google Calendar — and I use it, mind you, a dozen times a day — I’m reminded of all the things it could do better. I never think that about Google search or about the iPhone. They are perfect.

It’s been remarkable to watch Apple’s competitors. Apple invented the iPod 10 years ago, and it has owned the category ever since. Others have tried to compete with them, but haven’t managed to produce anything even comparably good. Likewise with the iPhone. When I remember what preceded the iPhone, my mind is kind of blown. Pre-iPhone phones were thought to be such poor computers that manufacturers decided to invent their own alternate universe, including their own poor substitute for HTML, rather than just *put a fast computer in your pocket*. Other companies have had four years to respond, including at least one company that makes a lot of money and should, by all rights, have beaten Apple at this game.

Yet they’ve not. Not even close. Android continues to be the technology of tomorrow, just as Linux has always been, and one strains not to say that it will *always will be* the technology of tomorrow.

I see in this the simplified picture of markets that we read about in introductory economics. Someone starts a company — say, a bakery making artisanal bread in a big city. There’s unmet demand for this bread, so people flock to it. The lines run out the door, and the bakery is habitually sold out by noon. They ramp up their production and add some machines to augment human labor. Maybe they raise their prices. Now the lines are shorter (translation: prices have risen, so quantity demanded has decreased), but the bakery’s total amount of income has increased (translation: price elasticity is less than 1). Now the bakery is making lots of profit.

Other bakeries see this profit, and they want in. So they move into the market and try to do the same thing more cheaply. Maybe doing it more cheaply is harder, because the incumbent bakery makes its artisanal bread using giant machines that can produce individual loaves for not very much money at all (translation: high fixed cost to buy the machines, low marginal cost per loaf). Anyone who wants to move into the market would either have to make better bread for the same or higher price (think of Starbucks moving into a world of Maxwell House), or make equal-quality bread more cheaply. (Translation: high fixed costs are a barrier to entry, and make monopolies more likely.)

But if the incumbent baker makes money consistently for years, it may eventually happen that banks take notice and loan someone the money to start a competing bakery at scale. (Imagine here AMD moving into a world dominated by Intel.) Now the incumbent has to lower its prices. In some perfect-competition models, every last customer flocks to the cheaper bakery. The bakeries alternate investing huge amounts of capital to produce at cheaper prices at larger scale. We’re in a price war.

This may be a good thing — we get cheaper bread — but it’s not what Apple is doing. Instead, they’re *innovating*. They’re not running down the slippery slope of a price war. Instead, they’re making products that no one had and no one knew they wanted before. (I *still* don’t really need an iPad, though it would be handy for reading academic PDFs.) If they were a different kind of company, they could instead try to make cheaper widgets than their competitors, but where’s the joy in that? If that’s how companies operated, we wouldn’t even have BlackBerrys by now; we’d just have cheaper little knock-off LG or Nokia “feature phones.”

There are *some* models I remember learning in college that tried to capture this. They usually fall under the labels ‘imperfect competition’ or ‘monopolistic competition’. Coca-Cola has a legally enforced monopoly on the term ‘Coca-Cola’, for instance. But that doesn’t really capture innovation. Most of the models I remember learning, and nearly anything captured under the term ‘perfect competition’, don’t describe the sort of market where companies innovate.

I still need to finish reading Schumpeter’s [book: Capitalism, Socialism, and Democracy], but he touches on a similar idea in there. His famous term from that book is “creative destruction”: capitalism’s great contribution to the world is that it constantly destroys industries and replaces them with new ones. No one laments all the horse-and-buggy drivers put out of business by the automobile. There are legitimate reasons to lament the end of businesses built around physical newspapers, and a just society will try to help laid-off newspaper workers land on their feet. But the innovation of the web, which gave rise to an entirely new industry that caught incumbents unawares, makes life better in many well-known ways.

One of Schumpeter’s main arguments (the book contains many arguments and ranges far afield; it argues, for instance, that soon capitalism will be destroyed when its large corporations turn into mere offices for the filling out of forms in triplicate) is that capitalist enterprises shouldn’t mainly fear that a new competitor will produce the same product for cheaper, but rather that an entire industry will come into being that renders the incumbents’ whole reason for being moot.

There’s an “innovation through cheapness” argument along these lines, most famously laid out in [book: The Innovator’s Dilemma]. It goes like this: there’s some incumbent that makes a big, expensive product that’s the cream of the crop and whose lead seems impregnable. Think of Oracle databases, for instance, or the Sabre airline-reservation system, or Microsoft Windows. Some cheap competitor comes along, producing a product that doesn’t do most of what the big guys do, but does it for much less money (MySQL databases, Internet airfare searching, Linux). Initially, the big guy couldn’t care less about the newcomer — might not even notice the newcomer, in fact. The newcomer may have in fact taken away the big guy’s most annoying customers: those customers who care mostly about price, or those who demand a lot of features for not a lot of money. Good riddance, says the big guy.

Now that the newcomer has some customers, it can start adding features. Because the big guy has been around for a while, competitors have had a while to look at what customers are buying. The newcomer can bring fresh eyes to an existing market, too: the big guy has established sales forces that are trained at selling a specific kind of product, has a large bureaucracy that’s specialized in making their current product lines, and is slow to move in response to change. The newcomer is small and can be more agile. They keep adding features and taking away increasingly important customers from the big guy.

Eventually the big guy takes notice, but by this point it’s too late: the world has shifted entirely to the fresh, cheap product that the new guy is making. This hasn’t happened yet with Windows, of course. Oracle bought MySQL. A quick scan suggests only modest declines in travel-agent employment over the next 7 years. I should try to think of some other examples.

That’s at least two distinct types of innovation: innovating through inventing entirely new product lines that render existing products moot, and innovating through producing simplified subsets of existing products. The latter seems different than merely making a lower-cost version of the same product; that’s classic price competition.

Now, I’m pretty sure I never heard any coverage of innovation when I took economics classes in college. Is there any good modeling of this sort of thing?

George Will thinks high-speed trains are a collectivist plot to control your brain

March 2, 2011/stevereads/2 Comments

See Grist, Krugman, Yglesias. The money quote:

> So why is America’s “win the future” administration so fixated on railroads, a technology that was the future two centuries ago? Because progressivism’s aim is the modification of (other people’s) behavior.
>
> Forever seeking Archimedean levers for prying the world in directions they prefer, progressives say they embrace high-speed rail for many reasons — to improve the climate, increase competitiveness, enhance national security, reduce congestion, and rationalize land use. The length of the list of reasons, and the flimsiness of each, points to this conclusion: the real reason for progressives’ passion for trains is their goal of diminishing Americans’ individualism in order to make them more amenable to collectivism.

There are many obvious things to say about this, and many good things that the esteemed gentlemen above have written. Here’s what I’ll add: the problem with cars is that they offer the illusion of freedom even while they demonstrate collective insanity. They are a perfect illustration of what can go wrong in markets.

Obvious observation: what does a traffic jam have to do with freedom? You and a few hundred of your closest friends, each in your automobile, are each enjoying your own freedom, sitting in traffic for hours at a time. I hope you enjoy that freedom.

The point that Yglesias has been making forever is that, if we watched a video of Soviet citizens lining up for their free bread, the shelves empty and the lines stretching for blocks, we would know right away what the problem is: the price of bread has been set incorrectly. We see — we *live!* — traffic jams and we don’t immediately think, “pricing problem,” when that’s *precisely* what we should think.

Driving imposes costs on others around us. Think of your decision to drive into Manhattan at rush hour: your extra car makes traffic just a little bit worse for everyone around you. In particular, one fellow estimates that each additional car on a weekday imposes a total of more than 3 hours of delays on everyone else.

From here, George Will then has two options available: either 1) insist that car drivers be made to pay the full cost of their effects on those around them, both in terms of ecological damage (the smoke that belches into the atmosphere while you’re idling in traffic) and in terms of time wasted by others, or 2) somehow insist that people have a right to impose costs on others for free.

Republicans’ habitual support for option 2) has mystified Yglesias for a long time. By what libertarian theory do people have a right not to pay for the damage that they cause?

One potential response is that we cannot trust the state to properly estimate the damage we cause others. And even assuming we *can* trust the state to do that, we cannot trust it to tax the people properly. Maybe the state will have every incentive to overtax, for instance. Or maybe the state will cater to certain interest groups: focus on the needs of train riders or car drivers to the exclusion of everyone else, for instance.

That’s just the point: the state *already* massively favors car drivers, for the reasons listed in my review of [book: Triumph of the City]. If George Will wants to get into a debate about the proper role of the state, I’d be happy to do that; but his first step will have to be answering the question: do people have a right to cause harm to those around them without paying for it? His second step will have to be to admit that the state already plays a massive role in Americans’ use of automobiles. The first is a principle that I hope everyone can agree on; the second is a blindingly obvious observation about the world around us. If he’s not willing to do these things, then it’s not a good-faith debate.

It’s perfectly legitimate to ask why we should want state involvement in transportation policy at all, given what a hash the government has made of things already. Gas taxes are perennially off the table, because politicians expect that they won’t sell; why should we expect that the government will *ever* properly tax people for the damage they do to the people and environment around them?

Again, this is a fine, legitimate question, and I’d be glad to discuss this with George Will. In particular, I’m more than willing to ask him if he has a free-market solution to the problem of people imposing costs on those around them. If there is such a solution, I’d love to hear it. But Will should know that the idea of taxing people for the damage they cause has been utterly mainstream in economics since the early part of the 20th century.

It feels a little silly to treat Will’s ideas with this sort of respect, and to invite him into a polite debate. Will’s job is to carry water for the Republican Party. He wears a bowtie and has a Ph.D. in political science; he’s the intellectually respectable face of the party, even when what he writes (as in this case) is utter garbage. I’m not going to be intellectually generous or gracious to Will; for whatever reason, he’s chosen not to offer that kind of generosity to my side.

To the contrary. What I’m arguing is that, if we actually had a fair debate, Will would be forced — this is not controversial in the least — to start from some premises about state intervention that he would hate. State intervention in the market is inevitable, if people are going to pay for the messes they make. Will wants that, doesn’t he?

Edward Glaeser, Triumph of the City: How Our Greatest Invention Makes Us Richer, Smarter, Greener, Healthier, and Happier

February 26, 2011/stevereads/Leave a comment

A view of Chicago from the air, only some of the buildings have been hyper-stretched so that they're very large indeed.

It took me a while to understand why an economist was exactly the right person to write this book. It’s not that economists are the only people who can understand certain busted aspects of how the government subsidizes places to live; lots of people think about that. Hardly a week goes by, for instance, when Matt Yglesias doesn’t mention the insanity of American land-use policy. Rather, it’s that economists are specially trained to spot cases when what we think we’re doing is exactly the opposite of what we’re actually doing. And they’re trained to look at that sort of reversal in the context of large groups of people.

Take, for instance, everyone’s desire to live in bucolic wilderness. Everyone heads out to be among the trees in, say, Long Island. (Read Caro’s [book: The Power Broker] to hear what Long Island was like before Robert Moses made it what we know and don’t really love.) Soon enough there are highways leading out to where everyone wants to go. Soon after that, Dunkin’ Donutses and Fuddruckerses form along the highways that cater to the automobiles that brought people to their bucolic paradise. And by this point Long Island is no longer bucolic. The end.

That’s a commonplace sort of observation in the crowds I travel in: those desiring suburban living, away from the grittiness of the city, destroy the thing they were chasing. Observations like it are lurking beneath most of [book: Triumph of the City], and at the start I found it a bit of a yawn for that reason. Surely everyone already knows this.

But everyone *doesn’t* already know this, and I don’t know many popular books that make the point. It would be better if everyone *did* know this. A harsher, more-direct way to put the point is that those who live in the supposedly dirty city among the asphalt and concrete are the real environmentalists; those driving their cars off into the hinterlands to find nature are thereby destroying it.

This sort of paradox of individual behavior leading to collective destruction is the stock-in-trade of economists, and Glaeser deploys many arguments of this sort. The most surprising, for me, was Glaeser’s observation that environmental-impact statements are flawed because they’re not wide-ranging enough: when a building gets rejected in temperate San Francisco Bay, whose residents drive relatively little and rarely need to use heating or air conditioning, that building will eventually get built — in a different, less-green city, like Vegas or Houston or Phoenix, that has more-flexible land-use policies. Which is to say that good regulation needs to focus not only on the immediate environmental devastation (or ruined lines of sight from nearby small buildings, say), but on the big economic picture. Rejecting a building because of its environmental impact may, again paradoxically, be worse for the global environment than allowing it.

The other main reason you want an economist to look at housing problems is that those problems are fundamentally about supply and demand. If you think it’s too expensive for a middle-class person to own a house in Boston (which it is), you need to increase the supply of houses. Raising supply, for a given level of demand, means lower prices. But cities like Boston and New York are basically full: there are no more parcels of land to build on. So the only option to increase supply is to build *up* rather than *out*. In many cases this will mean demolishing an old building that has some historical appeal for those around it, and replacing it with a taller building that houses more people. But as the decades have gone along, Glaeser tells us, regulation has made it harder and harder for cities to modify old neighborhoods. The inevitable outcome is that supply doesn’t increase as rapidly as demand, and housing prices rise. When housing prices rise, many people decide they’d rather live somewhere where they can own a bit of land without sacrificing their firstborn children. And the Sun Belt boom is born.

People *do* continue to move into Boston and New York City. The combined population of Middlesex and Suffolk counties in Massachusetts — containing two of the Commonwealth’s two most populous cities and many of Boston’s suburbs — rose by a healthy 4.7% from 2000 to 2009. People moved here despite the high home prices, because cities offer them something they can’t get anywhere else: dynamism and excitement that can only come from putting a lot of people near one another and watching the combustion that results.

That’s Glaeser’s central argument: that there is fundamentally no replacement for cities, because no other institution humanity has constructed is as good at harnessing our creative energies. The world continues to urbanize, and all indications are that the pace of urbanization will only increase as China and India move to their great cities. In many cases (think of Rio’s [foreign: favelas]) they crowd into slums, and that may look terrible to us, but they’re moving into seemingly terrible slums *because the rural lifestyle they’re leaving was so much worse*. People’s own behavior indicates that urban life, for all its gritty lack of charm, is humanity’s best hope for a better life.

When does people’s own behavior *not* reflect their natural evaluation of what’s best for them? When government policy shifts their choices in a different direction, and when the prices they pay for their choices don’t reflect the true social cost of those choices. Americans live in the suburbs, for instance, for some natural reasons and some less-natural ones. Among the natural ones: schools are often better in the suburbs, their kids have a bit of lawn to play on, and homes are cheaper. Among the less-natural ones: the government subsidizes the Interstate Highway System, and encourages (via the mortgage-interest deduction) homeownership over renting.

Plus the price we pay for gas doesn’t cover the damage we do when we belch smoke into the atmosphere. Glaeser tosses out some numbers toward the end of [book: Triumph of the City] suggesting that American gas taxes ($1 or so per gallon) don’t nearly cover the social cost of burning gasoline, while European taxes (averaging $2.30 per gallon) may be too high.

(I’d want to read the research backing this. A lot depends upon how you model the environmental cost of a pound of carbon. If the greenhouse effect’s response to an additional pound of atmospheric carbon is highly nonlinear — if we eventually cross a point of no return — then this would strongly encourage us to *stay away from that point*. If, instead, the response is very smooth — if increasing carbon by a little increases damage by a little — then that would seem to make policymaking somewhat easier. Or rather, would make the required policies less drastic.

We should add another important angle to this, namely how our policies should react in the face of our ignorance. What if our models of how the greenhouse effect responds to an additional pound of carbon are wrong? If the atmosphere is more fragile than our models predict, then undertaxing carbon is really, really bad. If the atmosphere is *less* fragile, on the other hand, is it really so bad to overtax carbon? This isn’t just technical noodling: if the point is to charge people the actual cost of the pollution they’re causing, you’d better figure out what “actual cost” means.

[book: Triumph of the City] doesn’t pursue this sort of direction. The book as it stands is about lightly exercising our intuitions about cities to lead us to surprising conclusions. It’s not about running off into the weeds with technical details. If you want those, the book is very well-footnoted.)

If anything, Glaeser is too conservative in his lambasting of American anti-urban policy. The true cost of gasoline includes the cost of invading foreign countries whenever our supply of oil is threatened. And surely those who buy and sell crude-oil futures know that the supply of Middle East oil is unlikely to drop so long as the U.S. government stands ready to secure it with guns. So a true accounting of the price of oil would include much of the cost of maintaining the U.S. military *even in peacetime*.

Glaeser doesn’t mention this sort of detail. It must be because he’s aiming his book at people quite unlike me — people who are starting from an anti-urbanist background. The main battleground he’s chronicling in [book: Triumph of the City] is urban v. rural rather than urban v. suburban. In part that’s to avoid charges of hypocrisy: to get better schools and a lawn, he and his wife and kids moved a few years back to MetroWest, while he continues to commute into Cambridge via Interstate 90 to work at Harvard.

That commute indicates probably the more important reason that Glaeser doesn’t hate suburbs: the suburb is still within reach of the city, and therefore makes it part of the engine of economic dynamism that he lauds. People are still near enough that they can sit down face to face (after a short drive, perhaps) and build the great works that cities produce. The point is human interaction, which is not available to nearly the same extent within rural areas.

What about the Internet, then? Doesn’t the Internet make physical proximity obsolete? This is clearly the major difficulty that Glaeser is going to encounter with his thesis, and I don’t think he really resolves it. He asserts that the Internet makes person-to-person interaction *more* valuable, and that certain work just needs a handshake and two people sitting together hashing something out. I certainly agree, but this doesn’t have the same rigorous economic grounding that he brings to the rest of his book.

The bulk of the book is organized around some axioms of economic thinking. Let people choose whatever they want to choose — if they want to live in suburbs, fine; if they want to live in cities, fine — but make them pay for their choices. Let the supply of housing rise to meet its demand. And bring some economic discipline to the way we educate our kids: let poor schools fail, let poor teachers lose their jobs, and let great teachers be paid well. With the market allowed to work the way it should, Glaeser has no doubt that cities will continue to be vibrant centers of innovation. If you’d like a rather breezy yet informative take on cities, [book: Triumph of the City] is a good use of a few hours of your time.

Accounting fictions, cutting off your nose to spite your face, pound-foolishness, and other metaphors besides

February 19, 2011/stevereads/Leave a comment

The reporting on budget cuts is just all wrong. The [newspaper: Times] reports that the House is set to cut $60 billion, but doesn’t really go into detail on what those cuts include.

Among the cuts that it does describe are an amendment to deny funds to Planned Parenthood. Now, this is really stupid. As of 2008, only 3% of Planned Parenthood’s expenses went toward abortion; about 13 times that much went to contraception, and 9 times more toward STD treatment.

So what does a “smaller budget” in the Planned Parenthood context mean? It means more unplanned pregnancies. This may or may not increase expenses in the future (you can imagine scenarios under which it increases, and others under which it decreases), but you miss the entire picture if you focus narrowly on how much avoids going into the budget today.

Or take the IRS, everyone’s favorite bad guy. The GOP is predictably going after it. But we know what happens: cut from the IRS budget, and more people avoid paying the taxes that the law requires them to pay. If you think the tax burden is onerous, fine; then change the law so that it’s less so. But if you want to enforce the tax law, that enforcement costs money. The IRS budget pays to enforce the tax law. If you think that a marginal dollar of IRS expense leads to less than a dollar in taxes recouped from cheats, then suggest ways to improve the ratio. The way the press talks about the budget, however, avoids discussing benefits, and the GOP is in no rush to debate the merits of a marginal dollar in IRS expenditures. (Far be it for me to suggest that the *very point* of cutting the IRS’s budget is to make it easier for wealthy people, the GOP’s natural constituency, to cheat on their taxes.)

Or take the $131 million the GOP wants to cut from the Securities and Exchange Commission’s budget. Greater SEC oversight might have prevented the financial crisis that we’re just now digging out of. That would have saved us trillions of dollars in bailout money. If a marginal dollar of spending on the SEC yields more than a dollar of savings, we should spend that dollar; if it doesn’t, we shouldn’t. But narrowly focusing on expenses without focusing on results is the essence of foolishness.

Everyone loves to attack regulation of the sort that the SEC engages in. And yes, it confers costs on businesses. When the EPA fines firms for dumping toxic waste into the water, that’s regulation too, and that’s an expense. But it also saves money: keeping toxic waste out of the water keeps people safer, lets them live longer lives, keeps them in productive economic activity for more hours every day, etc.

The SEC’s and the EPA’s budgets are visible costs: the numbers are written down in a book and debated. Their benefits — birth defects prevented, financial crises averted — are longer-term, and the connection is not always visible. In fact, if government is working well, we often don’t notice the regulation’s benefits. Had the SEC been working perfectly, we might have avoided a financial crisis altogether. When FEMA fell apart under the Bush administration and New Orleans drowned, we noticed that failure; had FEMA done its job, there would have been nothing to notice. We had 30 or 40 years of financial stability after the Great Depression, in no small part because banks were kept highly regulated and boring. I suspect this invited people to think that regulation was unnecessary, because the world seemed to do fine without it. But that doesn’t mean the regulation went away; it just means the regulation was invisible.

Invisible, properly-functioning regulation — from FEMA, from the SEC, from the EPA — means invisible benefits: cities that don’t flood, financial crises that don’t drive us into recession, rivers that we can swim in without thinking of the agencies that made it possible. The costs, though, are there for everyone to see in the budget books every year.

To every decision there are costs and benefits, but somehow government policies are treated as though they conferred costs and never benefits. This same refusal to see the forest for the trees came up when the Affordable Care Act was being debated. Democrats insisted on keeping the cost of the bill below an arbitrary limit of $1 trillion over 10 years. But don’t focus on “how much the government spends on health care”; focus on “how much the average taxpayer is spending on health care”; whether the taxpayer’s expense comes out of taxes or from his wallet is largely immaterial. Presumably when the government spends $1 trillion on health reform, that’s going to lower the amount that we consumers have to spend out of pocket. So it’s just transferring expenses from one bucket (out-of-pocket health-care expenses) to another (taxes). Does a dollar taken from taxes reduce out-of-pocket expenses by more than a dollar? If so, there’s a good argument that we should spend that dollar; if not, there’s less of a good argument.

Granted, you could argue that government expenses are *always* worse than personal expenses, no matter the ratio. This is an argument from principle, which you get from dyed-in-the-wool libertarians, and it’s crazy. I think most Americans would reject it out of hand, and it absolutely wouldn’t sell. Suppose a dollar of government health-care expense, or a dollar spent regulating the private insurance industry, saved $10 off the average American’s out-of-pocket health expenses. Would you be willing to let the government handle this and charge you your dollar of tax? I know I would; I hope you would too.

Sometimes what government gives us for our taxes is something that the private market just couldn’t provide. Medicare provides insurance for old people, which they *couldn’t get at any price beforehand*. Here it’s not even a question of how much it costs the government to provide something that the market also provides; it’s the government creating a functioning market where none existed before.

Again: to every policy there are costs and there are benefits. We live in a time when government policies are assumed to consist solely of costs with nary a benefit. Republicans rejoice in this assumption, which allows them to talk about “cutting $60 billion” without having to answer the question: are they also cutting more than $60 billion in benefits?

We need to stop considering government expenses in their own separate bucket. At the very least, we need two expense buckets: out-of-pocket expenses and tax expenses. We simply cannot view the federal budget in isolation from the rest of the economy.

Agile

January 31, 2011/stevereads/Leave a comment

I promised on Facebook that I’d say some things about the Agile software-development idea. I’m by no means an Agile expert, but it made a lot of sense to me. There were a few components that I really liked when we used it at my last job. They’re pretty dyed-in-the-wool Agilists; I probably would be if I really dove into it, but as it is I’m picking and choosing the bits I liked. Here goes:

* __Daily stand-up meetings.__ You and your team literally stay standing long enough for each of you to explain a) what you did yesterday, b) what you’re going to do today, and c) what’s holding you back, if anything. If you spend too many days in a row saying, “I meant to finish x, but I didn’t, and I swear it’ll be done today,” eventually those on your team are going to ask if they can help you get past whatever roadblock you’re encountering. Which is a polite way of saying, “Come on, now; hurry it up.”

Staying standing is vital here. Meetings get over a lot more quickly if you’re on your feet rather than kicking them up and sipping a cup of coffee.

* __Feelings of human shame__. I feel like the last bullet calls out one important part of Agile: it’s built on the very deep-seated need not to fail in front of others. It’s certainly possible in a lot of organizations to hide in a corner and fail for a long time before anyone notices. Agile makes that much less likely: if you fail, you’ll fail within a few days in front of your whole team. Better to ask for help than flounder pridefully.

* __Monthly kick-off__: You tell everyone what you’re going to do. They get a chance to ask you why you chose to prioritize one thing over another.

* __Monthly show-and-tell__: You and your team stand up in front of everyone in your organization (sensing a pattern?) and show what you did; they get to evaluate, among other things, whether you did what you said you would do during the kickoff. Preferably everyone on the team does this for his or her own part of the project. Again, you do not want to be the person who failed to get your thing done.

* __Small teams with a few defined roles__. In our case the roles were developers (the people actually writing the code), QA engineers (testing), and “product owner.” The product owner is the voice of the customer. She (and I’m happy to say that this isn’t just political correctness overcompensating: we really did have a delightful, brilliant, energetic product owner who happened to be a woman, along with plenty of kick-ass male product owners) tells the developers what we need to build and lets us figure out how to build it. Then she talks to customers and figures out what to have us do. And she tries as hard as she can to clear shit out of our way so that we can get work done. I was a part of at least one meeting filled with three or four engineers, that our product owner interrupted halfway through to say, “Do the engineers really have to be here for this?” whereupon, the answer having been in the negative, we got up and left. See “__Few meetings, fast, standing up__,” below.

* __Short iterations__: The interval between planning and show-and-tell is pretty critical. You don’t want it to be too long: saying, “This project will take a year to complete” is as good as saying that it’ll never be done. But you don’t want a show-and-tell every week; that’s too much bureaucratic overhead — or maybe not, if that’s what your team decides is right. But it certainly feels to me like there’s a tradeoff: keep going until the marginal benefit of shortening deadlines is just offset by the marginal cost of larding the process up with meetings.

There are several important reasons to have these short cycles. One is, as I mentioned, that planning for a small task is (duh) easier than planning for a long one; you’re much more likely to end up accomplishing what you said you would. Second is that you’re *outrunning your customers*, namely those inside and outside your company who want you to do things for them. The faster you can get something rough and ready in front of them, the less likely they are to say, “You know what would be really nice? …” or “Oh, sorry, turns out that we fired the CEO and now we’re looking for something different.” You’ve also given them something to anchor their expectations: now instead of comparing what’s in their head to a blank canvas, they’re comparing it to something real. That’s likely to focus people and ground them.

Certainly the most exhilarating work experience I’ve had since leaving college was building a rough prototype at my last job. We got something out the door in, if memory serves, 3-4 weeks (might’ve even been more like 2) and in front of customers. We asked them right away: is this something you want? Yes, the UI is crappy, but ignore that; we’ll make it look nice later. (Those of you objecting here that design — of software, of posters, of books, of whatever — is fundamentally bound up with the functioning of the product and isn’t just about “making it pretty”: yes, you’re right, but I’m pretty damn convinced that rough-and-ready is a tradeoff worth making.) Does it do, functionally, something you’d want? What else would you want it to do? Does this replace something you use in your everyday work? After you get done using this tool, what’s the very next thing you’d go do?

Once we had those answers, and we were convinced that real people would really use this thing, we sat head down at our computers for a couple weeks (I think we were on two-week cycles here) and got another block of interesting work done. People came by during the show-and-tells, looked at it, critiqued it, and told our product owner what else it needed to have. Heads back down. After a few months of this, I looked up and — hot damn! — we had a really nice piece of work in front of us. I can’t say I was responsible for big chunks of the code, but I did what I could, and I felt proud of what we’d accomplished.

* __Few meetings, fast, standing up__: This isn’t part of according-to-Hoyle Agile, and you could have it as part of any organizational structure, but I suspect that organizations which take Agile to heart will want to use this too. At my last job we took Paul Graham’s notion of maker time versus manager time to heart. The idea there is that, for a manager, the hourlong meeting is the quantum of work; the manager’s day is scheduled in one-hour blocks. Whereas writing software — and maybe this is true of other focused endeavours — takes a few hours to get into. Me, I needed the music to be set up right, I needed maybe a cup of coffee, I needed to knock off some smaller programming challenges to get the muscles limbered up … it could take me an hour or two just to get going. An hourlong meeting thrown into the middle of that bungs everything up: by the time you get out of the meeting, you forget where you left off and need to do the coffee, the programming exercise and so forth all over again.

Meetings are good for some things. If you’re hashing out a strategy, or the structure for a few weeks of work, you probably need meetings. But to the extent that you can shunt them onto email, or onto quick in-person chats in the hallway, you’re creating space for your makers to make stuff. (By the way, I was extremely cautious — maybe too cautious — about approaching people, for exactly this reason. First I emailed them, which seemed like the least-intrusive way to get in touch. Then I IMed them. Then I walked over to them and chatted. Yes, the last method is likely to be fastest *for me*, but it’s also likely to break their concentration.)

* __Test-driven development__. This is even less a part of classic Agile, and if you’re a certain sort of person maybe you feel you don’t need it. Me, I needed it. The idea here is that you write the tests for your code first, then write the code, then confirm that your code passes the tests, then write some more tests, then write some more code. At every iteration, write a failing test just as fast as possible. For me, this was a way to combat my own inertia, so this is sort of like __Feelings of human shame__: Agile fundamentally seems like a way of adapting an organizational structure to fit human behavior. When I forced myself to write a failing test as fast as I could, I was fighting my own habit of overthinking a problem before I started solving it. Yes, thinking is important, particularly when it comes to design, but there’s a certain kind of thinking that is either a) telling you why a certain thing won’t work, or b) pre-emptively making a solution elegant before you’ve made it at all. Test-driven development (TDD) says that elegance can wait just a bit. Write your test, then write your solution, then confirm it works (test passes), then make it elegant (i.e., more general, i.e., refactored). You’ll get the elegance soon enough, but in the meantime you’ll have working code. And who knows: by skipping the elegance for a bit, maybe you’ll find that a whole different approach works better.

Like I said, this isn’t really by-the-book Agile. But these are all things that make a lot of sense to me, and worked great for us.

Returning to the blog on a down note

January 13, 2011/stevereads/Leave a comment

I hate to return to the blog, after such a long silence, on this note, but I find it impossible to read Ezra Klein today — frustrated at the cheap sentimentality in one part of President Obama’s Arizona speech — without thinking of this passage from [book: The Brothers Karamazov]:

> Listen! I took the case of children only to make my case clearer. Of the other tears of humanity with which the earth is soaked from its crust to its center, I will say nothing. I have narrowed my subject on purpose. I am a bug, and I recognize in all humility that I cannot understand why the world is arranged as it is. Men are themselves to blame, I suppose; they were given paradise, they wanted freedom, and stole fire from heaven, though they knew they would become unhappy, so there is no need to pity them. With my pitiful, earthly, Euclidian understanding, all I know is that there is suffering and that there are none guilty; that cause follows effect, simply and directly; that everything flows and finds its levelbut that’s only Euclidian nonsense, I know that, and I can’t consent to live by it! What comfort is it to me that there are none guilty and that cause follows effect simply and directly, and that I know it?I must have justice, or I will destroy myself. And not justice in some remote infinite time and space, but here on earth, and that I could see myself. I have believed in it. I want to see it, and if I am dead by then, let me rise again, for if it all happens without me, it will be too unfair. Surely I haven’t suffered, simply that I, my crimes and my sufferings, may manure the soil of the future harmony for somebody else. I want to see with my own eyes the hind lie down with the lion and the victim rise up and embrace his murderer. I want to be there when every one suddenly understands [pg 268] what it has all been for. All the religions of the world are built on this longing, and I am a believer. But then there are the children, and what am I to do about them? That’s a question I can’t answer. For the hundredth time I repeat, there are numbers of questions, but I’ve only taken the children, because in their case what I mean is so unanswerably clear. Listen! If all must suffer to pay for the eternal harmony, what have children to do with it, tell me, please? It’s beyond all comprehension why they should suffer, and why they should pay for the harmony. Why should they, too, furnish material to enrich the soil for the harmony of the future? I understand solidarity in sin among men. I understand solidarity in retribution, too; but there can be no such solidarity with children. And if it is really true that they must share responsibility for all their fathers’ crimes, such a truth is not of this world and is beyond my comprehension. Some jester will say, perhaps, that the child would have grown up and have sinned, but you see he didn’t grow up, he was torn to pieces by the dogs, at eight years old. Oh, Alyosha, I am not blaspheming! I understand, of course, what an upheaval of the universe it will be, when everything in heaven and earth blends in one hymn of praise and everything that lives and has lived cries aloud: Thou art just, O Lord, for Thy ways are revealed. When the mother embraces the fiend who threw her child to the dogs, and all three cry aloud with tears, Thou art just, O Lord! then, of course, the crown of knowledge will be reached and all will be made clear. But what pulls me up here is that I can’t accept that harmony. And while I am on earth, I make haste to take my own measures. You see, Alyosha, perhaps it really may happen that if I live to that moment, or rise again to see it, I, too, perhaps, may cry aloud with the rest, looking at the mother embracing the child’s torturer, Thou art just, O Lord! but I don’t want to cry aloud then. While there is still time, I hasten to protect myself, and so I renounce the higher harmony altogether. It’s not worth the tears of that one tortured child who beat itself on the breast with its little fist and prayed in its stinking outhouse, with its unexpiated tears to dear, kind God! It’s not worth it, because those tears are unatoned for. They must be atoned for, or there can be no harmony. But how? How are you going to atone for them? Is it possible? By their being avenged? But what do I care for avenging [pg 269] them? What do I care for a hell for oppressors? What good can hell do, since those children have already been tortured? And what becomes of harmony, if there is hell? I want to forgive. I want to embrace. I don’t want more suffering. And if the sufferings of children go to swell the sum of sufferings which was necessary to pay for truth, then I protest that the truth is not worth such a price. I don’t want the mother to embrace the oppressor who threw her son to the dogs! She dare not forgive him! Let her forgive him for herself, if she will, let her forgive the torturer for the immeasurable suffering of her mother’s heart. But the sufferings of her tortured child she has no right to forgive; she dare not forgive the torturer, even if the child were to forgive him! And if that is so, if they dare not forgive, what becomes of harmony? Is there in the whole world a being who would have the right to forgive and could forgive? I don’t want harmony. From love for humanity I don’t want it. I would rather be left with the unavenged suffering. I would rather remain with my unavenged suffering and unsatisfied indignation, even if I were wrong. Besides, too high a price is asked for harmony; it’s beyond our means to pay so much to enter on it. And so I hasten to give back my entrance ticket, and if I am an honest man I am bound to give it back as soon as possible. And that I am doing. It’s not God that I don’t accept, Alyosha, only I most respectfully return Him the ticket.
>
> That’s rebellion, murmured Alyosha, looking down.
>
> Rebellion? I am sorry you call it that, said Ivan earnestly. One can hardly live in rebellion, and I want to live. Tell me yourself, I challenge youanswer. Imagine that you are creating a fabric of human destiny with the object of making men happy in the end, giving them peace and rest at last, but that it was essential and inevitable to torture to death only one tiny creaturethat baby beating its breast with its fist, for instanceand to found that edifice on its unavenged tears, would you consent to be the architect on those conditions? Tell me, and tell the truth.

The Adam Smith book club starts Monday

November 13, 2010/stevereads/10 Comments

As promised a month ago, the Adam Smith reading starts Monday. I was late, myself, to buy the books, so I only discovered a few days ago that the editions I mentioned before — Modern Library for [book: Wealth of Nations], Great Minds for [book: Theory of Moral Sentiments] — are hard to come by. They don’t look hard to come by on Amazon, but my favorite bookseller — from which I buy all my books, if I can help it — tell me that it would be hard for you fine people to find them in your own favorite local retailers.

So. What I have here next to me is the University of Chicago Press edition, which is a reprint of the apparently canonical Cannan edition. This one is unabridged, five books long, and about 1200 pages.

I hope this new edition doesn’t screw people up. I was aiming for unabridged editions before, and this is an unabridged edition. So whatever edition you have won’t be too far from what I have.

I’ve got my best people at the Harvard Book Store working ’round the clock to find me the proper edition of [book: Theory of Moral Sentiments]. When I have that one in hand, I’ll mention it here as well. But we have our hands full with [book: Wealth of Nations] for a little while.

What’s the definition of “disposable personal income”?

November 8, 2010May 6, 2018/stevereads/2 Comments

Matt Yglesias today looked at the change in disposable personal income over the last few years, and I wanted to check that the definition of the term didn’t count “disposable income” as income less, say, mortgage and credit-card payments. If it did, then you’d expect to see disposable income go down as people pay down debt.

Turns out the definition doesn’t deduct debt payments, but it confuses me in other ways. Here it is:

Personal income is the income received by persons from participation in production, from government and business transfer payments, and from government interest. Personal income includes income received by non-profit institutions serving households, by private non-insured welfare funds, and by private trust funds. Income from production is generated both by the labor of individuals and by the capital that they own. Private income not earned in production, such as from capital gains or the sale of assets, is excluded. Personal income is calculated as the sum of wage and salary disbursements, employer contributions for employee pension and insurance funds, proprietors income, property income (personal interest, dividend and rental income), and transfer payments to individuals, less personal contributions for social insurance.

Disposable personal income is personal income less personal tax payments. While personal income does not include capital gains realized through the sale of assets, personal income taxes do include the taxes paid for these capital gains.

(Internal footnote omitted.)

I’m puzzled by a couple aspects of this definition:

“[E]mployer contributions for employee pension and insurance funds” makes it in? So when my employer contributes to my 401(k), that counts as disposable income? Okay, I can half-see that: if need be, I could raid the 401(k). But I’d pay a penalty if I did, so I hope that something less than 100% of my contribution counts toward my disposable income. But then what about the “insurance funds” part? My employer’s contribution to unemployment insurance counts toward my disposable income? The employer contribution to long-term disability? To health insurance? This would seriously inflate this measure of disposable income: as has been well-documented, health-care costs have been rising, so a lot of money that might otherwise have gone toward rising salaries has instead gone into health-insurance payments.
Disposable income doesn’t include capital gains? But why? That’s income I can spend, just as much as is income earned through honest toil. And if they’re not going to include capital-gains income, then why do they deduct capital-gains taxes?

I’ll look around for a more in-depth discussion of this definition. If anyone can clarify, please do.

To all those who insist on tarring every Jon Stewart fan with the same brush

November 6, 2010/stevereads/1 Comment

…namely the “it’s all a bunch of ironic hipsters whose lives are so comfortable that they don’t feel any real commitment to anything” brush, I ask: isn’t it just possible that much of Stewart’s audience voted for Barack Obama expressly because they feel sadness for those who can’t afford health insurance, and want to help those less fortunate than themselves? For instance, maybe, just maybe, the young liberals in the audience wanted universal health care for entirely non-ironic reasons?

I resist the temptation to close with an unironic fuck-you.

Steve Reads

Author: stevereads