Weekend reading

  1. 250 things an architect should know… after a lifetime as a dilettante (fun)
  2. Bankers being bankers (ripping off citizens via legal fraud in Europe)
  3. The story of Ubernomics
  4. The World Bank launches a much-needed “human capital index” that should help clarify educational and health priorities in nearly 200 countries. How is yours doing?
  5. A few ideas on reshaping cities for people (rather than cars)
  6. My colleague Paul explains why carbon capture is more hope than solution
  7. A well-meaning, but counterproductive climate regulation on roofs
  8. Florida’s “tire reef” is now an environmental disaster
  9. The revelations of a first time (and not last time) hitchhiker
  10. Carl Bauer reviews Water Policy in Chile.

H/T to CD

Our new cold war

I grew up in the 1980s at the height of Reagan’s arms race with the Soviets, wars in Central America, Iran-Iraq and Afghanistan, and propaganda campaigns that portrayed “the other” as greedy capitalists or colorless apparatchiks (depending on what side of the Wall you were looking at). 

1989 marked the beginning of the end of that Cold War, with the 1991 dissolution of the USSR as a definitive end point in the rivalry between capitalism and command-and-control economies. Capitalism dominated the 1990s nearly everywhere (Cuba, Ethiopia and North Korea were a few exceptions) as the Chinese, Russians and many other “Marxist-Leninist” political systems gave more space to free markets while withdrawing from state capitalism.

Improvements in living standards helped many people (and especially the poor) who had suffered the consequences of dogma, but these results did not last very long or accelerate everywhere, as new problems emerged. To understand why, I need to introduce a framework.

In 2006, Douglass C North, John Joseph Wallis, and Barry R. Weingast published “A Conceptual Framework for Interpreting Recorded Human History” [pdf], one of my favorite papers (later expanded into a book) on political economy. In it, North et al. explain two different political-economic equilibria. In a “natural state” a “limited access order” persists in which political power is used to create economic (monopoly) power and thus rents (super profits) to those lucky enough to control such economic entities. Citizens, workers and entrepreneurs suffer in these circumstances from shoddy goods, low wages, and a lack of opportunities, respectively. (This system is also known as one of crony capitalism.)

In the other equilibrium is an “open access order” in which political and economic power are separated, meaning that someone with economic power cannot use it to gain political power (and vice-versa) due to a robust set of institutions that promote competition rather than cronyism. Open access orders are responsible for strong economic growth and legitimate political rule because those with good ideas are able to prosper while idiots with famous last names cannot get ahead. Only a handful of countries have strong systems of open access because it’s very tricky to break the “iron grip” of politicians on commerce and businesspeople on politics. (North et al. hypothesize that a transition might occur when rulers decide that rules are a good way to protect their wealth from their greedy successors.)

This paper has helped me think about governance and markets for several years. It explains why Trump — a fraud and cheat — is so dangerous as a leader: He uses his political power to enrich himself and his cronies. The paper also explains the “interesting” struggles in Russia and China between  those newly rich who want to keep their wealth and those with political power who want to take it. Putin has returned to its natural state after the failed liberalizations of the 1990s. Xi has welcomed the rich into political cooperation but also strengthened State-Owned Enterprises (SOEs) against domestic and foreign competition.

So these ideas lead to my point of this post, i.e., that we’ve begun a new Cold War between populists who favor limited-access capitalism (state-led cronyism) and liberals who favor competitive, open access capitalism. On the populist side we have the corrupt governments of Hungary, Turkey, Iran, Egypt, China, Brazil and most of the world. On the liberal side are Scandinavian countries, Singapore, and Canada where markets are (mostly) free and fair. In the middle are countries that are advancing (the Baltics, South Korea, Germany), falling (the US), or struggling (Mexico, southern Europe, et al.).

My one-handed opinion is that populists will continue to tell citizens that they are “the best” and foreigners (and their “unfair trade”) are dirty while those same “leaders” enrich their cronies and destroy national wealth while liberals struggle with citizens mislead by get-rich fantasies promulgated by insta-celebrities and populist propaganda. Although I am sure that populists will impoverish citizens, I am not so sure what will happen when citizens see past the lies. Will they revolt as the French did in 1789 and the Romanians in 1989? Will they attack foreign scapegoats? Will they just get poorer? No matter their action, I know from North et al.’s framework that populism will ultimately lead to economic stagnation and a further separation between the haves and have-nots. Sad.

Weekend reading

  1. How selfies are changing gym workouts
  2. When CEO Pay Exploded
  3. Amazing video showing Amsterdam’s mix of music, culture, technology and sustainability. 
  4. End cyclist injuries by re-learning how to open your car door
  5. The origin of modern computers: “Second World War, a conflict — unparalleled in history in the degree to which it yoked entire peoples, body and mind, to the chariot of war — permanently transformed the relationship between states on the one hand, and science and technology on the other, and brought forth a vast array of new devices.”
  6. Global ecological disasters: “How to Write About a Vanishing World
  7. “The Water Point Data Exchange is the global platform for sharing water point data” (an example of what I was trying to do with my water data hub)
  8. Desire paths: People vs planners
  9. Time to fight back against Russian spies?
  10. The guy who fought back against fake reviews

Clean water and American waterworks

FC mentioned that Werner Troesken, who died recently and unexpectedly,  had worked in the same area as me (water services). I went to his Google Scholar to see what he had written and found — amazing! — that I had used his most cited paper (“Population growth in US counties, 1840–1990”) in my PhD dissertation (p84):

A literature review uncovered only one article that discusses the influence of water on urban growth. Beeson et al. (2001) find that precipitation has a significant positive effect on population density in the United States of 1840. By 1990, this significance disappears. In fact, precipitation has a negative correlation with population growth in the 150 years after 1840. These results correspond to what we know about water in the western US: As infrastructure has brought water to arid regions, people have moved from wet, colder areas to dry, warmer areas.

In fact, I just mentioned this result to someone last week.

As I browsed through Troesken’s other papers, I found two with interesting results. In “Municipalizing American Waterworks, 1897–1915” [pdf], Troesken and Geddes (2003) describe how private water companies, fearing seizures by municipalities, would underinvest in infrastructure and thus give municipalities an excuse (under-investment) to take them over! This damned-if-you-do, damned-if-you-don’t result makes sense in the contexts of “bilateral monopoly” (a single seller facing a single buyer) and “stranded assets” (an asset that, once built, cannot be moved or re-used in any way), since in those situations it’s hard to get one side to spend on an investment that the other side might use (or benefit from) without needing to pay. In our paper on the history of the Dutch drinking water sector [pdf], we ran into this situation with English companies underinvesting (or not investing) in Dutch cities that ended up building their own water and wastewater systems.

In a second paper, Ferrie and Troesken (2008) describe “Water and Chicago’s mortality transition, 1850–1925” via the direct reduction in typhoid fever due to access to clean water and a much larger indirect impact of lower mortality among those who survived typhoid but died of another disease. This paper is interesting because the indirect drop in deaths is triple the direct drop. In our drinking water paper, we did not get into the details on the benefits of clean water, but we surely would have cited this paper in support of wide, diffuse benefits.

It’s a pity that Professor Troesken’s life ended prematurely. We need more economic historians like him.

Addendum (1 Nov): I forgot that I had downloaded another paper (“Regime change and corruption: A history of public utility regulation” [pdf]), which I just read. This chapter is interesting for two reason. First, Troesken argues that ownership changes (from public to private ownership of utilities — and vice-versa) is driven by the need for regime change because the existing structure (either private or public) has been compromised by regulatory capture. Second, this paper — and its thesis — fits into my existing idea that the public-private cycle is driven by public underinvestment (to keep prices low) that lead to privatization, which leads to re-municipalization once those investments are made (and prices rise).

Weekend reading

  1. Lebanon’s electricity mafia is hindering its development
  2. Saudi Arabia’s authoritarian pivot into modernity
  3. China’s Hayekian (market-innovative) communism 
  4. How Twitch (vlog) streamers make $20k/month (or more)
  5. The foundations of Eastern Europe’s populism? “…many eastern and central Europeans want… to rid themselves of the humiliation of having been imitators, followers of the West rather than founders.”
  6. What’s Financial Independence really about?
  7. The illness (and cure?) for American journalism
  8. It’s a miracle that peer review works as well as it does. And its function is to produce quality-controlled academic output, not to spot fakes.
  9. Risk management comes down to serially avoiding decisions that can’t easily be reversed, whose downsides will demolish you and prevent recovery.
  10. How have the farm animals of today been shaped by centuries of domestication and selective breeding?

Business models compared

I just spent 2 hours making this pretty picture for you:It shows the relative relations of 4 “business models”

For-profits make more than they spend for the private benefit of owners and customers.

B-Corps (or social enterprises) often make less and spend more because they are targeting a sub group of customers and/or spend more on their “inputs” of materials and labor because they are trying to combine social value with a sustainable business model.

Non-profits spend what they make to minimize costs to customers for providing the best service possible at that cost. (That’s the nice way to see them. Those that are abusive or corrupt can overcharge for shoddy service while overpaying their incompetent staff.)

Charities don’t earn revenue but “depend on the kindness of strangers” for support of their charitable works. Charities are more vulnerable to collapse due to a shift in donor attention, but that means that the arrival of an enthusiastic patron can produce a lot of action in a short time.

Is this figure helpful? Any other thoughts? 

Addendum (18 Oct via DC): 

Weekend reading

  1. A really great essay on the bourgeois roots of privilege.
  2. A software engineer calls for less bloat more smart.
  3. Blame consumers or manufacturers when tons of new clothes are burned?
  4. How to become great at anything? Deliberate practice
  5. Maybe Japan’s economy has been doing better than we think?
  6. How Jane Jacobs turned from pro-planner to pro-neighborhood
  7. All of life is suffering — the evolutionary edition
  8. USAID is running a comparison to see if cash helps people more than “programs,” but there’s a lot of resistance from its bureaucrats 🙁
  9. The “people’s canteens” at the center of China’s mass starvation.
  10. The President of the World Bank is pretty impressive.

The value-price gap

I often read or hear journalists, economists and just regular people discussing an industry’s importance in terms of its annual turnover, share of GDP and/or the total capitalization of its major companies. 

These price measures are useful for making “objective” comparisons, but they are misleading if one wants to think of the industry’s value to individuals or society. (Economists say that “consumer surplus” rises as the  gap between value and price increases.)

As a simple example compare the price that you pay to the value you get for gas, electricity and/or water. For me, value is a huge multiple of price for these services. I pay about €1/day for gas and electricity, but I’d be willing to pay 10-30x that price if I was deprived of heat and power. For water, I pay a flat charge per month (!), but I would definitely be willing to pay 10-50x the €2/1,000 liters that metered customers pay. (Assuming we use 50 liters each/day, that’s €0.20/day, so 50x would be €10/day.)

Turning to other industries, you can see a similar huge gap between value and price for food, drink and airline tickets but much smaller gaps for, say, restaurant meals, hardcover books or university tuition. In some cases (bankers, lawyers, social media, insurance and taxes — a huge share of which goes to the military and special interests in the US) value is often below price, but we are often unable to avoid such “charges.”

My one-handed conclusion is that we should think of the value of goods and services rather than their price when thinking about purchases but also (and especially) when making political decisions regarding the relative importance of  industries.

Weekend reading

  1. Watch “why every social media site is a dumpster fire” as it’s the best concise analysis I’ve seen in awhile.
    My gym needs to shut one of these doors…
  2. When are you really Dutch?
  3. The WikiTribune (a crowd-sourced news website) is looking for water stories(and thus writers). At the moment, the proposed titles look more like opinion than journalism, but hopefully they will do an objective job.
  4. A fascinating history (one in a long series) on the rise of the telegraph.
  5. Cities are trying to get access to data on “scooter shares” because they don’t want to get “Uber’d” again. I don’t think they need the data, as much as a policy on parking/using common spaces.
  6. “YouTubers are not your friends” — they’re selling you stuff — or themselves.
  7. Want less frustration and more effectiveness? “Stick with first impressions. Don’t extrapolate.”
  8. The real potential of AI.
  9. The best (short) explanation of the financial crisis I’ve read.
  10. A Neanderthal warns Sapiens of our folly.

H/T to GC

Are students smart consumers?

The relentless rise of university tuition and fees has depleted the savings of parents and left many students indebted. In many analyses (and my opinion), these higher costs have brought not better education but better amenities (housing, gyms and other playthings) and more bureaucracy

This problem is not going away soon in the US because most “solutions” call for increasing subsidies rather than limits on tuition. Here in the Netherlands the problem is smaller because the government gives big subsidies to universities in exchange for price caps. (We charge €2,000 on top of the basic €2,000 per year that most students pay, i.e., about 10 percent of the cost of a similar education in the US.)

But a lack of progress on costs does not mean there cannot be more progress on benefits or — as the English would say — getting more “value for money”.

I’ve already written about the problem with masters programs that advertise lots but deliver little, so I’m going to start there, as I continue to have conversations with my former students that go like this:

Typical Alumni: So I dropped out of that masters program.

Me: Why?

TA: The courses were not what I expected; they want to lecture you on facts that you need to memorize instead of discuss the topics; I can’t get a supervisor for the topic I want; etc.

If you want reality and hard work, then take the red pill. If you want to continue with idle ignorance, then take the blue pill…

Me: Well that’s why I told you to take a few years off, to discover what you want and learn more about the world. Then you will be ready to choose a program that fits your experience and goals. Then you will challenge the oversimplifications put out there by professors who have never worked outside the academic environment. Then you will be a critical consumer who demands time and effort in proportion to the time and effort that you’re putting into this program. Many students only want a piece of paper, and many programs deliver that, but if you want to learn, then you need to tell your professors that you want more — that you want what the marketing people promised: A first-class education. /rant

TA: Oh, that sounds like a lot of work.

Me: Welcome to the real world, Neo.

My one-handed advice is that adulthood is more rewarding to those who put in the work. Those who do not risk a life of passive frustration. Learning means mistakes and frustration, but so does dating: If you want to find the right partner (job, degree), then you need to look around.