The 'well-dressed' owner of the Mercedes seems none too happy.
Recently in regulation Category
Mathematician and Transportation Historian Andrew Odlyzko has just released The collapse of the Railway Mania, the development of capital markets, and Robert Lucas Nash, a forgotten pioneer of accounting and financial analysis
Abstract: It is well known that the great Railway Mania in Britain in the 1840s had a great impact on accounting. This paper contributes a description and analysis of the events that led to the two main upheavals in accounting that took place then, and of the key role played by Robert Lucas Nash in those events. He was a pioneer in accounting and financial analysis, providing studies on the financial performance of railways that were more penetrating and systematic than those available to the public from any one else. His contemporaries credited him with precipitating a market crash that led to one of two dramatic changes in accounting practices that occurred in the late 1840s. Yet his contributions have been totally forgotten.
The collapse of the Railway Mania provides interesting perspectives on the development of capital markets. The accounting revolution was just one of the byproducts of the collision of investors’ rosy profit expectations with cold reality. Shareholders’ struggles to understand, or, more precisely, to avoid understanding, the inevitability of ruin, have many similarities to the events of recent financial crashes. The Railway Mania events thus provide cautionary notes on what even penetrating accounting and financial analysis reports can accomplish. Railway share price behavior suggests that Nash’s contributions had a much smaller effect than his contemporaries gave him credit for.
One of my favorite quotes (p.8), which is still applicable:
On another line, a shareholder complained that his company’s directors kept claiming construction costs were under control for three years, and then “the cloven hoof display[ed] itself” when it was revealed that costs were over 50% higher than projected. When sections of a line were opened for service, the standard claim that shareholders and the public heard was that “traffic had exceeded the most sanguine expectations of the directors,” and it often took years before it became clear this traffic fell far short of initial projections.
Strategic misrepresentation and optimism bias are not new phenomena.
AP Reports: Texas House backs plan to allow 85 mph speed limit:
"AUSTIN, Texas — The Texas House approved a bill that would allow the speed limit on some highways to be raised to 85 mph, which would be the highest in the nation.The safety question is interesting, since, according to Lave and Elias raising the speed limit on Interstates in the 1980s and 1990s had overall (statewide) beneficial effects, by attracting drivers from less safe non-interstates to the Interstates, where higher speeds are more likely to be forgiven by the road. They write: "We find that the 65 mph limit reduced statewide fatality rates by 3.4% to 5.1%,holding constant the effects of long-term trend, driving exposure,seat belt laws,and economic factors." Of course, other research has found the fatality rates on interstates themselves were generally higher. This is then definitely good from a mobility perspective, possibly good from a safety perspective (though there may be limits to the implications of the Lave and Elias study, just because moving from 55 to 65 reduced deaths doesn't necessarily mean moving from 75 to 85 will also reduce overall deaths), and probably bad from an energy and environment perspective, since energy consumption will most certainly rise with faster speeds.
The measure passed Wednesday on a voice vote was part of a larger transportation bill. It would authorize the Texas Department of Transportation to raise the speed limit on designated lanes or entire stretches of roadway after doing engineering and traffic studies, the Dallas Morning News reported Thursday.
The Senate is considering a similar bill.
'They have high-speed roadways in Europe, and there could be some merit in having some of those highways in Texas,' said Rep. Lois Kolkhorst of Brenham, who introduced the bill. 'Given the right engineering, we should consider it.'
Texas currently has more than 520 miles of interstate highways where the speed limit is 80 mph.
One such stretch of Interstate 10 'is as nice a road as you can build; it's flat with a long line of sight, wide lanes and good shoulders,' said Rep. Joe Pickett of El Paso. 'For people like us who travel that long distance, it could be good' to raise the limit to 85 mph, he said.
Some auto insurers oppose the measure, citing safety concerns.
'Obviously, the two things that kill most people on our highways are speed and alcohol. Increasing it to 85, or even 75, will have a dramatic impact on the death and injury rate on those highways where it's implemented,' said Jerry Johns, a spokesman for the Southwestern Insurance Information Service.
He said drivers already exceed 70 mph highway speed limits.
'But 85 mph is simply too fast to drive even on a flat road. Any little hitch can cause an accident at that speed. There is still traffic on those roads, and to drive 85 mph is simply ludicrous,' he said.
The Transportation Department hasn't done the speed and safety analyses of roadways the legislation would require, said department spokeswoman Kelli Petras.
'It would be awesome to travel it, but you'd have to look at the safety and other factors,' she said."
Cities are positive feedback loops in space. Cities exist only because it is more important for people and organizations to be near each other than far from each other.
There has been recent chatter (Ryan Avent again) about agglomeration making cities wealthier, and only if densities were higher would more agglomeration benefits be achieved.
Certainly evidence shows cities with greater density produce greater "wealth". Glaeser argues it is about the speed of the spread of ideas, in addition to the classical reasons about transportation costs for people and goods. However cause and effect are not clear. I will pose a contrary hypothesis:
Cities with firms that are more agglomeration-benefitting produce higher densities; cities with firms that are less agglomeration-benefitting produce lower densities.
In other words, density is the effect of agglomeration economies, rather than the cause of agglomeration benefits.
The agglomeration-benefits of an industry change over time, and are more important when an industry is young, and in the growth phase than when it is old, mature, and locked-in.
This hypothesis imples, e.g., increasing densities in Phoenix will not suddenly make Phoenix more productive because the firms in Phoenix don't benefit much from the additional clustering (and disbenefit from the negative externalities of density such as crowding, pollution, congestion, and the higher costs of services and land that accompany high density). A city like New York or London, in which the Finance Industry (among others) locates, or Washington in which the Government Industry locates, benefits more significantly from the daily walking distance, face-to-face interactions possible by agglomeration. However even in those capital cities there may be limits to agglomeration such that the marginal benefits of an additional person or job may not outweigh the marginal cost.
Since there can only be one national capital per nation, and perhaps one financial capital per nation, the opportunities for creating financial mega-cities of the order of New York, London, Paris, Tokyo, etc. are limited, just as there can only be one effective political capital; second order cities will not magically become first order just by increasing their density.
To take a case I am familiar with, Minneapolis, downtown has not seen much new commercial growth in over a decade, though there has been a significant (though regionally relatively small) increase in residential density. Minneapolis might be termed a provincial capital. It has a large hinterland, a Federal Reserve Bank, many regional and national bank operations (Wells Fargo, US Bank, etc.), and a large number of headquarters of large firms (regionally especially, though many are not downtown, Target, Best Buy, General Mills, 3M, Medtronic, etc.), as well as emerging clusters in a few economic sectors.
In Downtown there are plenty of vacant lots (i.e. parking lots) for development to occur, and no real constraints on new office (or residential) construction downtown. Clearly the private benefits of building downtown are not as great to the firms making location decisions as locating that new building in suburban areas. Unlike New York, the zoning downtown is not a binding constraint. In brief, the private share that firm will attain from agglomeration benefits of the CBD do not outweigh the costs, (including the opportunity cost of building in some other locale). Those suburban places too have some (weaker) agglomeration benefits, but those may be sufficient. The location within a metro-area still produces benefits (which are weaker than the CBD benefits on daily walking distance face-to-face metric, but still enable daily or weekly driving distance face-to-face), such as shared labor pools, and all that.
If there are agglomeration benefits of locating downtown, they are not sufficient that the local firms (acting through local government) bribe these non-CBD locating firms to move downtown to enable those spillovers. Only a few cases where the spillovers are believed strong result in sufficient side payments (bribes, tax increment financing, etc.) (the Minnesota Twins and the Target HQ building come to mind).
The Twin Cities has some tax-based sharing, so may differ from other regions in the local willingness to bribe, but it also suggests that if agglomeration benefits exist for the marginal new business choosing a location, they are relatively weak. The mental model of agglomeration producing huge benefits if only density limits (as in New York and Washington) were lifted may not apply in many other cities.
updated March 5 with Case 0
Ryan Avent (among others) comments on Ed Glaeser's piece on Skyscrapers: Density and Skyscrapers and seems to support allowing more high density development in cities, which are restricted by local government regulation.
The issue that does not really come out (though is mentioned in the comments) is the problem of zoning vs. externalities. The reasons for the lower zoning densities are many, but the rationale is externalities (and the desire to move nuisance law from courts to regulation to avoid the large transaction costs and uncertainties of the judicial system). If you increase density, as the neighbors know, you increase local externalities which they bear (through longer travel times, etc.).
Since no one owns the right to uncongested roads, developers (and planners who support them in their quest for the highest and best use) think they can just offload these costs to local neighborhood streets and it is okay. But what they do is take time from other people by increasing congestion. The neighbors think (presumably by custom, status quo, or some other logic) that they have the right to prevent these externalities, and they do so with restrictive zoning. Zoning regulates negative externalities that are not currently governed by Pigou or Coase.
Neither side is right, the problem at its core is undefined property rights and untolled roads. It is just two sides of selfishness: greedy developers vs. greedy NIMBYs.
I had a similar conversation with Jonathan Levine at the November Regional Science Conference. He asked if a developer could come and build a high-rise in an existing single-family residential area. I replied "good luck", suggesting the NIMBY's hold the cards. I also suggested this was a relatively rare case, which I think is because the zoning largely reflects the market in most places. I.e. there is not much market for high rise housing in largely single-family neighborhoods. There are of course edge cases. Systematically, there are three four cases when a developer is considering building somewhere:
(0) The zoning is not binding. In this case the zoning exceeds market demand, but there are negative externalities to development which the neighbors want to avoid.
(1) The zoning is not binding. In this case the zoning exceeds market demand, but the negative externalities are small.
(2) The zoning is binding, but the developer through either request or lobbying (perhaps at some monetary expense) gets an area rezoned. The lobbying allows political decision-makers to collect rents from restrictive zoning, or neighbors to achieve side-payments. These side-payments compensate the community for the negative externalities that will be received upon a change in the status quo. The political rents are a problem for the political system and how we finance campaigns or administer bribery laws.
(3) The zoning remains binding, but the land is not rezoned because the developer's payments were, or would be, insufficient to persuade the opponents or decision-makers.
Case 0 is a problem for the community, which must now pay the developer not to develop. We see this when communities purchase development rights (e.g. agricultural reserve areas). Here the Coasian right to develop resides with the developer One can see difficulties with Case 0 scenarios. Developers can threaten to develop, and get paid not to develop, even though they were not serious. Bluffing is very easy. Hence the desire for communities to control the development rights through restrictive zoning. Residents must act through government because of the asymmetry and coordination costs, 1000 neighbors all harmed slightly do not have the ability or incentive individually to give a side payment to a developer not to develop at all (or as much), because some residents will want to free-ride on the side payments of others. Only through the government or government-like organization can this be achieved.
Case 1 is not a problem for developers or the community, and the development proceeds without hitch.
Case 2 costs the developers money, but in the end if they choose to build, it still must generate above "normal profits", otherwise it would be better for the developer to keep their money in a bank account. This results in a transfer of money, but is at least neutral and probably win-win.
Case 3 might result in some social loss (especially if there are, in fact, economies of agglomeration), but what is happening is that the loss perceived by the opponents outweighs the benefits perceived by the developer. There may be of course miscalculations about the opponents willingness to pay or willingness to accept, but in the end the potential gains did not outweigh the potential losses, and the project may not have been as good as claimed.
Whether the zoning reflects the wishes of developers or neighbors depends on context, and as density increases, we would expect the neighbors to become relatively more powerful, if only because the negative externalities of development become apparent to more and more people.
As I implied above, there is not a moral right in retaining the status quo, but from a Coasian perspective, zoning creates the property right in a given level of externalities which rezoning proposes to change. There should still be an approximately efficient outcome in the end, if not for political rent-seeking.
Matt Yglesias writes about Adventures in Occupational Licensing: North Carolina Traffic Engineering Edition
I'm assuming this effort to deploy occupational licensing law to harras someone isn't going to hold up, but maybe I'm wrong:
After an engineering consultant hired by the city said that the signals were not needed, Cox and the North Raleigh Coalition of Homeowners' Associations responded with a sophisticated analysis of their own.
The eight-page document with maps, diagrams and traffic projections was offered to buttress their contention that signals will be needed at the Falls of Neuse at Coolmore Drive intersection and where the road meets Tabriz Point / Lake Villa Way.
It did not persuade Kevin Lacy, chief traffic engineer for the state DOT, to change his mind about the project. Instead, Lacy called on a state licensing agency, the N.C. Board of Examiners for Engineers and Surveyors, to investigate Cox.
As ever, it's important to distinguish this from a law against fraud. Obviously people shouldn't be allowed to misstate their credentials, be they engineering credentials or whatever. But nobody's alleging fraud here:
Cox has not been accused of claiming that he is an engineer. But Lacy says he filed the complaint because the report "appears to be engineering-level work" by someone who is not licensed as a professional engineer.
Essentially the work is too good for a non-engineer to be allowed to produce.
Obituary from NY Times: Alfred Kahn, Chief Architect of Airline Deregulation, Dies at 93.
Transportation deregulation was a very big deal.