275 (27 July 2016)

Welcome to week 275!  The articles below caught my attention this week.  Please note that what are intended to be relatively objective “briefs” are preceded by dashes (——–), whereas additional material or relatively subjective comments are preceded by asterisks (********).  The links to articles preceded by [SR] require a subscription to be read in their entirety, although complete articles may frequently be found by an Internet title search.

(20 July 2016): “Tesla Autopilot crash won’t halt self-driving car development, NHTSA says” (http://www.cnet.com/roadshow/news/tesla-autopilot-crash-wont-halt-self-driving-car-development/)

——–“Despite a fatal crash involving a Tesla Model S being driven by its Autopilot feature, the US National Highway Transportation Safety Administration’s (NHTSA) head Mark Rosekind insisted that the government would still work to promote self-driving cars by providing a framework in which develop can continue.”  Rosekind commented, “No one incident will stop the NHTSA from promoting highly automated driving development.”  He went on to suggest that “the NHTSA was willing to accept imperfect technology during development of highly automated driving because of its vast life-saving potential.”

********I found it refreshing to read that the current state of “imperfect” technology was not going to put “the kibosh” on development.  It reminds me, once more, of the importance of technological change and how tempting it must be to use the invisible foot—legal and political forces—to hinder those changes.  What is the “mix” of the invisible forces that enhance technological change (or its opposite)?  The NHTSA head’s approach seems practical and far-sighted.  I was led to this article by a similar article in The Wall Street Journal at: [SR](http://www.wsj.com/articles/tesla-autopilot-crash-shouldnt-slow-self-driving-development-regulator-says-1469200956).

(21 July 2016): “Letting Markets Guide Adaptation to Climate Change” (http://www.nytimes.com/2016/07/21/upshot/letting-markets-guide-adaptation-to-climate-change.html)

——–[An Upshot article by Michael Greenstone, an economist at the University of Chicago.]  “We are on course to set another record for the hottest year, the third year in a row, and 2016 may well have the most billion-dollar weather disasters. . . . Climate change is projected to bring more frequent damaging storms, with high winds and flooding.”  Although insurance markets provide incentives to adapt to climate chance, “in too many states, well-intentioned regulations aren’t letting the market properly price climate risk.”  Florida is a case in point.  There “regulations cap premiums—forcing inland areas to pay more for wind insurance, while the coastal residents don’t pay premiums reflecting their higher risks.”  This contrasts with California, “a state at high risk for earthquakes.”  There the California Earthquake Authority “prices its premiums according to each policyholder’s risk for earthquake damages.”  Such premiums “reflect careful risk assessments based on the best available science and characteristics of the house, including proximity to fault lines.”  In this case, homeowners facing higher risk of earthquake damages pay higher premiums.  But those premiums can be reduced by homeowner action to reduce risk.  In such a regulatory environment, the market “works as it should.”

********I do not know how such insurance functions in North Carolina.  I took a look at the site of the North Carolina Department of Insurance (http://www.ncdoi.com/), which covers all types of insurance.  After some browsing, I identified the NCDOI HurriClaims Center (http://www.ncdoi.com/HurriClaims/) as a potential information source.  Prior to identifying the site, I came across a policy report on “North Carolina’s Beach Plan: Who pays for Coastal Property Insurance?” (http://www.johnlocke.org/acrobat/policyReports/beach_plan_reform.pdf), by the John Locke Foundation.  This is not a source I would ordinarily trust, but my scan of it indicates that it is a knowledgeable and reasoned attempt to deal with an important policy issue.

(22 July 2016): “In Backyard of RNC, Drugs, Vanishing Jobs Strain Rural America” (http://www.bloomberg.com/news/articles/2016-07-22/in-backyard-of-rnc-drugs-vanishing-jobs-strain-rural-america)

——–The U.S. Department of Agriculture was created “in the mid-19th century to ensure the future of farming, [but] it’s becoming Uncle Sam’s lead tool to fight a social emergency—soaring drug use, rising suicide rates and deepening poverty—spreading across the heartland.”  According to USDA Secretary Tom Vilsack, “We’re charged with the responsibility of filling the gap to make sure rural America hasn’t been forgotten.”  The tapping of the USDA “for the job underscores a broader point: The government, like the wider culture, is much more attuned to the problems of urban areas where most Americans live.

********What caught my attention about the article is the broadening of the scope of the work of the USDA to include matters that might ordinarily be thought of as falling under the responsibilities of the Department of Health and Human Services.  It is almost as if the USDA is being viewed as focusing on “all things rural.”

(22 July 2016): “The Incalculable Value of Finding a Job You Love” (http://www.nytimes.com/2016/07/24/upshot/first-rule-of-the-job-hunt-find-something-you-love-to-do.html)

——–[An article for “The Upshot” by Cornell economist Robert H. Frank.]  My “first response when students seek advice on how to succeed is to ask whether any activity has ever absorbed them completely.  Most answer affirmatively.  I then suggest that they prepare themselves for a career that entails tasks as similar as possible to that activity, even if it doesn’t normally lead to high financial rewards.  I tell them not to worry about the money.  My point is that becoming an expert is so challenging that you are unlikely to expend the necessary effort unless the task is one that you love for its own sake.  If it is, the process will be rewarding apart from whether it leads to high pay.”

********As Frank goes on to note, although there are no guarantees that you’ll become “the best” at what you do, “by choosing to concentrate on a task you love, you’ll enjoy the considerable proportion of your life that you spend at work, which is much more than billions of others can say.”  Social science findings “establish clearly that once you have met your basic obligations, it’s possible to live a very satisfying life even if you don’t earn a lot of money.”  Of course, some people get to do both.

(23 July 2016): “Payday Loan Limits May Cut Abuse but Leave Some Borrowers Looking” (http://www.nytimes.com/2016/07/23/business/dealbook/payday-loan-limits-may-cut-abuse-but-leave-some-borrowers-looking.html)

——–“The Consumer Financial Protection Bureau, the watchdog agency set up after the last financial crisis, is poised to adopt strict new national rules that will curtail payday lending.”  But lenders like Tanya Alazaus, who operates an Advance America shop in Canton, Ohio, “and even some consumer advocates who favor stronger regulation . . . are grappling with the uncomfortable question of what will happen to customers . . . if a financial lifeline that they rely on is cut off.”  There is reason to be concerned.  “A sweeping study of bans on payday lending, scheduled to be published soon in The Journal of Law and Economics . . . [concluded that when] short-term loans disappear, the need that drive demand for them does not; many customers simply shift to other expensive forms of credit like pawn shops, or pay late fees on overdue bills.”

********The article has a variety of interesting twists that indicate the challenges associated with writing rules in reference to legislation of the kind that the created the CFPB that specifically prohibits certain kinds of rules.  As noted, in the present case rules emerge that “are a messy compromise that both sides hate.”

********This is probably as good an account of some of the issues surrounding payday loans as I have found in the media.  Among other things, it provides a number of very useful links.  Here are three.  A clear summary of some aspects of payday loans can be found at: http://libertystreeteconomics.newyorkfed.org/2015/10/reframing-the-debate-about-payday-lending.html#.V5N_1LgrJhE. The proposed rules of the CFPB can be viewed at: http://files.consumerfinance.gov/f/documents/CFPB_Proposes_Rule_End_Payday_Debt_Traps.pdf.  The paper that will appear in The JLE can be accessed at: http://www.human.cornell.edu/pam/people/upload/Bhutta_Goldin_Homonoff7-13-2016.pdf.

(23 July 2016): “Information asymmetry: Secrets and agents” (http://www.economist.com/news/economics-brief/21702428-george-akerlofs-1970-paper-market-lemons-foundation-stone-information)

********This is the first of six “Economics Briefs” to appear in The Economist.  It focuses on the epochal (1970) paper “The Market for Lemons,” by Nobel Laureate George Akerlof, who also happens to be married to Janet Yellen, who is the chairman of the Federal Reserve.  Akerlof introduced the notion of informational asymmetry in an analytically important way, thereby blazing a trail that many others have trod, including Michael Spence and Joseph Stiglitz, both winners of the Nobel prize in economics.  You can see the list of “Six big economic ideas” and other material at: http://www.economist.com/economics-briefs.  You can access the lemons article at: https://www.iei.liu.se/nek/730g83/artiklar/1.328833/AkerlofMarketforLemons.pdf.

********Every important paper has a story behind it and “Lemons” is no exception.  You can read the story behind Akerlof’s paper, which he wrote in his first year as an assistant professor at UC-Berkeley, at: http://www.nobelprize.org/nobel_prizes/economic-sciences/laureates/2001/akerlof-article.html.  It reminded me of a passage by Rainer Maria Rilke (http://www.onbeing.org/program/wild-love-world/feature/go-limits-your-longing/1448):

Let everything happen to you: beauty and terror.

Just keep going.  No feeling is final.

Easier to write than to practice, but in the face of three rejections from the “commanding heights” of the economics profession, Akerlof kept going.

(26 July 2016): “Why It’s So Hard to Build Affordable Housing: It’s Not Affordable” (http://www.bloomberg.com/news/articles/2016-07-26/why-it-s-so-hard-to-build-affordable-housing-it-s-not-affordable)

********The City of Asheville, North Carolina has long been concerned about affordable housing.  Likewise, how to “best use” publically owned land, especially in the downtown area, continues to be of interest.  Consequently, this article and its various links struck me as noteworthy and potentially useful.  For example, it provides a variety of statistics from the National Low Income Housing Coalition indicating how large the “gap” is.  From the Urban Institute, an online simulator illustrates “the challenges of building new affordable housing.”  It shows that “No matter how you slice it, creating the affordable housing needed today probably requires government help. . . . Playing with the simulator, you quickly learn that there are only a few levers that truly affect a developer’s ability to finance a project.”

********The article concludes with the comment “There’s also another way to create housing for the poorest renters, which is to build housing for higher wage-earners, freeing up older, lesser-quality units through a process called filtering.”  As Reihan Salam, who is a policy fellow at the National Review Institute, the filtering approach is “not always politically attractive, because you’re talking about housing that has deteriorated a bit . . . That’s basically how housing markets have always worked.”  The notion of filtering evokes a memory of “trickle-down economics” in an obvious way.  Here is the article that discusses filtering in detail (https://www.bloomberg.com/view/articles/2016-05-18/want-cheap-rents-build-expensive-housing-then-wait).  It has a clear discussion of different housing quality in relation to short- and long-term aspects.

********Affordable housing, as conventionally characterized, is not the only housing issue.  Facebook is looking to employ an addition 6,500 workers at its Menlo Park, California headquarters.  But where to house these people?  To help increase housing, Facebook pledged, earlier this month, to “build at least 1,500 units of housing, meant not specifically for Facebook employees, but for the general public. . . . Under the plan, 15% of the units would be reserved for low- or middle-income families.”  Other tech giants, like Google, are watching to see what becomes of this.  More detail is provided in “Facebook’s (Answer to Silicon Valley Housing Crunch: Build Apartments” [SR](http://www.wsj.com/articles/facebooks-answer-to-silicon-valley-housing-crunch-build-apartments-1469534402).

(26 July 2016): “Crude Slump, Pipeline Expansion Mark End of U.S. Oil-Train Boom” (http://www.wsj.com/articles/crude-slump-pipeline-expansion-mark-end-of-u-s-oil-train-boom-1469484016)

——–“The oil-train boom is waning almost as quickly as it began.  Rail became a major way to move crude after companies began unlocking new bounties of oil from shale formations, with volumes rising from almost nothing in 2009 to more than one million barrels a day by 2014 . . . But those numbers began falling after oil prices started tumbling two years ago, and aren’t projected to recover anytime soon.”  Contributing to the decline has been the building of new oil pipelines.  “More pipelines have begun reaching North Dakota and other shale regions, giving producers a cheaper way to move their oil to market.  Also, a string of fiery crude-freight-train derailments . . . have prompted a host of new and expensive regulations . . . The changes are evident in North Dakota, once the epicenter of the crude-by-rail trend.”  Oil output has “fallen by 180,000 barrels a day from its 2014 peak.  Meanwhile, pipeline takeaway capacity has more than doubled since 2010.”

********The article has a nice bar graph showing crude oil shipped by rail from 2010 to early 2016.  My eyeballing of it indicates that the April 2016 shipments are the lowest since June 2012.  The article points out nicely two points: (1) even in the short run, there are alternative ways to move oil, and (2) as the long run emerges, additional alternatives to moving oil emerge.  Nothing earthshaking here, as this is simply a statement of two well-worn economic principles, but sometimes a reminder is useful.

May you have a good week!

Bruce

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