Ben Muse

Economics and Alaska

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Hubbard and his replacement, Mankiw

Glenn Hubbard, the Chairman of the Council of Economic Advisors, apparently has wanted to go back to his position at Columbia for some time. He delayed leaving for a while because of the turnover in the Administration's economic team in early December (the firing of the Treasury Secretary and the Director of the National Economic Council). However on February 14 he gave the President two weeks notice. His resignation was announced last Wednesday and became effective today. N. Gregory Mankiw of Harvard has been selected to take over from Hubbard. Jonathan Weisman of the Washignton Post contrasts the two here:"Bush Tax-Cut Adviser Resigns. President Nominates Harvard Economist to Replace Hubbard "
    "According to administration economists, Mankiw was Hubbard's handpicked successor. A bigger name in academic circles than Hubbard, Mankiw is the author of two highly regarded economic textbooks that have sold more than a million copies, been translated into 17 languages and made Mankiw a millionaire.

    "Mankiw and Federal Reserve Board economist Douglas Elmendorf also devised a statistical formula that is widely used to calculate the federal budget deficit's impact on long-term interest rates.

    "Opponents of Bush's tax policies have used the Mankiw-Elmendorf formula to charge that deficits that have appeared over the past two years will harm the economy over the long run, and that further tax cutting will make the situation worse.

    "But Hubbard has contended that the model proves the White House's position that the deficits are small, relative to the size of the economy.

    "The position of Council of Economic Advisers chairman became less visible under President Clinton, who created the National Economic Council to help formulate policy. During the Clinton administration, the CEA chair played more of an advisory role.

    "Hubbard significantly raised the position's profile, putting his stamp on policy and publicly selling it.

    "In contrast, Mankiw, who turns 45 this month, will take a deliberately low profile as the "inside man" on the economic team, according to a Republican source. That will let Snow and National Economic Council Director Stephen Friedman become the salesmen-in-chief for an economic growth plan that has run into stiff opposition from Democrats and some Republicans."
Edmund Andrews talks about Mankiw in the New York Times here: "A Top White House Economic Adviser Steps Down":
    "Mr. Mankiw has close ties to the administration, and he is well liked by conservative policy makers and business groups in Washington. When Mr. Bush fired Mr. O'Neill and Mr. Lindsey in early December, Mr. Mankiw's name immediately surfaced as a candidate for a new post in the administration.

    "He has his critics, however. Some of his academic colleagues complain that he has spent most of his energy in recent years on making money from his textbook rather than in breaking new theoretical ground...

    "Despite his financial success and his prestigious teaching post, academic economists say Mr. Mankiw has not developed much of a reputation as a fundamental thinker. He does not have the gravitas of Joseph E. Stiglitz, who was one of President Clinton's top economic advisers, or of Martin S. Feldstein, head of the National Bureau of Economic Research and a mentor to many economists now working for President Bush.

    "But Mr. Mankiw does have a knack for communicating complicated ideas in simple ways. Even his academic articles tend to be peppered with blunt language that a layman can easily understand...

    "People who know Mr. Mankiw say he may prove to be more acerbic and perhaps more outspoken than Mr. Hubbard. But he may also be less wedded to ideological consistency, which Mr. Bush usually demands from the people beneath him."
Two weeks before Hubbard submitted his resignation, Bruce Bartlett was speculating in the National Review Online about the implications of Hubbard's resignation and replacement by Mankiw: "Adviser Alert. Dividend tax relief will suffer with Glenn Hubbard’s exit."

Mankiw's Harvard web page is here: "Professor N. Gregory Mankiw". You may want to look at his list of papers on the web (mostly National Bureau of Economic Research - NBER) here: "Papers On The Web". Take a look at his paper on his working habits, here: "My Rules of Thumb". His columns for Fortune magazine (from 1997 to 2001) are here: "Columns".

Follow-up on London congestion pricing

I posted on the new central London congestion pricing experiment on February 20: "London's Congestion Pricing Scheme".

The Cronaca blog reported today on a data error, and on criminal license plate forging activity designed to defeat the program: "London congestion charge hits some bumps"

The New York Times reports on a proposal for implementing toll systems in eight U.S. cities. "Planners Say Tolls Will Ease Jams in 8 Cities" The Times story says that this proposal, "...published by the Reason Public Policy Institute, a libertarian group, has also been endorsed by the Progressive Policy Institute, a centrist Democratic group, as well as by Environmental Defense."
    "The proposal would convert car pool lanes and build new lanes so that most freeways in each city had at least one H.O.T. lane, as engineers call it, a high-occupancy toll lane open free to buses and commuter vans and, at a price, to individual drivers.

    In H.O.T. lanes, which operate successfully in Southern California, tolls are collected electronically at freeway speeds, and they increase at peak times so that the lanes do not become congested."
The Reason Public Policy Institute web site has a summary note on the proposal here: "Summary of "Hot Networks...", and a copy of the full report here: "Hot Networks: A New Plan for Congestion Relief and Better Transit"

New Federal water quality regs threaten Dawson's placer mining industry

The Anchorage Daily News story is here: "Mining rules threaten Dawson City
GOLD: Changes in placer regulations may devastate economy"
. The story describes the concerns of the Dawson Chamber of Commerce and the Klondike Placer Miners Association, who are saying the rules, being proposed by the Federal Fisheries Minister, will have a devastating impact on the local economy.

Virginia Postrel on "neuroeconomics"

Virginia Postrel discusses how economists are using MRI technology to study the brain activity of persons placed in different economic situations in Thursday's New York Times
    "...a new field, called neuroeconomics, is using the tools of neuroscience to find the underlying biological mechanisms that lead people to act, or not act, according to economic theory.

    "In neuroeconomics, volunteers go through exercises developed by experimental economists studying trust or risk. Instead of simply observing subjects' behavior, however, researchers use imaging technologies, like M.R.I.'s, to see which brain areas are active during the experiment."
Here's a link to the article: "Looking Inside the Brains of the Stingy"

Glenn Hubbard leaves Council of Economic Advisors

Glenn Hubbard is stepping down as Chairman of the Council of Economic Advisors (note Brad DeLong's gossip column from yesterday; "...the knives are really out of their places hidden under the robes now, flashing, and covered with gore. Somebody leaking to the G-7 Group really doesn't like Glenn Hubbard...": "Power Struggle in the Degenerate Ottoman Sultanate II
) Thursday's New York Times story is here: "A Top White House Economic Adviser Steps Down".

UN changes its 2050 population estimates

The Associated Press (AP) reports today that the UN has dropped its estimates of world population in 2050. The old estimate was 9.3 billion people, the new estimate is 8.9 billion. Half of the difference is due to dropping fertility rates, but half is due to AIDS related deaths. The AP story is here, on the Juneau Empire website: "U.N. Reduces Global Population Estimate for 2050 Because of AIDS and Lower Birth Rates"

The UN report can be found here: "World Population Prospects. The 2002 Revision. Highlights" The annex data tables may be found here: "Annex Tables".

An overview of Alaska's finances

Dr. Sharman Haley of the University of Alaska's Institute for Social and Economic Research (ISER) has posted her February 20, 2003 PowerPoint presentation on Alaska's fiscal status here, on the ISER website: "Understanding Alaska State Finances".

A tradeoff: risks of genetically altered corn vs. less pesticide use

Tomorrow's Washington Post says the EPA has given Monsanto permission to sell genetically altered corn. The corn is resistant to corn rootworm disease, and should mean a reduction of millions of pounds in toxic pesticide use. Here's the story: "In Key Test, U.S. Allows Sale of Genetically Engineered Corn " Most of this corn would be used for animal feed. It works this way:
    "Corn rootworm is the common name for the larval stage of four species of beetles that grow in fields throughout the United States. The immature beetles feed on the roots of corn plants, sometimes damaging them so much that the plants blow over in storms or yield little corn.

    "To create resistant corn, Monsanto, through molecular engineering, inserted a gene that contains instructions for making a protein toxic to most varieties of the worms, but one that can be easily digested by people or other mammals. The new crop does pose theoretical risks to some other species, including beneficial insects, and the EPA said it would monitor that issue."
The ability of the root worm to develop resistence to the protein is a concern:
    "Most members of a scientific advisory panel had urged the EPA to require farmers to plant sizable "refuges," or strips of conventional corn, around the genetically altered crops to provide food for the rootworm and slow the pests' ability to develop a resistance to the new corn variety. Panel members wanted the EPA to require that 50 percent of a farmer's cornfield be planted as refuges, while Monsanto pushed for 20 percent, similar to requirements already in place for other crops. The EPA sided with Monsanto.

    " "What we have here is companies doing as they usually do: profiting in the short term" even if it shortens the life of the product, said Jane Rissler, senior staff scientist at the Union of Concerned Scientists, a Washington group.

    "Johnson, of the EPA, rejected criticism on the issue, noting that the 20 percent requirement will be in effect for only three years while the resistance issue is studied further. New plans may be put in place if resistance proves to be a problem, Johnson said."
The New York Times story is here: "E.P.A. Approves the Use of Monsanto's Altered Corn"

Bush Administration economic policy making gossip

Brad DeLong reports some of the gossip on internal administration economic policy debates: "Power Struggle in the Degenerate Ottoman Sultanate II".
    "But I cannot help that the tone carries more interest here than the substance. The tone tells us that the knives are really out of their places hidden under the robes now, flashing, and covered with gore. Somebody leaking to the G-7 Group really doesn't like Glenn Hubbard, who, "...with lots of promise, squandered... it by working to undermine then Treasury Secretary Paul O'Neill, National Economic Council adviser Larry Lindsey and others like Undersecretary John Taylor and NSC advisor Gary Edson. You can't alienate that many people and still have the confidence of the overall Treasury..." Who doesn't like Glenn Hubbard anymore (besides Gary Edson, John Taylor, Larry Lindsey, and Paul O'Neill, that is)? I have no idea.

    And I also have no idea who the factions really are: clearly my (previous) theory that there were two and only two battling inside the White House for the President's ear--for the position of Grand Economic Policy Vizier--was overly simplistic... "

How to Pick a President

Read this by Brad DeLong, it makes a lot of sense: "Our Idiot Ottoman Sultan Problem"
    "...It has become apparent that Washington experience is the kiss of death for anyone who wants to be President. Of all our Presidents elected since 1972, only once--George H.W. Bush's accession to the throne of Ronald Reagan--has a candidate who has previously spent any time at all in Washington been elected. You see, to spend time in Washington is to have to make choices about national political issues. And to make choices is to make enemies. And enemies have long memories.

    "It is much, much better to have spent one's previous political career completely outside Washington. Then each national-political faction can imagine that you have their interests at heart (especially because you will make friendly noises to them). They will project their hopes onto the blank screen which is their lack of knowledge about what went on back in your home state. And so you can assemble a large enough coalition to win the party nomination and then the presidency. Since 1972, to be an unknown governor--usually southern--is the way to become an American President.

    "This is not a partisan point: it applies to Jimmy Carter and Bill Clinton as well as to Ronald Reagan and George W. Bush. In all four cases America--American voters, the American press corps, and other American politicians--had virtually no clue about what they were voting for. All of these Presidents turned out to have extraordinary weaknesses--weaknesses that, had they been widely known before their election, would certainly have disqualified them from serious consideration for the office. Some have turned out to have remarkable and unexpected strengths as well: either dumb luck, or evidence that Divine Providence really does safeguard the destinies of fools, children, and the United States of America."
Click above for the rest - the sultan analogy gets overworked a little towards the end.

North American Pleistocene extinctions not caused by man

Shortly after people arrived in North America there were widespread extinctions of large mammals in North America. The rough coincidence between the arrival of people and the extinctions have led many to suggest that the extinctions were man-caused. Others have argued that climate changes were the cause. This web page gives a very brief introduction to the debate, focusing particularly on some of the problems with the hunting hypothesis: "Bagheera's Lair".

A new study by University of Washington and Southern Methodist Archeologists adds to the evidence against a hunting cause:
    "Now researchers from the University of Washington and Southern Methodist University who examined evidence from all suggested Clovis-age killing sites conclude that there is no proof that people played a significant role in causing the extinction of Pleistocene mammals in the New World. Climate change, not humans, was the culprit.

    " "Of the 76 localities with asserted associations between people and now-extinct Pleistocene mammals, we found only 14 (12 for mammoth, two for mastodon) with secure evidence linking the two in a way suggestive of predation," write Donald Grayson of the UW and David Meltzer of SMU in the current issue of the Journal of World Prehistory. "This result provides little support for the assertion that big-game hunting was a significant element in Clovis-age subsistence strategies. This is not to say that such hunting never occurred: we have clear evidence that proboscideans (mammoths and mastodons) were taken by Clovis groups. It just did not occur very often." "
Click here for the rest of the press release: "Evidence acquits Clovis people of ancient killings, archaeologists say".

I learned about this from Cronaca (A history oriented blog)

Fear as a management tool

See "Fear and management. When to terrorise the talent" in the Economist for a discussion of fear and management, and the economics of fear.

Economic policy debates in the Bush Administration

Read Brad DeLong's analysis here ("However, those senior White House officials who leak to Fred Barnes say something very different. They say that the firing of former Treasury Secretary Paul O'Neill was the metaphorical putting of a horse's head in Alan Greenspan's bed..."): "WhiteHouseology".

Eisenhower's advice to Kennedy

After the Bay of Pigs former President Eisenhower visited Kennedy at Camp David. Peggy Noonan tells the story:
    "Eisenhower was not amused by what had just happened to his country. Called to Camp David, he dined with Kennedy, and then together they toured the grounds. It was on this walk that Ike delivered a stinging reprimand in which he challenged Kennedy's judgment, knowledge and understanding of the world.

    "Richard Reeves: "That was in private. In public, the two men came back from their walk to face the reporters and cameras. . . . Kennedy told reporters he had asked the General to visit him so he could 'get the benefits of his thoughts and experiences.' Eisenhower told the reporters, 'I am all in favor of the United States supporting the man who has to carry the responsibility for foreign affairs.' "

    "Ike supported Kennedy's leadership and refrained from making public criticisms. Later, when the smoke cleared and Eisenhower was dead, Kennedy staffers said that of course Eisenhower had to support Kennedy; the original idea of a Cuban exile force had been hatched while Ike was president. This was spin, and of a particularly disingenuous sort. Under Eisenhower--under every president--possible and contingency foreign-affairs initiatives are put forth and game planned. That's what governments do. It was Kennedy who, only weeks after his November election, told CIA director Allen Dulles that he wanted the agency to move forward on Cuban invasion plans. After he was in the White House he consented to and encouraged the plans, and personally tinkered with them, to their detriment.

    "Surely their conversation at Camp David strongly suggests that neither Kennedy nor Eisenhower considered the latter compromised by events. Quite the opposite, in fact. "Mr. President," Ike questioned him, "before you approved this plan did you have everybody in front of you debating the thing so you got the pros and cons yourself and then made the decision, or did you see these people one at a time?" Kennedy did not directly answer, and then said he'd just approved a plan recommended by the CIA and the Joint Chiefs.

    "Eisenhower challenged him: Had Kennedy changed any of the military plans? Yes, Kennedy said. How could you change plans after the Cuban exiles were already on their way to the beach? Kennedy said he was trying to keep U.S. involvement at a minimum, and meant to conceal that involvement in fears the Soviets would retaliate by moving on Berlin.

    "From Eisenhower a verbal smack. "That is exactly the opposite of what would really happen. The Soviets follow their own plans, when they see any sign of weakness they show their strength." JFK said he'd been advised not to show America's hand. Eisenhower hit back: American support, training, materiel and leadership would immediately be obvious to everyone. "How could you expect the world to believe that we had nothing to do with it?" He told Kennedy when America resorts to arms, "it must be a success."

    "Kennedy said that hereafter if he got into anything like this, "it is going to be a success."

    " "Well I am glad to hear that," Eisenhower snapped." "

    (Noonan tells this story in the course of a column in today's Wall Street Journal on the relationship between former President's Carter and Clinton and current President Bush: "The Anti-Ikes. Two ex-presidents could learn from Eisenhower and the Bay of Pigs.").
Sounds like an interesting conversation. The part of the quote that interested me was Ike's question: "Mr. President, before you approved this plan did you have everybody in front of you debating the thing so you got the pros and cons yourself and then made the decision, or did you see these people one at a time?" Here's a problem for public administration students - how does a president organize the White House staff so that he's getting the various ideas systematically vetted and debated, so that he is given alternatives, and so that he gets the pros and cons of each.

The White House Staff. Inside the West Wing and Beyond by Bradley H. Patterson Jr. (Brookings, 2000) deals with these issues. Several chapters cover the various White House councils: National Security Council, Domestic Policy Council, and the National Economic Council, and their role in supplying the president with alternatives and arguments. As a bonus, the book is readable - it's not dry academic prose.

What does France owe us?

France has a responsibility to act in its own interests as it sees them. If we base our foreign policy on the idea that France or any other country owes us something because of past events, we will be disappointed and our policy may be a failure. They do not owe us. Daniel Drezner made this point very well here: "Defending Old Europe".

This also goes for the residents of Iraq. If we eliminate Hussein and it turns out that the Iraqis are pleased, we might be tempted to factor an expectation of continuing pleasure into our policy considerations. If we build our subsequent Iraqi policy on an expectation of gratitude, we are likely to be disappointed. The Iraqi's have a right, and a responsibility, to do what is in their own best interests. If we want their cooperation we will have to continually be answering the question, "What have I done for them lately?" Public opinion can change rapidly. People who love us one day can turn against us very quickly. People can easily find reasons to justify what it is in their interests to do.

Climate change experts and the mistakes they make

This is a few days old, but I was having blogging problems when I saw this post -

The International Panel on Climate Change (IPCC) sponsors much of the most important work on the nature of and implications of global warming. Daniel Drezner has a summary of, and a collection of links to, some recent critiques of IPCC methodology (some it their economic methodology) here: "When Environmentalists Pretend They're Economists":
    "When journalists have to state what the effects of global warming will be in the future, they rely on the The Intergovernmental Panel on Climate Change (IPCC)...

    "In other words, the IPCC is supposed to be a nonpartisan group of experts. They were the ones who concluded, based on a plethora of different projections, that "globally averaged mean surface temperature is projected to increase by 1.4 to 5.8°C over the period 1990 to 2100.” Which of course leads to mass media outlets blaring "WORLD TEMPERATURES WILL INCREASE BY UP TO SIX DEGREES BY 2100"

    Now it turns out that even the optimistic projections could be too pessimistic. The Economist reports that two distinguished statisticians have judged the IPCC report to be "technically unsound," which is social-sciencese for "your methodology sucks eggs."

    What's unsound? To see the actual critiques, click here, here, here, and here. Let me explain. No, that would take too long -- let me sum up:"
Click on the link above to get the rest. The Economist article he references is here: "Hot potato. The Intergovernmental Panel on Climate Change had better check its calculations"

Is the U.S. 'rushing' to war with Iraq?

Christopher Hitchens doesn't think so and says why in this Slate column: ""Drumbeat" Bush rushing to war? Nonsense." I hadn't realized the Bush Administration considering relaxing the sanctions on Iraq in its early days in office:
    "When George W. Bush was running for president, he campaigned energetically against Al Gore by objecting to the idea of "nation-building" (and, incidentally, to the Clinton-era practice of employing "secret evidence" in trials of suspected terrorists). After taking office, he opened an early discussion on the possibility of lifting Iraqi sanctions, which had obviously begun to suffer from diminishing returns. He even considered reviewing the "no-fly" zones that, for a wearisome decade or so, had placed an Anglo-American protective shield over the Kurdish and Shiite zones of Saddam's awful dominion.

    "In all of these respects, Bush was giving a sympathetic ear to a group of oilmen and generals, the first of whom did not like to see Iraqi oil being traded only with other countries, and the second of whom did not care to risk their sophisticated aircraft on drab, routine missions. Within his Cabinet and elsewhere in his administration, the president included a number of people who still believed that his father had been right, in 1991, to evacuate Iraq while leaving the Saddam Hussein regime in place. (Of this group, as far as I know, George Bush Sr. remains a dues-paying member, as do Brent Scowcroft and Lawrence Eagleburger. Only Vice President Dick Cheney, of the original team, is understood to have changed his mind—and that could well be for reasons of loyalty.)"
Click on the link above for the rest. This certainly tends to undercut the argument that this is a war about oil. If we had wanted access to the oil there are easier ways to have gone about it. We could have reached out for an accommodation with Hussein and Iraq years ago.

Justice William O. Douglas

Richard Posner (Circuit Court judge and professor at the University of Chicago) reviews a new biography of U.S. Supreme Court Justice William O. Douglas (Wild Bill: The Legend and Life of William O. Douglas by Bruce Allen Murphy), here: "The Anti-Hero". An interesting review, and it sounds like an interesting book.

Douglas played an important role in the environmental movement, as an activist and publicist, and by raising the issue of extending the legal doctrine of standing to non-human and natural objects. Despite character flaws, ("Apart from being a flagrant liar, Douglas was a compulsive wonanizer, a heavy drinker, a terrible husband to each of his four wives, a terrible father to his two children, and bored, distracted, uncollegial, irresponsibile, and at times unethical Supreme court justice who regularly lef the Court for his summer vacation weeks before the term ended." - Posner) Posner thinks he was a talented may and could have been a great Supreme Court justice. The Murphy book is not a "hatchet job."

Douglas wasn't a very good judge, because he really, according to Posner (and Murphy?), wanted to be President:
    "Douglas was not a good judge (I will come back to this point), but this was not because he was a woman-chaser, a heavy drinker, a liar, and so on. It was because he did not like the job. In part he did not like it because he wanted another job badly, a job for which he was indeed better suited. Roosevelt may have made a mistake in preferring Truman as his running mate in 1944. Not a political mistake: Douglas had never run for elective office, and the Democratic Party bosses, whose enthusiastic support FDR thought essential to his re-election, were passionate for Truman. If passing over Douglas was an error (which we shall never know), it was an error of statesmanship. With his intelligence, his toughness, his ambition, his leadership skills, his wide acquaintanceship in official Washington, his combination of Western homespun (a favorite trick was lighting a cigarette by striking a match on the seat of his pants) and Eastern sophistication, and his charisma, Douglas might have been a fine Cold War president.

    "At least a Douglas administration would not have been afflicted by the cronyism that so undermined Truman's presidency. Douglas had his own cronies, many with character flaws similar to his own, like Lyndon Johnson and Abe Fortas, but they were abler and less manifestly corrupt than Truman's cronies. And unlike Henry Wallace, the vice president whom FDR providentially dropped at the end of his third term in favor of Truman, Douglas was not soft on communism. I do not think that he was ideological at all; he was merely ambitious. I doubt even that he was, despite his later judicial record, a genuine liberal. Douglas was just ornery and rebellious and publicity-seeking: "always fame was the spur," as Ronald Dworkin, one of Douglas's liberal critics, put it."

Read this book review

Brad Delong reprints a favorable review of Over the Wine-Dark Sea: A Sea Adventure of the Ancient World by Harry Turtledove, here: "Sailing the Wine-Dark Sea".

Turtledove wrote a historical novel about the voyage of a small merchant ship in the years shortly after the death of Alexander the Great.

It sounds like a good read, especially the way DeLong reads it. DeLong's review is worth while for what it's possible to glean about life at the time, and about how to read a book.

Bush Administration environmental record

Douglas Jehl surveys the Bush Administration environmental policy in today's New York Times: "On Rules for Environment, Bush Sees a Balance, Critics a Threat". Jehl surveys administration policy on air and water pollution, land management, energy and global climate issues. This is a light overview that strives to be evenhanded; lacking a point of view, it lacks punch.

If you want "punch" you might look at Gregg Easterbrook's AEI-Brookings paper from last April: "Everything You Know About the Bush Environmental Record is Wrong". (AEI-Brookings Working Papers 02-6. Apr 2002). The abstract says: "Conventional wisdom says that George W. Bush has “declared war on the environment.” Yet actual instances of Bush anti-environmental policies are few, while the new president has received no credit for significant actions to reduce air pollution. What's the political and media dynamic that makes everyone feel so sure that Bush is anti-environment?"

Problems with hydrogen

Gregg Easterbrook writes about the problems with using hydrogen fuels in the New Republic, here: "Why Bush's H-car is Just Hot Air. Car Talk".

The pure hydrogen required for these engines has to come from somewhere - probably natural gas, coal, or oil, agricultural biomass, or seawater. And it will require energy - conventional, solar, or nuclear to make it from these inputs. None of this will be easy, none of this will happen soon, and much of it may have new and unpleasant environmental impacts. Easterbrook provides an agreeable introduction to these issues.

I learned about this from Arnold Kling's blog "EconLog". The specific posting is "Economics of Hydrogen".

London's Congestion Pricing Scheme

London began to charge drivers five pounds (about $8) to enter a 21 square mile core area in its downtown Monday. The fee is meant to reduce traffic congestion. There's been several items on the web about it. One of the best is this Economist article written before the program kicked in – I'm not certain it gets all the details right, but it places the fee in the context of efforts other cities have taken to address congestion: "Avoiding Gridlock".

Congestion is a result of drivers who don't bear the full costs of their actions – a driver enters the road system, slowing down other drivers. The other drivers bear some of the costs of the driver's trip through town. Since drivers don't bear the full costs of their own actions, they tend to drive too much. The drivers externalize some of the costs of their actions – impose them on external parties. Economists speak of an externality.

By imposing the fee, London attempts to force the drivers to face the costs of their actions and internalize them. Drivers who place a relatively low value on entry won't enter. Here's what I think is going on based on several news stories:

Evidently, drivers are buying the right to enter the city center from 7 AM to 6:30 PM. Drivers who enter are supposed to pay the fee. Evidently arrangements have been made for them to pay it in a number of ways: by phone, over the Internet, in stores, supermarkets, and post offices. The license plate numbers of paying drivers are input into a master data base.

Entry points to the city center are monitored by 700 to 800 video cameras, capable of recording plate numbers. Each evening, the data base of license plates is matched against the data base of fee payers. Drivers who haven't paid by midnight of the day they enter are subject to a 40 pound fine. The fine evidently rises through time, reaching 80 pounds for failure to pay in two weeks, and 120 pounds for failure to pay after four.

One preliminary estimate is that traffic was down about 25% on Monday. There were 87,000 payments on Monday, 92,000 on Tuesday. About 15,000 drivers failed to pay during these first two days.

Far more cars entered the restricted area that paid fees. One rough estimate for Monday suggested that the total number of cars entering was on the order of twice the number that paid. Part of the discrepancy is due to drivers who failed to pay. More was probably due to a series of exemptions provided for some classes of drivers. Taxis, the disabled, and emergency vehicles are all exempt. People who live in the restricted area get a 90% discount.

The fee is a crude tool to handle a complex problem. I can't imagine that congestion starts and stops along the bright line defining the restricted zone, or that it starts at 7 AM, stops at 6:30 PM, and doesn't vary through the day. The charge is imposed on people entering the zone, but the congestion externality is probably more closely connected with the time they spend in it.

It would be interesting to find out if there were spatial or temporal “edge” effects. Is there increased congestion prior to 7 AM as drivers try to enter before the fee kicks in? Is there increased congestion on the streets surrounding the restricted area, as people seek to part there and walk in, or as drivers detour around the perimeter of the restricted area rather than drive through it? Is there more carpooling? Do people stay in town longer (since the charge is a fixed cost imposed on entry, not a variable charge imposed on driving around). Do more people begin to “live” in the restricted zone?

What about poor people, or less affluent people who work in the zone? The few articles I've read don't say much about this. The Economist indicates that 90% of the people entering the zone are in the top 50% of the income distribution. The fees raised from the program are evidently going to be invested in mass transit.

The articles are generally silent on alternatives – the Economist, which discusses efforts to address congestion in cities as far apart of Florence, Hong Kong, and San Diego, is an exemption. It's likely that engineering solutions in built up (and historical) area like downtown London would be very expensive. Command and control alternatives might have involved closing off major roads, require multiple passengers, odd and even license days, and so on. How would a transferable individual driver's quota work?

The Economist describes Singapore's alternative approach to congestion pricing:
    "Yet some road-pricing experiments are working, and the politicians who backed them are being re-elected. Singapore, which has led the way in restraining traffic by price since 1975, has addressed many of these issues. It is small, compact and its people are used to taking orders—not very like London, in other words. But it still offers valuable lessons.

    "Traffic in the inner city and on expressways around the city is controlled by overhead gantries which use short-range radio transmitters to deduct charges directly from drivers. Virtually all cars in Singapore are fitted with a unit into which a debit card is inserted. The tolls, varying by time of day and type of vehicle from 50 cents to S$3 (£1.06), are designed to keep traffic moving freely at 25-35km an hour in the city and 45-65km an hour on the expressways. Every three months the fee structure is reviewed and adjusted, if necessary, to maintain these speeds.

    "Toll systems need to be flexible to be effective. Singapore’s first charging system, in which drivers had to apply manually for a licence, reduced traffic into the city centre by 40%. The introduction of electronic road pricing (ERP) in 1998 has enabled the system to be fine-tuned with variable charging rates which can be changed every 30 minutes. The revenues are barely 60% of the previous manual scheme, but electronic tolling has reduced congestion in the inner city by a further 15%.

    "A recent visit suggests the system is working well. Even some of the city’s obstreperous taxi drivers accept that it has reduced congestion. People were softened up at the start with a reduction in the very high vehicle-ownership taxes as soon as congestion charging was introduced. And the city’s Land Transport Authority has been careful to listen to drivers’ complaints. The fine for not having a valid cash-card was slashed, after an outcry, from S$70 to S$10."

Limited posting

I haven't posted for about two weeks, due in part to a business trip and due in part to problems associated with changing the Internet service provider. Posting should pick up somewhat shortly.

Site Address Change Coming Soon

I'm changing my Internet service provider and I'll be changng the address for this web site soon. I'll let you know as soon as I figure out the details.

A neat web site

Sorry for the lack of posts since Jnauary 28. I've been traveling to attend the February meeting of the North Pacific Fishery Management Council and it's been difficult to post to the site.

I'd like to draw your attention to a very valuable site devoted to regional economic information: "". This is a well-organized site that provides links and access to many types and sources of of regional economic information. You can download a well-written 100 page guidebook on working with regional economic data:
    "Economic development decisions are supposed to be based on good data analysis. But a dirty little secret of economic development is that no one teaches us much of anything about what data are available, how to get them, and what to do with them. Socioeconomic Data for Understanding Your Regional Economy: A User's Guide aims to address this problem.

    "The User's Guide is a comprehensive and easy-to-use reference for both novices and experienced data users to find and use economic statistics. The heart of the User's Guide is a thorough, plainly written explanation of the principal data series used for analyzing the performance and structure of local economies, on topics such as population, income and earnings, employment and unemployment, cost of living, and exports. For each series, the User's Guide lists specific measures, time frame, geographic detail, methodology, means to accessing the data, and staff contacts. The User's Guide also gives overviews of key statistical agencies, points to data intermediaries who can help you get the data you need, discusses approaches to using data, provides references for further self-education, and lists important data sources to put in your library.


    "Part One: The Basics
    Tools of the Trade
    Data Sources: Where the Numbers Come From
    Statistics for Analyzing Your Economy
    Data Intermediaries: Guides in the Statistical Jungle

    "Part Two: Lessons of Practice
    Ten Habits of Highly Effective Data Analysts
    Bookshelf Basics for Economic Analysts
    The Web's Twelve Best Sources for Regional Data
    Seven Pitfalls of Data Analysis
    Advanced Analysis: Power Tools for Data"
You can subscribe to a monthly email service providing information on new resources. The February 2003 newsletter has information on (and links to) (1) a data base that integrates county level data from the Census, Bureau of Economic Analysis, and Bureau of labor Statistics, (2) the National Highway Transportation Safety Administration's Fatality Analysis Reporting System (Alaska's fatality rate of 2.3 fatalities per 100 million vehicle miles traveled is fifth from the top, and far above Massachusetts' 0.8) (3) The National Safety Council's Air Bag Fatalities data set, (4) a report from the Institute on Taxation and Economic Policy on the distribution of the tax burden in each state: "Who Pays: A Distributional Analysis of Tax Systems in All 50 States" (only four states have "progressive tax systems"), and (5) more.

This site and the supporting monthly email newsletter is a very valuable (and free) service.