REDUCING CONGESTION. I'm embedding an Overhead Wire remix of an IBM commercial making the case for congestion pricing of roadways.

Go there for the original video.

QUOTE OF THE DAY. The February issue of Railway hit the mailbox, just in time for the start of the new semester and the latest round of snowstorms. Inside is a report on the magazine's annual escorted tour, this one to Colorado in September 2008. Most of the reporting is on the narrow gauge tourist lines, much of it from the British perspective (do they know that the Great Western they passed under is a former sugar beet hauler connecting to the Union Pacific?)

Now to the quote.

Powder River Basin is the single largest source of coal mined in the USA and in 2007 produced 396 million tones of the black stuff. The complexity of operations is worthy of a feature in its own right with more than 130 train movements in the area per day and most of it served by a four track line -- akin to having a large section of the West Coast Main Line set aside just for coal!

I've remarked on the excellence of U.S. freight railroads repeatedly (keep scrolling), and Tom Bozzo got to visit the Powder River Line on official business.

Since Railway is a European magazine, perhaps a future feature on the Powder River will open the eyes of some excessively Europhilic passenger train advocates (yes, I'm looking at you!) to the realities of North American railroading practices and the genuine differences in freight and passenger train technology.

FROM THE TRENCHES.

The Pope Center's Jane Shaw takes on the efficiency and equity issues in state-subsidized tuitions.

Low tuition is not always as fair as people think—or even always beneficial for students. Keep in mind that low tuition is not the same as “low cost.” Students pay less in North Carolina because taxpayers are footing a large portion of the bill. According to UNC system president Erskine Bowles, throughout the system about 70 per cent of the expenses for a student’s instruction are covered by state appropriations. Tuition covers only about 30 per cent, on average. At Chapel Hill, which has enthusiastic alumni and large private donors, state support of student instruction is somewhat less, about 60 per cent.

Many students from wealthy families pay $16,370 to live and study at UNC-Chapel Hill. This compares to $40,000 or more at private schools such as Wake Forest, Duke, and Vanderbilt. We have to ask, should wealthy families really be paying only 40 percent of the cost of their children’s education?

There's material for several articles in this paragraph alone. In a world where the prestige universities award merit scholarships and other inducements to raise their academic profile, we cannot conclude that wealthy families necessarily pay more than 40 percent of the cost of their children's education.

The taxpayer is paying the remaining 60 percent. Yet only about one-fourth of North Carolina’s adults have college degrees. That means that construction workers, sales clerks, and short-order cooks are contributing to the education of affluent students who will themselves go on to make large amounts of money, thanks in part to their Carolina degrees.

So fairness is not an open-and-shut case.

Public policy is full of regressive transfers (keep scrolling). Fairness is one public policy goal. Allocative efficiency is another. Where the government subsidizes the activity, expense-preference behavior by the government is a possibility. That's the main focus of the article.

Additionally, while low tuition is attractive to students, it often results in a variety of problems that can prolong the amount of time it takes to earn a degree. Most colleges and universities routinely pay lip service to how well they serve their students’ needs, but the reality doesn’t always match their promotional literature.

Schools cut corners. At large institutions such as N.C. State, for example, it’s often hard to get into the classes you want, either because they are full or because they are not offered very often (or both). If you don’t select your major soon enough, you may have to wait for additional semesters to go by, delaying your graduation. It’s standard practice in some of our leading universities to seat students before often-unprepared graduate assistants in giant lecture rooms .

Our spring semester started this week. I once again had the rush of people looking to add my sections. As part of the first-day rituals, I explain the game the university is playing with the legislature, using the students as pawns. It works like this: the university authorizes fewer sections, the departments suggest that the students make their schedule-completion difficulties known to the deans, the deans suggest that the students and their parents make their schedule-completion difficulties known to the legislators, the legislators haven't figured out how to sell seats in classes yet.

In my view, one reason why students get slighted is that the universities inevitably pay more attention to the people who provide the big bucks—the legislature—than to those who provide fewer bucks—the students.\

There’s an expression, “Who pays the piper calls the tune.” If you are providing the money, you can expect your interests to be satisfied. If students (and their parents) were paying the full cost of their tuition bill, they would demand more and would probably get it.

It's not a problem for the land-grants and public comprehensives only. Charlie Sykes once reported that Harvard history majors had t-shirts made up reading [History], protesting the propensity of that department to [not offer] sections.

What we often see instead is compromise. With tuition low (and loans available), many students take a few courses, stop and work awhile, then go back, puttering along. They are “in school” but they aren’t focused on getting that degree; they lack the motivation that they would have if they (or their families) were paying larger amounts of money. Many do not graduate. And the low price attracts people who would be better off seeking other options than a college degree to waste their time in college. Ironically, low tuition may help explain the low graduation rates that plague many of our public universities in North Carolina.

That conclusion should come as no surprise to regular readers.

SOME NEW RAILROAD READING. A correspondent brings Railway Herald, a new weekly online magazine based in Britain, to my attention.

Britain's SD20Rs, refurbished Tractors, now Class 97, at Barrow Hill.
Railway Herald photo by David Wragg.

The Armour Yellow is correct. One of these days I may have time to play with my photo editing equipment and put some stripes and shields on these.

I'm saving the nose wings for the Armour Yellow 43s.

GIVE US THAT OLD TIME RELIGION. Northern Illinois public affairs interview historian David Kyvig on the parallels with the Great Depression.

“We’ve learned a lot from the Great Depression, including lessons about the value of government regulation in building confidence in the economy,” Kyvig says. “That was one of the great contributions of the New Deal. As soon as government imposed oversight on banking and stock exchanges, confidence in those institutions began to grow immediately.

Not quite. The Cold War conceit of a "peoples' capitalism" could not stand up against the overwhelming evidence that relatively few people owned common stock, with much of it held by other corporations or by financial houses. The moral hazard that deposit insurance creates for moneylenders only manifested itself in the aftermath of the stagflation provoked by the so-called Great Society.

In recent years,” he adds, “we had lost sight of the fact that government supervision is necessary for a healthy economy.”

Judge for yourself. There are some dissenting arguments nailed to Newmark's Door.

In the 1920s, as in the years preceding the current economic recession, Americans had come to rely on consumer credit. Only a small percentage of people held stock, but with the advent of radio, Americans paid close attention to the ups and downs of the market. They knew fortunes were being made.

I wonder if Public Affairs doesn't oversimplify here. Instruments of credit enable people to make long-term investments, something that was at one time not possible for anyone, and for a long time available only to the soundest of companies. It's speculation to suggest that people would have a greater propensity to borrow against future wealth, if that future wealth is not their own.

As far as the government supervision, perhaps someone could calculate how large a staff the banking commissioner would require to review all the loan applications. The regulatory drag is likely to more than offset the avoided losses. It's possible that the hard-core libertarian argument that self-interested people would be quicker to stop a credit bubble than a regulator could is valid. Alternatively, the hard-core public choice argument that bubbles create temptations to take bribes is also valid. I expect a faculty member at Northern Illinois University would recognize that.

The article suggests the heretics are right.

When Roosevelt comes in and says, ‘The only thing we have to fear is fear itself,’ that has a profound impact,” Kyvig says. “But it doesn’t immediately kick start the economy.

“The psychology starts to improve, but it takes a lot of government regulation and spending to get the private economy moving again, and it won’t be until the beginning of war spending (in 1940) that we get up to the level of production that produces a full-employment economy.

Perhaps the simpler explanation is that the New Deal failed as a macroeconomic policy.

Its aftereffects haunt us today.

Not all New Deal programs were successful, according to the NIU historian. But most did work to jumpstart the economy and calm public fears. The creation of the Federal Deposit Insurance Corporation reassured people about the security of their bank accounts, and the Securities and Exchange Commission provided needed regulation to the stock market.

The Social Security system was established in 1935. And a number of public works programs were launched, the biggest of which was the Works Progress Administration, which put people to work on public infrastructure projects. The National Youth Administration provided part-time work for high school and college students, helping to keep them in school and keeping them from competing for jobs in the full-time workforce. In the long run, it led to a better educated populace.

“Indeed, some of the mechanisms created by FDR are still in place and have even helped to rein in the current economic downturn,” Kyvig says.

That is, the ones that didn't exacerbate it, and the ones, such as deposit insurance and social security, that are huge off-the-income-accounts contingent liabilities. Perhaps it's awareness of these things that contributes to the incoming presidency not trotting out "Happy Days Are Here Again" and all the other trappings of the Roosevelt era.

HISTORY LESSON. Professor Palmer finds a recent picture of a Turkish store.


David Hirsh (via Photon Courier) reacts to Naomi Klein calling for a global "kauft nicht bei Israel."


Perhaps we have this to look forward to.


Economic distress, social distress, political incompetence, regional wars. Promises to be an interesting year.

IT WILL BE GOOD MONEY AFTER BAD. At least two of the legacy car companies are DOA.

General Motors Corp. and Chrysler LLC technically are bankrupt and Chrysler is a step away from death, said Sean McAlinden, chief economist for the Center for Automotive Research in Ann Arbor.

"GM and Chrysler are insolvent. Without federal funding they are bankrupt," McAlinden said at a conference today at the joint office of The Detroit News and Detroit Free Press. If the government took half of all of the bailout money away, they would go back to being bankrupt, he said.

"GM will not meet the initial conditions of the loan. But the conditions will change so GM can keep them," McAlinden said.

His prognosis for Chrysler is not as rosy.

"Chrysler will go away," he said. "Most cats don't have that many lives."

McAlinden described the company as being in hibernation, operating at a "one beat per minute level." Chrysler idled all North American manufacturing plants this month and entire floors in its Auburn Hills headquarters are empty in the wake of recent 5,000 white-collar buyouts.

The company has been, for some time, working to consolidate staff from other locations in Auburn Hills and continues to do so, said spokeswoman Shawn Morgan, who took exception to comments that the purchasing department has all but been eliminated.

McAlinden said Chrysler needs $6 billion to pay its suppliers for last quarter's parts and he suspects the full $4 billion loan went towards these payments. Chrysler initially sought $7 billion from the government.

McAlinden said Chrysler may threaten to keep its factories closed longer as a bargaining tool in negotiations with the new Obama Administration.

The subgame perfect Nash equilibrium might be for the administration to call Chrysler's bluff.

CRASHED FOR LACK OF A THEORY.

Princeton's Uwe Reinhart reflects on economics, and the recent national conference in San Francisco.

If, like every university, the American Economic Association had a coat of arms, its obligatory Latin banner might read: “Est, ergo optimum est, dummodo ne gubernatio civitatis implicatur.” (“It exists, therefore it must be optimal, provided that government has not been involved.”)

With only minor injustice, one may take this as the overarching mantra to which the core of the economics profession marches. Government is accorded a beneficial role in this vision only to provide purely public goods, such as national defense; to remove private-market imperfections, such as monopoly power on either side of the market; or to deal with so-called spillover effects from private decisions, which economists call “externalities.” These exceptions aside, unquestioned belief in the sagacity, efficiency and beneficence of private markets reigns supreme.

Those exceptions are non-trivial, but yes, one can put together a coherent manual for public policy framed by market "failures" that "warrant" government correction, and more than a few majors become Democratic Party operatives based on that formulation. As long as up-and-coming economics stars can get their work onto the prestigious conferences and into the top journals by ringing changes on those received models, they will.These thoughts occurred to me as I attended the American Economic Association’s annual conference in San Francisco over the weekend.

It offered a humongous smorgasbord of eloquent theory, clever econometric tricks, illuminating empirical insights and a few standing-room-only panel discussions on the shocking surprises the real economy served up as the economics profession was otherwise preoccupied during the past two decades or so.

Perhaps the research that anticipated the surprises didn't get written, because the Ph.D. students who could write it were steered into writing the kind of work that extended the hot topics (every so often, somebody comes up with a meaningful extension, for the most part it bores interviewers to death). Perhaps it didn't get written because the information sets don't easily qualify as sigma-algebras, and the payoffs can't be set up to exploit the topological tricks that fill the pages of Econometrica and Journal of Economic Theory. Or perhaps it got written, but because the authors weren't at the forty claimants to top ten status, the articles were rejected. To Professor Reinhart's credit, he recognizes that informal status hierarchies reinforce the existing research traditions.

How could the economics profession have slept so soundly right into the middle of the economic mayhem all around us? Robert J. Shiller of Yale University, one of the sage prophets, addressed that question in an earlier commentary in this paper. Professor Shiller finds an explanation in groupthink, a term popularized by the social psychologist Irving L. Janis. In his book “Groupthink” (1972), the latter had theorized that most people, even professionals whose careers ostensibly thrive on originality, hesitate to deviate too much from the conventional wisdom, lest they be marginalized or even ostracized.

If groupthink is the cause, it most likely is anchored in what my former Yale economics professor Richard Nelson (now at Columbia University) has called a ”vested interest in an analytic structure,” the prism through which economists behold the world.

This analytic structure, formally called “neoclassical economics,” depends crucially on certain unquestioned axioms and basic assumptions about the behavior of markets and the human decisions that drive them. After years of arduous study to master the paradigm, these axioms and assumptions simply become part of a professional credo. Indeed, a good part of the scholarly work of modern economists reminds one of the medieval scholastics who followed St. Anselm’s dictum “credo ut intellegam”: “I believe, in order that I may understand.”

For the most part, the approach works reasonably well. Theorizing produces sufficient conditions under which observed behaviors occur as a consequence of optimization subject to constraint. The testable implications of such work are sometimes difficult to evaluate. (The econometrics often gets in the way. A reviewer can raise an objection based on a deep theorem of statistical inference, which can sink the paper for lack of an easy test. And when there is a relatively easy test, the researcher might still have to develop his own algorithm to perform the test. I had a pleasant conversation one afternoon with a very good econometrician, who was a bit surprised that somebody was actually going to implement the test he had so laboriously developed. Go figure.) Professor Reinhart notes part of the problem in that "hesitate to deviate too much from the conventional wisdom, lest they be marginalized or even ostracized." His mentor, Richard Nelson, has held positions at top departments despite being a dissenter from the mainstream. There might be some institutional research somewhere to the effect that departments will prefer a middling-ability researcher who sticks to safe topics (yielding a dependable flow of publications) to a middling- or middle-high-ability researcher who takes more risks.

An inference drawn from the profession’s credo is that private markets invariably are self-correcting and are driven by rational human beings whose careful decisions serve to allocate scarce resources efficiently — that is, these decisions maximize a nebulous thing economists call “social welfare.”

“Social welfare” in this view is thought to increase when those who gain from a change in the economy — e.g., a corporate restructuring or deregulation of the financial sector or increased foreign trade — gain more from the change than those who lose from it, even if the gainers had already been wealthy before the change and the losers poor. Thus, few economists were troubled by the explosion of executive compensation on Wall Street or elsewhere in corporate America. It was just the efficient market at work, rewarding these executives for the “value” they were creating. With their model of how the economy works, economists seem to have great difficulty recognizing bubbles in asset values and often are the last to recognize such bubbles, which is why the Fed has never addressed them.

Here Professor Reinhart is on less firm ground. We have regulatory error of omission and of commission, neither of which lend themselves to easy treatment under the standard welfare-theoretic models, or to precise analysis by heterodox methods. The column leads Kip Esquire to a spot-on conclusion.

And we wonder why most college graduates, despite taking at least one economics course as undergraduates, are worse than illiterate when it comes to economic policy analysis.

A survey of economics that offers the Readers Digest Condensed Version of Keynesian economics, or Old Chicago price theory, or Market Failure Warrants Government Intervention, is scant preparation for a career as policy analysis. One only gets good at evaluating conflicting claims by evaluating conflicting claims and observing the outcomes. Here Mr Esquire goes astray.

But who is guiltier of invoking the fiction of “social welfare” as the basis for economic policy prescriptions — neoclassical defenders of laissez faire or neo-Keynesian defenders of unbridled income redistribution and economic interventionism? Economist, heal thyself!

Finally, note that there is another, far more powerful defense of capitalism than the “unquestioned axioms and basic assumptions” of neoclassical economics and its “social welfare” predictions. And that is the moral defense of capitalism: the remarkably modest suggestion that an economy based to the greatest extent possible on voluntary exchange among competent consenting adults rather than on government coercion (i.e., majoritarian looting) might — just might — be “the greatest good for the greatest number” regardless of what the economic data (or the economists who parse them) might otherwise suggest.

There is at least one "greatest" too many in that formulation -- sorry to have to go math jock on you -- but the real kicker is in that "competent consenting". A bank offers a low-interest loan with no money down in the expectation that house values will continue to double in five years, and an individual with a spotty job history signs the papers. Let's play Spot The Incompetent.

SMALL BEGINNINGS. When bubbles pop, the culmination is often spectacular, as in AIG or Merrill Lynch or General Motors being acquired or liquidated. The first stirrings are sometimes nearly imperceptible, as in Western Washington University ending its football program.

Western Washington University announced Thursday that it will eliminate its football program, having found no other way to deal with a deficit in the athletics budget. The Associated Press reported that the move is being viewed as a blow to Division II football, which will now have only four teams in the West.

I wonder what happened to the fifth Division II team. Did it seek an upgrade to one of the higher divisions? If so, was that a "blow" to Division II, or a strategic repositioning for the university that did it?

MODERN MARVELS. A Google translation of the September 2006 archive.

IT'S BETTER THAT AUGUSTUS BELMONT AND CHARLES YERKES DON'T KNOW. I discovered that today is Global No Pants Subway Ride Day. Apparently other transit systems also qualify, based on a Fox News clip of Phoenix streetcar light rail passengers in their boxers and thongs. Toronto riders faced colder weather.

WATCH THIS SPACE.


There's a lot of work before the trains will run.

CLASSY. Today's commissioning of CVN-77 George H.W. Bush included a fly-past of an Avenger, the plane its namesake flew off of CVL-30 San Jacinto in the Pacific Theater. Nobody leaked the plans to the legacy media or to the former President.

WHEN WE FIND OURSELVES IN A PLACE JUST RIGHT.

Richard Florida has made a productive career researching the agglomeration economies that shape urban areas, making some desirable and some Detroit. His latest effort is Who's Your City? I don't have to work too hard at Book Review N^o. 4, as the subtitle is also the abstract: How the Creative Economy Is Making Where to Live the Most Important Decision of Your Life. To some extent, Professor Florida is offering a rebuttal to Thomas Friedman with his use of "spiky world" as a counterpoint to "flat world". That's less than persuasive, as Mr Friedman has noted that the Manhattan bond trader has more in common with the Shanghai bond trader than with the Brooklyn electrician. The common feature of both arguments is that creative people work with other creative people. Mr Friedman places more trust in instant electronic communication, air transportation, and Federal Express. Professor Florida sees the value of informal, face-to-face networks for business and for personal development (let's face it, the assortative mating of the creative class is the polar opposite of the voluntary communities of the Shakers whose hymn I stole for the title).

That noted, I have two major objections to the book. One, the premium to locating in the most creative communities bids up rents. That produces an arbitrage opportunity, even in recession. Although the efforts of communities that have so far been left behind by the agglomeration of the creative class might be ridiculed: providing edgy bar districts or technology parks or graduate programs at what was once a normal school do not necessarily work, lower rents plus the ancillaries are the right formula. (Gad, that's a Teutonic sentence. Must be close to the start of the new semester.) At the margin, restaurants in Rockford, Illinois, that do not serve mashed potatoes and gravy with lasagna are a step in the right direction. (The anecdote is at page 224. I don't get out enough to identify the restaurant.) Two, Professor Florida might actually be making the case for socializing all young people, irrespective of background, into the ways of the middle class. He grew up in Newark. Turn to page 86.

But my intuition also told me that I would benefit even more from leaving the working-class, tough-guy peer group of my youth. Many of my friends were already well into drugs and petty crime. Few who stayed behind had ambitions to go to college, let alone pursue careers.

Rutgers was there for Professor Florida. The land-grants and the mid-majors matter. So, too, do good adult mentors, teachers who push their charges, no matter how disadvantaged those charges may be, parents who hope for a better future for their kids, politicians who don't take bribes. Perhaps it's the abdication of all of those people, in far too many neighborhoods, that creates the spiky world.

(Cross-posted to 50 Book Challenge.)

KEEPING THE POOR POOR? Chicago Sun-Times columnist Mary Mitchell contemplates one source of support for impeached Illinois governor Rod Blagojevich.

Since the criminal complaint against Blagojevich was announced, the mantra in the African-American community has been the governor is "innocent until proven guilty."

Indeed, I've been dodging shoes for just suggesting that Blagojevich should be held to the same standard as police officers and teachers.

After all, community activists have demanded that police officers accused of abusive behavior be taken off the street. And parents would not tolerate a teacher in the classroom who has a cloud of sexual misconduct hanging over his or her head.

But African Americans are a fiercely loyal group when it comes to supporting those in political leadership.

I know that is a sweeping generalization, and someone is going to yelp at me for making it.

She elaborates.

Frankly, Blagojevich is a brilliant politician, and like all brilliant politicians, he knows how to manipulate the emotions of voters.

You also have to consider the relationship between the black community and the criminal justice system.

Too many black families have been nearly bankrupted trying to defend loved ones against false charges.

True though that may be, how many black families have had their lives blighted by the common schools, or the welfare state, or the minimum wage, all important elements of Democratic platforms?

PLAYING THE BOARDS? Electronic mail makes it easier for students to send pleading requests for professors, as if we can somehow magically create seats in rooms where the available square footage is already full of seats. The situation is not made any easier when headquarters has both neglected to adjust the capacity of rooms to reflect the installation of the so-called smart classroom technology, which requires a fixed desk and more space for the electronics and failed to implement a simple waiting list algorithm, something that the airlines have been doing on computers for years, and the railroads used to do with file folders, space diagrams, and telegraphers. (I have discovered there is a way to improvise a waiting list, which I will be implementing in future semesters. First come, first added is a crude algorithm, but it spares me having to weigh tales of woe. When seniors have first crack at registration, in November, how valid is a claim to "urgently need" a class to complete graduation requirements that somebody discovers in January?)

I sometimes wonder if those desperate pleas aren't a consequence of course shopping on Pick A Prof, which headquarters decided is worthy of our recognition, albeit with some reluctance from the faculty. On the one hand, doing the work to identify the allegedly easy sections, from the Pick A Prof histograms and from the allied social networking services strikes me as more work than simply doing the homework. On the other hand, I wouldn't put it past a corner-cutter to do that sort of internet surfing, and work through the catalog options from easiest to hardest. It's a good thing the surfing and registration histories of students are confidential.

In case any economics students look in, tales of woe don't impress economists.

We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages. Nobody but a beggar chooses to depend chiefly upon the benevolence of his fellow-citizens.

What's missing is an incentive structure in which late registering students can make mutually beneficial agreements from professors that don't look like bribe-taking.

SIGNALLING FAILURE. Politically reliable hacks in charge. Special slush funds for administrators. Neighbors who report deviationism to the authorities, or perform impromptu reeducation on behalf of the authorities. Resources going to sports, while other capital deteriorates for lack of maintenance.

We are not speaking of higher education. This is East Germany. Walter Ulbricht and Erich Honecker would not be able to manage a hot dog stand. The slush funds went to keep up appearances in the sports programs, which took performance enhancement to lengths that would embarrass Tony Mandarich. The Stasi kept better files than Student Affairs, and their officials were better shots.

All this is briefly summarized in The Berlin Wall: A World Divided, 1961-1989. An East German pretty well sums up the entire episode: "So ... they built the Wall to stop people leaving, and now they're tearing it down to stop people leaving. There's logic for you." If you're familiar with the workings of petty tyrants, the book will not provide many additional insights. I don't have to worry about spoilers in Book Review N^o. 3, as everybody knows that it did come down. The book will provide some background (all the way back to when some Slavic sand-dwellers put a "von" in front of their names and established Berlin) and some amusement (the border police didn't recognize the man with a younger wife who emerged from a limousine to scowl at the wall). The book recognizes the uneasy equilibrium that emerged after Ulbricht and Khrushchev built the wall. The politics of the era were complicated, and this book provides some understanding of that, with no surprises. Popular perception might have had the world closer to war than the generals and politicians were.

(Cross-posted to 50 Book Challenge.)

GOING FAST ON RAILS. I've been cleaning up the files, and turned up a May 2007 European Tribune diary entry speculating on a high speed rail network in the United States. It's rudimentary. I have been following the wishful thinking for some time (keep scrolling). Now comes John Judis of the Emerging Democratic Majority, a little late for Christmas, but asking for the electric trains all the same.

I am not suggesting that the United States start a world war in order to solve the world's economic problem. But I am suggesting a strategy that could be called the fiscal equivalent of war.

It would consist not merely of updating or repairing the nation's infrastructure, but in undertaking massive new investments that would expand the scope of American industry, and address other urgent problems in the process: global warming, over-reliance on petroleum, and the need to revive America's domestic manufacturing capabilities--not just to provide jobs, but also to provide tradeable goods that can reduce the country's current account deficit.

We'll get to the trains in a moment. Note, though, that Democrats will still be Democrats. Younger voters didn't experience the Carter administration, in which energy "independence" was the "moral equivalent of war." That is, a war that does not take advantage of oil shales or coastal or circumpolar oil sources. But I digress.

One area that is ripe for such investment--and that is not, from what I have seen, a declared priority of the Obama administration--is high-speed rail. Amtrak's Acela trains--the closest thing we have to one--average less than 100 mph between Washington D.C. and Boston, whereas trains in Western Europe and Japan go more than twice as fast. Many of them also run on electricity. They would be the most energy-efficient and quickest means of getting between places like Boston and New York, or Los Angeles and San Francisco. But they would require a massive investment. For instance, installing high-speed rail in the Northeast corridor could cost about $32 billion, while California's high-speed rail system would require up to $40 billion. A system that would address the other areas of the country could easily raise the cost to the hundreds of billions. The House transportation and infrastructure committee has currently proposed $5 billion in stimulus funds for intercity rail--not even a down payment on what it would cost to convert the U.S. to high-speed rail.

Perhaps an infrastructure project designed around 150 mph diesel- and turbine-electric trains running on Midwestern rails, where much of the right of way and signalling is already in place, would have a higher cost-benefit ratio.

And perhaps Mr Judis ought understand the railroad business a bit better.

Investing in high-speed rails would be very expensive, but unlike tax cuts--the benefits of which can be siphoned off in the purchase of imported goods--the money spent would go directly to reviving American industry and improving the country's trade balance. That doesn't just mean jobs creating dedicated tracks or new rail stations: Though the U.S. abandoned train manufacturing decades ago to the French, Germans, Canadians, and Japanese, this kind of production could be undertaken by our ailing auto companies or aircraft companies--if the federal and state governments were to place orders. And building trains that would run on electricity would be a paradigmatic example of the "green jobs" that Obama often touts.

It is true that U.S. rolling stock manufacturers have given up on the passenger business. They are, however, the world's best at freight locomotives and freight cars. Unless these rail projects involve all-new rights of way, the government will be working with the freight railroads on access to stations and on right-of-way improvements. There must exist some policy, for example, under which Union Pacific, owner of some of the best midwestern rail corridors, can be enticed into cooperating with the passenger carriers.

QUOTE OF THE DAY. Daron Acemoglu offers a working paper on the intellectual foundations of economic policy.

Our second too-quickly accepted notion is that the capitalist economy lives in an institutional-less vacuum, where markets miraculously monitor opportunistic behavior. Forgetting the institutional foundations of markets, we mistakenly equated free markets with unregulated markets. Although we understand that even unfettered competitive markets are based on a set of laws and institutions that secure property rights, ensure enforcement of contracts, and regulate firm behavior and product and service quality, we increasingly abstracted from the role of institutions and regulations supporting market transactions in our conceptualization of markets.

Shorter version: there is no such thing as an unfettered market. The use of the expression "unfettered market" is the leper's bell of an approaching straw man (to mix metaphors). Rude observation from the mid-majors: exemplifying theory gives researchers incentives to abstract from institutions and regulations so as to provide the weakest sufficient conditions under which a transaction takes place, preferably with little or no appeal to refinements of equilibrium.

Arnold Kling has skeptical observations at Econ Log. Reason's Steve Chapman, working independently of Professor Acemoglu, elaborates.

So what makes anyone think that future bureaucrats, no matter how vast their authority, will be able to do better? Advocates of stricter regulation often talk as though the choice for protecting investors is between imperfect market mechanisms and foolproof government regulations. In fact, governments, like every other institution, are staffed by fallible individuals who can be fooled as easily as anyone else.

The call for more federal control overlooks inconvenient facts. The first is that con artists will often outfox regulators, if only because they have far more to gain from carrying off a fraud than civil servants have to gain from stopping it. If the SEC couldn't catch the brazen Madoff in eight tries, what suggests we should place greater faith in the ability of other agencies trying to monitor a vast network of financial companies?

I would note only, from my seat in Illinoistan, that fooling the government is often not required, where a simple contribution is possible.

Economist's View offers an immediate literature review.

CHASING THE TALENT OUT. I noted the flight of human capital from Michigan over two years ago.

Michigan continues to lead the U.S. in outmigration. That's been going on since the late 1970s.

It continues today.

Michigan saw the nation's most outbound migration in 2008, with 67.1 percent of interstate moves heading out, according to a migration study released Wednesday.

Although the migration does not appear to be in fear of the next ice age, there is still a southward direction of outmigration.

North Dakota (58.9 percent), New Jersey (58.7 percent), Pennsylvania (58 percent) and Rhode Island (57.8 percent) also were in the top five in the percentage of outbound movers. Several other states with high rates of outbound moves were in the Great Lakes region, including Illinois, Indiana, New York, Ohio and Wisconsin.

If the responsibility for outmigration begins in the state house, Illinois might be lucky. Doug Powers of The American Thinker worries that the country might not be as lucky.

Is it any wonder that Michigan's Governor Granholm, who is one of the architects of an economy so bad that Detroit’s honorary economic sister-city of Bangladesh has disowned them, is on Obama’s Economic Advisory Board?

Granholm is also reportedly under consideration for a position as Commerce Secretary (that makes the most sense until they create a “Secretary of What Not to Do”).

In a political atmosphere where where the problem of government over-spending is being “solved” by increasing government spending, nothing is surprising anymore. On the plus side, if Granholm has Obama’s ear for the next few years, Michigan won’t be number one in outbound move rate, but instead tied with 49 other states who will be equally as lousy.

Once the genius behind Michigan’s economy is taken national, there will be nowhere more desirable to flee to, so nobody will move. At that point, United Van Lines will request and receive a huge bailout.

The opposition to the new President appears to be coalescing around an argument that government action cannot check, and might intensify, a bad recession. That's inherently difficult, at least until a majority of the electorate can be schooled on "enumerated and limited powers".