Why are liberals so romantic about small business?

There is a protest today in Los Angeles against the construction of a new Wal-mart in Chinatown.  The store would be part of a mixed use development near a transit station on a lot that has sat vacant for some time.

I am no fan of Wal-mart.  Among other things, I wish that those who attempt to bring a class action suit against Wal-mart pay discrimination had prevailed in the Supreme Court case of Wal-mart vs Dukes.   Nevertheless, it also concerns me that Los Angeles has had essentially no job growth in two decades, and that urban redevelopment is very difficult to do here.  According to the leading scholar on the economics of Wal-mart, Emek Besker, Wal-mart creates more jobs than it destroys (BTW, I don't think Emek is a particular fan of Wal-mart either).  It also allows households to buy goods at low prices. On balance, I think the construction of the Wal-mart in Chinatown will be good for that particular neighborhood and the city.

One of the arguments advanced against Wal-mart is that it hurts small business.  I particularly hear this from fellow liberals, who love to extol the virtue of small business.  Yet, according to Kelly Edminston at the KC Fed, job quality is much worse at small business than large firms. The average wage at a small firm (< 100 workers)was $15.69 an hour in 2004; for large firms (>500 workers) it was $27.05. Moreover, small businesses paid 1/4 of their labor force less than $8 per hour; for large businesses it was 3 percent of their labor force.

Meanwhile, no one lobbies harder against the minimum wage than small business trade associations. The National Federation of Independent Business was also the lead plaintiff against the Affordable Care Act.  So to those liberals who extol small business: what's the deal?

How life has gotten better

I am in the middle of editing a paper that is due to a funder on Monday. 

I am also thinking about how miserable it was back when cutting and pasting literally meant cutting and pasting.

Downtown Los Angeles' population is growing at a rapid clip, but....

...it is still is a small fraction of the city, let alone the metropolitan area.  According to the census, zip codes 90012, 90013, 90014, 90015, 90017, 90021 and 90071 grew between 2000 and 2010 from 82,000 to 97,000, a gain of 18 percent.  This compares with a gain of less than three percent for the city.

Nevertheless, the residential share of downtown remains only 2.6 percent.

Laurence Ball provides an explanation for why Ben Bernanke is pursuing (non)policies that disappoint Ryan Avent

Ryan Avent writes:

Fed members claim to care equally about the employment and inflation sides of their mandate, yet the unemployment rate has been at least 2 percentage points above the FOMC's estimated natural unemployment rate for nearly 4 straight years while inflation has scarcely wandered more than a half percentage point away from target since late 2009. Fed members claim that the 2% target is not a ceiling, but inflation has been below 2% much more often than it has been above it over the past 4 years, inflation is projected to be at most 2% in 2013 and 2014, and inflation is projected to be substantiallybelow 2% in 2012. In other words, the Fed is actively pursuing a policy of disinflation despite the fact that annual inflation is roughly at target while unemployment is well above its structural rate. That is, the Fed has gone from merely failing at its job toaggressively failing at its job.

Second, it is difficult to pin blame for this on anyone other than Chairman Ben Bernanke. The June policy vote ran 11-1, suggesting that Mr Bernanke is not getting the most expansionary policy for which he can find a majority. One is forced to conclude that this is the policy, and by extension the recovery, that Mr Bernanke wants.

All of this is particularly discouraging given that Bernanke's own magnificent scholarly work calls for the Fed to be more aggressive at the zero-bound, if necessary.  Lawrence Ball perhaps has some insights into what is going on:

"There is no doubt that Ben Bernanke's views on zero-bound policy have changed over time.  Once, he called for targets for long-term interest rates a "policy I personally prefer"; later, he "agreed 100%" with opposition to that policy.  Bernanke once advocated a 3-4% inflation target for Japan; as Fed chair, he says "that's not a direction we're interested in pursuing."...he no longer argues that a central bank can easily overcome the zero-bound problem "if the will to do so exists." 

At one level, the primary reason for these changes is also clear: Bernanke was influenced by the work of the Fed staff... 

...The puzzle about this history is why Bernanke so quickly and completely dropped his previous views and adopted those of Fed Staff.  We cannot be sure, but social psychology suggests two possible factors: groupthink and Bernanke's shy personality."

I am a big fan of Bernanke's scholarly work, and as a result was thrilled when he was appointed Fed Chair.  My understanding, however, is that he hasn't a whiff of arrogance about him, a characteristic that makes him a wonderful scholar and, from all I can tell, a wonderful human being.  But Chairman Bernanke really is the smartest guy in the room, and it would be nice if he remembered that. If the views he (along with Mark Gertler) developed over many years informed monetary policy, we would all be better off.

A thought for Amazon

If you buy a real book, you get the Kindle version for a nominal cost beyond the real book. This would encourage people to continue to buy real books, while at the same time allowing people not to lug them around while travelling. Given that the marginal cost of an e-book is near zero, this should be a profitable strategy. The margin on the real book remains, and a small margin is added for the e-book.  The bundling should encourage more sales.  The losses are from those who currently buy both versions, but I am guessing such buyers are small in number.


No charge, Jeff Bezos. And you're welcome. [Update: my friend Frank Yellin tells me this idea is often expressed in Kindle forums.]

The frustration of following "affordable housing" policy in California

The United States is sufficiently rich that all people should have decent housing they can afford.  Decent means sanitary, safe, and, if not spacious, not overcrowded either.  This housing should be available such that when households pay for it, they have money left over for other things, like food and education.

In Los Angeles, this is not the case.  Absent housing assistance, a renter at the 25th percentile of the income distribution must pay more than 45 percent of income in order to rent a unit at the 25th percentile of the rent distribution.

The vast majority of those eligible for housing assistance do not get it, because housing is not an entitlement, and budgets for housing assistance are, in the overall scheme of things, small.

Yet we can do far better in Los Angeles than we do.  For starters, even though we are the second largest and second densest metropolitan area in the United States, the impediments to building dense housing here are enormous.  I just judged a case competition for our RMPIRE executive program here at USC, and was impressed at the creativity of a team that wanted to use a particular lot's floor area ratio allowance of 6 to build densely packed units on a site no more than one mile from downtown Los Angeles.  The residential use would require a zoning change, however, and many judges felt that getting such zoning approved would be next to impossible.  It depresses me to say so, but I happen to agree with them.

But there is another problem as well.  While I have little doubt that allowing denser housing would lower rents in LA, it still wouldn't solve the problem--there would still be a "gap" between the present value of rents lower income households could afford to pay and the cost of building units.  This gap would need to be filled by government financing.

And so we come to the next problem--when we build "affordable housing" here, we do so in a remarkably inefficient fashion.  Government financing rarely comes from a single source, but rather comes in layers of financing from various local, state, and federal agencies.  Each slice of financing involves fees that go to consultants who arrange for the financing.  All of this adds to the amount of time and expense that are required to get financing, which ultimately pushes up the cost of bringing a project to market.  At the same time, communities require "affordable" units to have design amenities and, worse, covered parking.  This can drive the cost of production of an affordable unit to $400,000 and more.

Meanwhile, the median sales price of a house in Los Angeles County is $287,000.  See the problem here?  To provide "affordable housing," it would actually be cheaper to purchase the median priced home (hardly a bad house) than it would be to build something new.  But of course, there are many people who gain when $400,000 is spent to bring an affordable unit to market--just not taxpayers or low income users of houses.

Lew Ranieri on why the REO rental business is tougher than you think

When renters turnover, the cost of getting the house ready for the next tenant can be 10 times higher than getting an apartment ready.