Pages

Monday, April 21, 2014

I've Listened to Nick Rowe but What Would Standard Economics Have to Say About Nice Bus?

     I have-Nick you can't say I didn't listen-you said those of us who want to criticize mainstream Macro should read a decent textbook so we actually know what it's about.

     http://worthwhile.typepad.com/worthwhile_canadian_initi/2012/07/can-you-please-read-a-first-year-textbook.html

     Many at the time found this rather off-putting if not condescending, however, over time I decided it perhaps wasn't so unreasonable. To that end I'm currently reading Mankiw's Principles of Economics-it's the 1998 version as it was much more affordable than more recent versions-however, it doesn't look to me that you lose all that much-I was perusing a more recent version on line-that costs over one hundred dollars and most of it is the same.

    I'm also at the same time reading this book that Stephen Williamson recommended-I'm reading this one on Amazon Kindle-I always have a physical book which I read on the bus every day-and a book I read online at Amazon Kindle-'Big Ideas in Macroeconomics' by Kartik Arthreya. David Glasner had a pretty good decent look at it.

     http://uneasymoney.com/2014/02/03/big-ideas-in-macroeconomics-a-review/

     Overall, he was not very impressed. SW later had a response to his response to the book-SW wasn't too impressed with Glasner's being unimpressed with the book.

     http://newmonetarism.blogspot.com/2014/02/macroeconomics-in-blogosphere.html

     He thinks that the fact that criticism of the book amounted to 'another poor blogging performance'-he at least gave Glasner credit for reading the book unlike other critics-you can guess who these usual suspects are?

     Now that I'm reading I do think that Arthreya does a pretty good job of explaining some difficult ideas well. I think that what you do come away with is that you may think that ideas like Pareto optimization or Walrasian Equilibrium are all wrong but it's not so easy to really show how once you get into looking at it in more depth. Much of what he seems to say is that things like PO or WE aren't literally true but they are nevertheless very useful ideas and models and no one could actually get us a better model to work with. One thing that comes through clearly in both Mankiw and Arethya is a belief that free markets is the best way to allocate most goods and services-though neither claim that this is true for everything.

     Yesterday I had a chat with a bus driver on Nice Bus-the Nassau County bus line that was run by the MTA before but has now been taken over by the private company Veolia-which calls the bus company 'Nice Bus' now. The conversation turned here after I asked the bus driver why they don't consider expanding to having three N35s run per hour during the week rather than the current two.

    She explained that this would never happen as they already consider the N35 a money loser for them-I protested that it's pretty busy in the morning but she says that the rest of the day is slow-in fact they were talking about discontinuing the route at one point. This came a shock as without the N35 getting around Baldwin by bus would be more or less impossible and it certainly is a much more used bus than many others. Basically there are only a few lines that really pay-the N4, the N6, the N70-72 line, the N49. Now their agreement with Mangano and Nassau County disallows them to discontinue a route like the N35-but it does kind of give you an idea of the difference between a private company and a quasi public company like the MTA-the MTA is there not to turn a profit first and foremost but to make sure that residents have adequate transportation. Nice just wants a profit.

    To be sure, I don't know that standard theory is necessarily vanquished here-this is what I meant when I said it's not as easy to defeat as some 'heterodox' types think. Mankiw never claims that the government shouldn't do anything-he leaves scope for the government to run certain industries. Public transit might be seen as one of those exceptions to the rule that he and Artheya certainly acknowledge. Mankiw would agree with this in certain industries but perhaps not public transit. He had an argument in the book that costs could come down and services up if the private vans were given the right to do their thing by the authorities.

   Yet I see problems with this approach-if there were private vans picking everyone up, surely the area that the buses go would decrease rather than increase.

 

   

     

4 comments:

  1. Nice Bush?.... you mean like a nice member of the Bush family?, or a nice shrub?, or do you mean... (this blog gets more interesting everyday) :D

    ReplyDelete
  2. Chapter 15(?) monopoly, and the part of chapter 11(?) "Public Goods and Common Resources" where it talks about natural monopoly.

    Assume that fixed costs are large, and marginal costs are small, so the ATC curve slopes downwards, with the MC curve always below the ATC curve.

    Draw a downward-sloping demand curve.

    The efficient quantity is where the demand curve cuts the MC curve (provided the area under the demand curve exceeds total costs), but this involves the producer making losses.

    One solution is price control plus subsidies. (Or maybe price discrimination, like where they sell bus passes, rather than a price per ride). Or public ownership.

    See especially the section near the end of chapter 15. The bits on regulation and public ownership.

    ReplyDelete
    Replies
    1. Put it this way: it would be great if an intro economics text gave us the answer to every question we wanted to ask. But that's too much to hope for. In this case, it only gives us some useful tools for thinking about the question and about possible answers. But that makes it worthwhile. To go further, we would need to know more about the bus business.

      Delete
    2. Nick, O/T: I try my hand at another Rovian type argument:
      http://pragcap.com/did-market-monetarists-accurately-predict-low-inflation/comment-page-1#comment-173694

      Delete