Indeed

Photo: The Oregonian

"It is not so much the sight of immorality of the great that is to be feared as that of immorality leading to greatness"

-Alexis de Tocqueville 

Democracy in America

New Poll! Right Track/Wrong Track

I have a new poll up. I am curious to know (in general terms) if you think the federal and state response to the recession are appropriate in the context of the Oregon economy.  I use the pollsters favorite right track/wrong track language for no real reason except it sound "poll-ish."

You have until the end of the month to weigh in.

Oregon Unemployment: 12.2%

Oregon's unemployment rate remained unchanged at 12.2% in June, but non-farm payrolls continued to shrink by 7,200 jobs.  

No real light at the end of the tunnel here, but I am still hopeful we'll see net job creation by the end of the year.  

Update: Perils of vacation blogging - I had incorrectly declared the unemployment rate 12.4%,it is 12.2% (May was revised downward).  Thanks to an astute reader who pointed this out to me.  

Farmer's Markets

A recent Oregonian article on the high prices at Farmers Markets raises an interesting question: just what are you paying for?  The Oregonian article focuses on the high prices charged at the market and how this compares to CSAs and supermarkets.  There is a long discussion of what the prices actually reflect, yet, interestingly, the discussion fails to mention (or at least explicitly couch it in terms of) the basic economic concept of supply and demand.  

The demand for farmer's markets comes from people who want to consume the food that can be purchased there, but it also comes from the desire to attend an enjoyable open air market, to interact with the people responsible for growing the food, to be able to select the best possible quality and to support local agriculture.  

On the supply side, the cost of providing produce to a farmer's market can be higher because of a lack of effectively taking advantage of scale efficiencies, cost of time and transport to attend the market and the extra cost of selecting the highest quality from among your crops.  

Put these two together and there is little mystery why farmer's market prices are higher in equilibrium than in a supermarket, and nothing sinister either: What we pay for as consumers is a lot more than just a commodity.  

Vacation Post

Still on vacation - here is the iPhone picture to prove it.  

Have collected a number of idea for future posts will try to have a few out this week, now that I have a bit more internet access.  

Stay tuned.

Beeronomics: Employee Owned Companies

Yesterday, Full Sail Brewing celebrated 10 years of employee ownership. They have a lot to celebrate. Full Sail appears to be thriving largely because they seem to have an exquisite sense of the market and have made some pretty savvy commercial decisions that seem to have worked out very well (e.g. the logo and packaging redesign of a few years ago - including the cringe inducing "Brewed to Stoke, Stoked to Brew" slogan - and the successful release of Session). Of course, they also produce excellent beer... But should we expect employee ownership to make a company like Full Sail more or less commercially savvy?

Economists in general have always been fairly skeptical of employee owned companies. The dominant theme in the literature is generally that the incentives of employee owners are to reward themselves at the expense of the firm and to be more interested in the short term success of the company than its long term growth, as well as to have too diffuse a decision making structure and to have too little independent supervision of employees. For example, can employee owned companies make the hard decision to cut positions in economic downturns?

On the other hand, employee-owned companies can be seen as a solution to a classic principal agent problem in that they tie employee compensation to the economic success of the firm. In this theory, employees should be more motivated, disciplined and productive as they understand that their effort is directly linked to firm performance. This incentive is amplified for smaller companies. [One reason why economists tend to be skeptics is that this incentive is often pretty small at the individual level, so would seem to be dwarfed to the incentive to give yourself a big raise regardless of firm performance, for example]

So is Full Sail the exception the the rule or a classic example of the sensibility of employee ownership? Well, it turns out that almost every study of employee owned firms has found that they are either no worse or slightly better than non-employee owned firms in terms of firm performance. [See this nice meta-study for some evidence] It appears that ownership in companies can, in fact, boost firm performance be giving employees a larger interest in the success of the firm.


It is particularly interesting that in an industry that is artisanal in nature this should be true - you might expect another tension between making distinct beers with small market potential and more mainstream beers. Full Sail seems to be mastering both, they were pioneers in developing the more macro-style 'Session' beers, and yet produce some of the most distinctive beers in their 'Brewmaster's Reserve' series. How much does all this have to do with being an employee-owned company is impossible to say, but perhaps it is not too surprising after all.

Regardless, here is to another 10 years of success to Full Sail. Cheers!

US Unemployment Rises to 9.5%

Though a lagging indicator the fact that the US unemployment rate has risen to 9.5% on the the wave of another 467,000 job losses is a pretty dismal showing for an economy everyone thought was starting to bottom out.  It still may, be but the number of job losses is still very severe - quite a bit higher than most economists were hoping for.  This graphic from the NY Times does a nice job showing the reversal in the local trend.  Average unemployment spells are increasing and wages are flatlining - raising real fears of deflation. 

This will inevitable lead to questions of whether the stimulus plan is working and whether it was a good idea.  I'll be another of the many commentators that remind you that the bulk of the stimulus money has yet to be spent, it will be over the next six months and beyond where it will have its effect.  I will, however, harken back to something I said quite a while ago, which is that the stimulus spending, while a lot of dough, is probably woefully insufficient, and that our ability to spend such money quickly and effectively makes me a bit of a skeptic.  I believe in the economics behind the theory, just not in the politics and bureaucracy behind the reality.  

What this national number means for Oregon is pretty depressing: already with a shockingly high unemployment rate, Oregon looks to get still worse in the next few months.  And though I didn't chime in on this debate as it was ongoing, I share the Governor's caution when it comes to spending and the economic prospects in Oregon, however, I think the legislature did the right thing.  Pre-commitments are important signals about the values of the state, and pre-committing to a school budget that is not criminal is the appropriate thing.  Our future lies in the human capital investments we make today.

Notes on Blogging and Fish and Chips

You may have noticed already but the next couple of weeks will be a bit light on the blogging front as I am on vacation and I am about to go to a place next week where there shall be no (gasp!) internets.  Bear with me.  I might be able to text a post or three.  

On the fish and chip front (as I know you are anxiously awaiting my latest dispatch), as a part of my vacation, I recently sampled the fare at the McMenamin's Edgefield Pub.  It was a disaster.  Overcooked rubbery fish and soggy fries.  What a disgrace to all of fishdom - to think that a poor fish gave its life for that.  Sigh.  The rest of the visit was wonderful, however, and I was pleasantly surprised with the quality of their IPA which I haven't had in years, it was really tasty.  But I must now sadly place McMenamin's on the black list for fish and chips.

On a brighter note, have now had the F&C at the New Old Lompoc's Oaks Bottom Public House on several occasions and can now say with confidence that they are consistently superb.  I have not tried them at their other locations, but I will assume that they are good unless proven otherwise.

So you want good F&C in Portland? I recommend The Fish and Chip Shop for traditional English finger style (think batter) and the New Old Lompoc empire for exceptional pub style F&C.

Eco-nomics: Urban Centers Growing

The Wall Street Journal has an interesting article about the relative increase in the size of cities proper versus their suburbs.  Their economics blog also discusses it.

Why is this happening?  I can think of three reasons (all touched on by the article and discussion):

1) The real collapse of housing has occurred in the suburbs.  So people who have lost homes and people who might have considered buying homes in the suburbs are moving back/staying in the city proper.

2) Economists have a term called agglomeration externalities that is a bit of a catch-all term for all of the benefits of a lot of and/or concentrated economic activity.  Central cities might be a bit more recession resistant due to the concentration of population and economic activity.  

3) Many cities have gone through a central city renaissance making them more attractive at the same time that dense living has become a bit of a virtue (or at least an ideal), and at the same time that economic factors (high gas prices, for example) have increased the cost of living in far out suburbs.

Portland Home Values Down Again

The April Case-Shiller numbers are out and Portland's home values dropped 0.6% since March and 16% since last year at this time. The Wall Street Journal has a nice summary. I think the employment situation is really starting to hit the housing market which counters the low mortgage prices and the incentive programs. However, anecdotally, I haven't seen a huge difference in close-in neighborhoods in terms of homes for sale or length of days on market, so my impression is that this is still largely a suburban phenomenon.

Will Oregon Start to Recover Soon?

Tim Duy thinks so (as do I) but we both agree that the recovery could be a very slow one, especially as seen through the employment metric. I am still sticking to my Q4 of 2009 prediction of the end of the recession, but it won't be pretty for a quite a while after that.

Beeronomics: Peak Load Pricing

Pelican Brewery in Pacific City, Oregon is among the very best Oregon breweries (as evidenced by their many, many national and international awards) and yet it is very hard to find their beers in the store. This something that I wondered about: why aren't they more available in Portland (and other parts of Oregon)?

An answer immediately suggests itself when one visits the brewery. It is located at a wonderful spot on the coast, but Pacific City is a little out of the way as it is off US 101 a bit. It is also on the Oregon coast which is wonderful in summer but can be...er...damp in winter. One expects then that they have a familiar problem in economics: a fixed supply capacity (the brewery) and a variable demand. Electric utilities are the most common example given of this: there is high demand during the day and low demand overnight. For Pelican, one imagines that they sell lots of beer during the summer and have a lot of excess capacity in the winter. So they could increase capacity to sell more bottles in Portland but this would potentially exacerbate the overcapacity in the winter (or may not if demand for bottles is seasonal in the other way).

The economics answer to this problem is what is known as peak-load pricing, an extra charge for buying at a peak time. Perhaps Pelican should charge $6 for pints in May-October and $3 in November-April, for example. This would even out the demand during these periods and help solve the excess capacity problem.

Okay, so perhaps this is a bit fanciful, but I sure hope to find more Pelican Beer in Portland, it is great stuff.

Update: I was going to write another post about Full Sails new Session Black following John Foyston's great article in the Oregonian, but Beervana beat me to it and has an analysis that is pretty close to what I was going to write. Check it out.

Update 2: John Foyston has posted the original piece on Full Sail, intended for the business section, which is even more fascinating in terms of the business of beer.

Eco-nomics: Will 'Cash for Clunkers' Reduce Carbon Emissions?

In my search for the perfect car to replace my current one, I have stated that I am in no hurry: mine is pretty fuel efficient, relatively low-mileage and has been a great car to own and drive. Above is a picture of the Tesla S, an all-electric car that should be available when mine is ready for replacement and can go up to 300 miles on a single charge. Now we are talking my language!

Anyway, the idea that I would hasten to trade-in my current car raises some interesting general equilibrium issues as I have mentioned: what does this do to the used car market, the volume of new car production, etc.

The new 'Cash for Clunkers' bill is a good vehicle to use to discuss these issues. In it, if you have a relatively low mileage car (18 mpg or less) no older than a 1984 model, you can get a voucher worth up to $4,500 for trading-in that car and buying one with significantly higher mileage. But will this lower fuel consumption and emissions? It is not clear. First, with all of these traded-in high mileage cars on the used car market we can expect the price to be pushed down significantly which will increase quantity demanded even with the high mileage. So people will buy these cars that might not have bought at car at all or who would have bought a higher mileage car. Second, this may lower the threshold for scrapping cars and increase the production of new cars which is pretty energy intensive one imagines. So will the net effect be a reduction in carbon emissions? I am doubtful.

Soccer News

Two soccer stories pop up at the same time making for one efficient blog post. And I know you all turn to the Oregon Economics Blog for your soccer news...

The USA soccer team defeated world number one Spain 2 to 0 in South Africa today in the FIFA Confederations Cup. Spain is far and away more talented top to bottom, but soccer is the ultimate team game and the USA just plain wanted it more. Bravo. They will now likely face Brazil on Sunday as Brazil play South Africa tomorrow. But after today, don't count South Africa out, especially as they are playing at home.

Closer to home, the Portland City Council did the right thing and decouple the Beaver's search for a new stadium and the MLS to PGE park deals. Bravo again. Without this, MLS in Portland would certainly have been scuttled. As I have said many times, is there is better model for the viability of PGE Park than MLS? I don't think so. The Beavers are leaving anyway, best to focus on how to save PGE Park from being a budgetary black hole and provide another entertainment option for poor deprived Portlanders.

Now at the risk of sounding like the crank extraordinaire, Jack Bog, whose rants to me are entirely pointless - what the heck is up with Amanda Fritz? She does not seem very engaged and her stance against the stadium deal is without nuance or sense. I worry that she gets the static picture but not the dynamic one when it comes to economic growth and financial stability. Even Fish is on board with this one...

Eco-nomics: Zen and the Art of Buying a Fuel Efficient Car

In my previous quick post about pondering the decision to trade in my car for a Prius I was trying to make the simple point that MPG figures can be misleading in terms of how much going up in fuel efficiency can reduce overall gas consumption. I mentioned that a 5 MPG bump when you start at 15 MPG is better than a 20 MPG bump when you start at 30 MPG. But as I was writing it I could not help but start to think about the general equilibrium aspects of the question (I am an economist after all - once you have swallowed the red pill there is no going back). What I wrote about was really the partial equilibrium - the cost to me all else remaining the same.

The interesting comments I received make me even more curious to know the answers to questions like: What are the effects on the used car market and on overall energy consumption if high mileage cars start accumulating? What are the effects on the markets for inputs (commenter Stacy mentions Lithium mining)? What about the energy inputs into the manufacture of a new car (as Becky mentions), should trading in a relatively new car give me pause? I mentioned the Prius, but until the new one's better mileage ratings, I had assumed that a new 'clean' diesel would be the better option given the preponderance of highway driving I do (as Spencer and Oliver mention), is this a better option? What about the disposal of all those batteries (again, as Stacy mentions)? And, finally, how much should I expect from the promises of newer and better technologies coming soon? The Volt sounds pretty good, for example, but Spencer is a skeptic.

I have a feeling that many others have explored these issues and that there is a lot of information out there of varying quality. So I would like to enlist your help in answering these questions - can you direct me to sources of quality reliable information and research about these issues? I promise to write about what I discover.

Econ 101: Opportunity Cost

One of the most important concepts in economics is opportunity cost.  Economists know that the true cost of any economic activity includes the value of the next best opportunity that you give up.

Thus, I know that on a day that is relentlessly sunny, warm and breezy the cost of blogging is too high...

Eco-nomics: Should I Buy a Prius?

My wife recently suggested that, with my frequent commuting to Corvallis and the excellent mileage of the new 2010 Prius, I should consider purchasing one.

At roughly 50 MPG on average it seems to make a lot of sense. But I have a pretty good car already, my Saab averages over 30 MPG in all of my driving which combines a lot highway and a fair amount of city. [This is a lot better than it is supposed to according to the EPA estimate, not sure why]

So here is the thing, assuming I drive 15,000 miles a year (this is high, but for argument's sake...) I will save about 200 gallons of gas.  So, at $4 a gallon this saves me about $800 a year.  Add another $1 for the cost of my carbon consumption (reasonable figure according to some estimates) and the total comes to $1000 a year.  This is considerable, but not as good as you might think given the additional 20 miles on a gallon of gas I gain.

And thus I run into an error of logic that a lot of people have been talking about recently: going by the MPG numbers gives you a distorted sense of the benefits of fuel efficiency.  To see this, consider if I  had a car that got 15 MPG and switched to a very modestly better car that got 20MPG.  Over the same 15,000 a year, I would save 250 gallons of gas!  

The moral is that all the people that trade in their reasonably efficient car for a Prius, don't do nearly as much to reduce carbon emissions as a person who went from a Suburban to a regular sized SUV - or to a Prius.  [Of course this doesn't factor in the secondary market in which poor fuel economy cars are becoming incredibly cheap - encouraging people to buy them]

It doesn't meant that I shouldn't buy a Prius and when I my current car wears out, I will look to find a fuel efficient alternative, but in a few years I hope to have even better options.

Personal Income Taxes

SOURCE

Bravo!

As I said a few days ago, it is time to separate the MLS soccer deal and the Beavers conundrum.

Looks like I am very persuasive:

Portland will pursue soccer renovation without settling plans for a new baseball park