Beeronomics: Boundary Bay

When I travel to give a talks, go to conferences, etc., I always try to seek out the locally brewed beer. I am fascinated how styles differ from region to region and country to country and I like to think that the characteristic of the local beer reveals something about the place.

So it is that I am in Bellingham, Washington, where I presented some research at the Western Washington University Department of Economics. After my seminar we found ourselves at the Bellwether on the bay on a magnificently sunny evening, looking out over the water through one set of windows at the San Juan Islands and, through another window, a framed view of snow-capped Mt. Baker. Wow.

On tap at the bar was beer from the local Boundary Bay brewery. I, as always, chose my standard for comparison - the IPA. In BB parlance, Inside Passage Ale. I have to admit, as a confessed Oregon chauvinist, I am always ready (maybe even hoping a little bit) for disappointment. Besides, it would simply be unfair for this little slice of paradise to actually have great beer too, wouldn't it?

Well, unfair or not, the beer was exceptional. It presents a cloudy amber (the picture represents well) with a thinish but creamy head and has the most beautiful citrusy, hoppy aroma. Alas, the Alworth was not there to identify the hops and as we were at a bar and not the brewery, I couldn't ask about the hops. Nonetheless, it smelled and looked fabulous. One sip and I was hooked, wonderfully bitter, but not overwhelming, nicely balanced with a subtle malt base and finishes clean with just a slight nip on the tongue. One of the best I have ever had. Warning though - this sucker must be pretty robust, because after two (it was so good I could not resist) I was reeling. I suppose such a wonderfully hopped beer should be expected from a state so abundant in hops growers. I will definitely will be back. I suspect that this beer would loose something in the bottle but fresh on tap (and they had just tapped the keg), it is as good as it gets.

Update: Before I went home I had a Alaskan IPA and it provides the perfect counterpoint. It was not bad beer, but not a good one either. It was bitter without a point - no nice aroma, no delightful mix of tastes and it left nothing on the tongue. It was a clear amber with no head. Perhaps this is indicative of the fact that Juneau is not a prime hops growing region, I don't know. But it was not distinctive, nor delightful.

Conclusion: when in Bellingham, go for the Boundary Bay.

Economist's Notebook: Exchange Rates

In my international economics class right now, we are talking about exchange rates - what determines them and what their effects are.

Well, I am in Bellingham, Washington to give a talk this afternoon at Western Washington University and the effects of the recent exchange rates are quite visible here - it is quite amazing. Bellingham, being about 20 miles south of the Canadian border on I-5, is over-run with Canadians. They fill the restaurants, apparently pack the malls and the long-term parking lot the little airport here was abut half Canadian cars.

Why such an invasion? Well, here is a picture that tells the story. This is a graph of the Canadian dollar to US Dollar exchange rate. So in 2003, a Canadian Dollar would buy about 73 US cents, now it buys a full US Dollar.



The Canadian dollar has appreciated rapidly against the dollar in the last year. For Canadians, US restaurants, stores and airline flights in US dollars are suddenly a bargain. Here is an easy example. Look on almost any book you buy here in the US. Mine for this trip is the Swedish police procedural The Dogs of Riga by Henning Mankell, a book in the Kurt Wallander series (great series, by the way). The cover prices are $13.95 US and $16.95 Canadian. Well with the US and Canadian Dollars trading one for one (as of today) this book is $3 cheaper if you are a Canadian and buy it in the US. It is no wonder all these Canucks are in Bellingham!

Tenure

Two years ago I had just been promoted and given tenure at the University of Colorado at Denver when I up and quit. Despite the fact that I had tenured offers from other universities I decided to accept a non-tenured offer at Oregon State (such was my desire to return to Oregon). Most of the colleagues I told about this decision would just shake their heads and smile wanly (of course most don't know Oregon). Luckily, last week I learned that this decision was not completely foolish. I have been promoted and given tenure at OSU. Whew!

But tenure is a funny thing, especially to an economist. First off, despite popular belief, tenure is not a guarantee of lifetime employment. I can be fired for many things - most things really - except the content of my research. So what tenure is, is a partial guarantee of academic freedom. (I say partial because there are many ways around that) Nonetheless, it does create frictions in the labor market and such things are usually scorned by economists. Should the market itself not value independent research so does an institution need to exist to preserve such freedom? Well, yes. As most research has huge external benefits, the private market would not necessarily reward such research and instead focus on research that can be captured by the institution. Also as moving jobs often is quite costly both for an individual and for a research program, and efficient outcome is likely not going to occur.

This system does impose monetary costs on a university but also provides benefits, however it is usually the costs that get the attention. Yes, there are many examples of professors who have been tenured who have subsequently had their research productivity fall off dramatically, or teaching suffer, and still draw a competitive salary. But tenure is also a nice thing to be able to offer workers and thus is a benefit that can be balanced by lower salary. In addition, tenure systems add considerable friction to the labor market for senior faculty so wages are not bid up as much as they might be if the market were frictionless.

And even if this is a net negative monetary effect, which is debatable, you create an atmosphere of open inquiry that has catapulted the US university system to the premiere engine of knowledge and discovery that has fueled our prosperity for the last 60 years. Not too bad, eh?

At any rate, I am just glad that it is in the bag and that I am not looking (and feeling) like a fool.

Housing Market: OFHEO 2008 Q1 Data

For you real data junkies and for a broader look at Oregon than just Portland, here, once again, is the Office of Federal Housing Enterprise Oversight's House Price Index (HPI). The Q1 08 results are in and here is what it looks like:



It is pretty remarkable how different a picture the Case-Shiller and the OFHEO data paint. Panic or not? Remember, these data (OFHEO) contain more houses (not just Portland), but only conventional loans (so no high end houses).

Trouble in River City

A while back I was pretty sanguine about the Portland housing market, saying that it would not be until the spring numbers started to come in that I would really be able to evaluate. Well, they are coming in and they are not pretty. So consider me concerned. We have dived off a pretty big cliff since December. I still don't think the low will be terribly bad since the high never got terribly high, but these numbers are painful. Again, they mask a lot of heterogeneity across Portland, but the overall picture is a bit bleak

Couple this with an increasingly sluggish national economy and we could be in for a pretty rough 12 months at least.

Econ 101: A Note on The Law of Demand and Inferior Goods

A couple of quick notes about some basic principles of economics.

The first is the law of demand which states that, for most goods, when prices rise, the quantity demanded goes down. Sometime this is relationship is very extreme (very elastic), especially when there are many good substitutes and when the good is not a particularly big part of your well-being. Sometimes this relationship is very small (very inelastic), especially when there are few good substitutes and when the good is central to well-being. Take gasoline for example, not many good substitutes to put in your car and one's car is often central to one's well-being. But the law still holds and raise the price high enough and the effects will become more and more visible.

The second is the fact that there are normal and inferior goods in the world. A normal good is one whose demand rises when income rises. An inferior good in the opposite. This also means that when incomes fall, like many are experiencing now as inflation erodes the real value of their paychecks, demand for inferior goods rises and demand for normal goods falls. Well, it appears that standard picture-tube TVs are 'inferior goods' and fancy flat-screen TVs are 'normal goods' in today's world. Note that you may say, "sure, it is obvious that the picture quality is inferior, thanks for the insight Mr. Economist." But this is different, there are many things that might not be of the highest quality that still see sales go up with higher incomes, in fact most goods probably fit this description. So it is interesting, to me at least, to find real examples.

Bravo!

Corvallis is a nice town, full of nice restaurants, bars and cultural amenities. But there is only one thing in Corvallis that is, in my view, truly exceptional, and that is Le Patissier. A curse of the small market - as you go higher on the demand curve the thinning demand is only sustainable in bigger markets where even a fraction of the potential customers is still a lot.

And so it was that a few months ago, around the time of my wife's birthday, that I stopped by to order a nice cake only to find that 'gasp' - IT WAS CLOSED! Zut alors!

[Luckily, I had a trip to Portland planned and I stopped off at Pix - problem solved (Portland has many truly exceptional things)]

Horrors, thought I, what is going on? A call to the phone number went to a recorded message saying that they lost their lease. Mon dieu!

So it is with great joy that word comes that Le Patissier is back! Bravo!

You can find them near Ritchie's Market, and it is so worth the trip...

Economist's Notebook: Doing it Now or Later

My background is in policy and economics, but though it seems a natural intersection, it can often be a frustrating place to spend time. The reason for this, for me at least, is the fact that policy is informed and influenced by politics as much as (or often much more than) economics. And politics and economics are not always happy bedfellows.

I was thinking of this when I read of the huge backlog of deferred maintenance projects in the Portland Public School system and my own trials and travails at OSU: Heat blasting on 97 degree days and absent on 30 degree days, a ventilation fan that disrupts class about 10 times a lecture and has been that way for at least two years, a leaky roof dripping on the Chair's desk, etc., etc., etc.

As an economist, intertemporal problems are routine. You have to weigh the present value of the costs and benefits when taking a decision about fixing something today versus letting it go a while longer. This would seem a fairly easy problem for an institution like PPS (though it is in no way an answer to the overriding problem of resource constraints). But the reality is that parents have a time horizon that is much shorter than the school district itself. If a parent knows their child will be in a school for only 5 years, the present discounted value of deferred maintenance cost is much smaller than for PPS itself which is thinking of school buildings lasting for 50 more years. This is true in many aspects of government business - it is often hard to get the public to be far-sighted (especially true when you talk about very long time horizons and add some uncertainty like in global warming).

It seems like an appropriate response would be to put some welfare weights on the current concerns of parents and the concerns of future parents and be explicit/transparent about it. Simply deferring maintenance and hoping for better times in the future seems like a fool's errand. It is likely to never happen and often you end up having to pay a much higher price when systems fail like the heating system at Cleveland. Once we decide how to weight the concerns of the current generation and future generations, we can then start to allocate resources systematically. Why is this a good idea? Because it is often very hard to resist fulfilling urges today - people tend to place undue weight on current needs and desires. Ex post, however, they often regret not having exercised more self-control. This idea has been popularized recently by Richard Thaler and Cass Sunstein in their book 'Nudge.' In the parlance of the book, my welfare weights idea would be introducing 'architecture' to the choices made by the PPS. This architecture acts as a commitment device and will ensure that we are not shortchanging future kids for the sake of the current ones. Instead what we have is a bunch of discretionary decisions that add uncertainty and inefficiency into the system which serves no one well.

And, by the way, the title of this post comes from a theoretical examination of this issue by Matt Rabin and Ted O'Donoghue (whom I was lucky enough to get to know when I was a grad student).

Quiz: Name the PPS school pictured above.

Eco-nomics: Hey You, Slow Down!

It occurs to me, if we are talking about human behavior and the impact of this behavior on the environment, that we ought to tell all those super-athletes to knock off all the excess exercise. Look at all of the wasted calories from the Boston Marathon! Clearly some exercise is good, it allows us to stay fit and use our calories efficiently, but excess exercise just burns more calories than we need. More calories takes more energy to provide and more energy means more pollution, more waste, etc., etc.

Now I am not sure how much exercise is optimal for this efficiency/no excess trade off, perhaps there is no such thing as excess exercise, but I am not so sure. Besides, how many pairs of shoes do you think these marathoners burn through in a year? How about a nice walk through the Common?

UPDATE: Drat! Once again I have been scooped.

Eco-nomics: Children and Resources

I have been sitting on this one for a while, trying to decide whether to touch it with my 10 foot pole. A few weeks ago, the Oregonian profiled a few families that have, for environmental reasons, decided to have only one child. My first thought was: why not zero? But my second thought was: why so pessimistic about children?

Most people who worry about the environmental impact of large families think of children solely as resource depleters. More children means more people which means more energy demand, more bodies to fill with water and calories, more people to pollute and ravage the landscape. But children are also resources in and of themselves: they are the ones who will have to come up with the solutions to the resource issues and I have faith that they can and will do it. Within each child comes the potential for being a vital part of the world's human capital resource that will solve global warming, find new renewable energy technologies, will invent more efficient ways to produces goods and services that use fewer resources, and so on. They are the ones that will create the new resources with which humanity will thrive. In fact, during the recent explosion in human population, living standards have risen considerably.

I must admit that I find the view of children as resource drains quite depressing. People don't just use resources, people also create new resources, so the question comes down to whether the new children you bring in the world end up consuming more than they create. I like to see children as potential - as the hope of humanity, not a drag on society and the source of humanity's downfall.

Besides, it is not at all clear to me that the most efficient way to bring people into the world is a bunch of one-child households. It is probably a lot more efficient to have 11 zero child households and one 12 child household - cheaper by the dozen indeed.

And as a moral aside, it seems funny how we celebrate life once it is here, but fret about new lives being created. We cheer for each new medical breakthrough, but are concerned about new babies? I can't quite articulate it, but that just seems odd.

94 Degrees in the Shade

Two problems become apparent on the 3rd floor of Ballard Hall on a 94 degree day.

One, the heat is cranking in my office full blast. I think there is no real control over it here, if the steam plant is making steam, the heat is ON. And with some days coming up in the 60s, I guess they think they are still going to need heat. This makes my office about 173 degrees.

Two, by about 1pm the faculty parking lot had begun to empty - meaning very little work for the benefit of Oregon, the US and all of humanity was going on after lunch. Most had fled to the relative cool of their houses. Of course the engineers next door in the climate controlled Kelley Hall are all still here...

Note on Explaining the Credit Crisis

Yesterday, I gave a talk to the Salem Rotary Club about the credit crisis. I attempted in about 20 minutes to give a broad overview of the short history of the crisis. Doing so forced me to paint in fairly broad strokes and neglect a lot of detail, but I think the essence is correct.

The text below is a paraphrase of what I said as I did not speak from a script, I have also included my power point slides.

I have now arranged my posts to be consecutive so you can read them in order immediately following this post. I hope you find it useful and interesting.

Explaining the Credit Crisis: Act I

To understand the current credit crisis it is instructive to go back in time and think about the rise of what I'll call "global capital." Global capital is the pool of money that comes from worldwide savings that can be invested anywhere. From there we can then think about what effect that ever increasing (and huge overall) pool had on the securities industry in the US. Finally we can discuss the actions of the Fed and talk a little about future steps to avoid such a crisis in the future.

Where did this global pool of money come from and why is it so important? One place to start is the microcomputer revolution. Computers and the internet have connected global financial markets like never before. I also believe that computers and the internet have been a key factor in the enormous rates of growth seen in some parts of the developing world, especially East and South Asia. So If we are looking for a culprit for the credit crisis, why not blame Bill Gates, it usually works for other things...

But seriously, computers both created a lot of wealth and facilitates its easy movement around the globe. The first real wave of global capital that led to a speculative bubble was capital generally from the west that went looking for newly evolved capital markets in SE Asia. It found Thailand, among others, and rode a wave of speculative real estate investment and loose banking regulations (read: bad loans) until the bubble popped. Suddenly all capital in Asia got cold feet and started fleeing at an incredible speed. This led to the big bailout of Long Term Capital Management that took heavily leveraged bets on Asia.

That was a bit of a preview of the 21st century except for the fact that in the 2000s, most of the new capital was coming from the developing countries to the West. There was one problem, usually this capital liked the safety and modest returns of US Treasuries - US debt. But this was a period when the US Fed was keeping interest rates extraordinarily low, the European Central Bank as well. So the returns on US Treasuries was almost zero. This capital went looking for another outlet.

Here is a look at the growth in the pool of global capital:

Notice how it has risen from $12 trillion in 1980 to $167 trillion in 2006. (Source: McKinsey Global Institute - this is equity securities, private debt securities, government debt securities and bank deposits combined)

Notice also the balance of payments disparity between the US and the developing world. By 2006, the US has a current account deficit of over $800 billion while the developing world was running a surplus of almost $600 million. The world has changed and this giant pool of capital is looking for a place to park....

Tomorrow, Act II

Explaining the Credit Crisis: Act II

So, we have this massive pool of highly liquid global capital looking for a place to land that offers a fairly safe investment with a modest yield. At the same time US Treasuries, that would normally be a first-choice option, are offering almost no return. Now comes the innovation in securities known as MBSs and CDOs. These were attractive because they offered a relatively high yield, had a steady stream of income - payments to the mortgages - and were backed by an asset that almost never, ever lost value: US houses.

How to turn US mortgages into marketable securities? Here is how it was done: take a bunch of residential mortgages and bundle them together (using a Special Purpose Vehicle but never mind that) and then slice them up into 'tranches.' Tranches are slices that form a queue: the lowest slices get paid last and the highest ones get paid first. Thus the highest ones are the safest and the lowest ones are the riskiest. The slide below presents a nice picture of the process. Because of the different levels of risk these tranches also offer different yields - higher for the more risky ones. This fist step is the Mortgage Backed Security (MBS). There was another step though, because of the appetite for the yields that especially the mid-level tranches (the ones that were investment grade but still high yield) Collateralized Debt Obligations (CDO) were created by taking a bunch of tranches from these MBSs and slicing them up again and selling shares in these securities that were based on securities that were based on mortgages.

Again these were turned in to a queue of tranches where the senior (AAA rated) and super-senior tranches were thought to be almost completely safe - they were the first to be paid off and based on mortgages which had historically low default rates. The ratings for these tranches came from ratings agencies (Moody's, Standard and Poor's and Fitch) which rated them based on past experience with mortgages and their models showed very good performance of the residential mortgage market.

All the while the appetite for these CDOs from this enormous global pile of money was relentless. Not only did this strong demand have the effect of pushing mortgage writers to create more supply by pushing further into the sub-prime market by lowering standards, but sub-prime mortgages were particularly attractive because of the higher yields that they provided (part of the sub-prime deal was higher interest rates).

Also, the really high demand was in the mid-level tranches of the CDOs, so many banks kept a lot of the AAA rated senior and super-senior tranches on their books. And even though they were thought to be very low risk they went to monoline insurers to insure these securities.

But all of this credit being thrown at the home market was fueling rampant speculation and the fundamentals were off: home prices were rising rapidly during a time of stagnant wage growth.

Then the bubble popped...

Suddenly the 'old rules' didn't apply to mortgage defaults. People started to get upside-down on their mortgages, people who bought speculative investment properties just walked away and default rates soared to astronomical - and more importantly - heretofore unheard of levels. This then spurred the real heart of the crisis: the senior and super-senior, AAA and above, rated tranches started to falter and these were on everyone's books. What's worse since the old risk models were suddenly obsolete, no one knew how to price these assets, so no one knew how bad the bank's balance sheets were. Suddenly no one wanted to lend to other banks again and credit seized. The monoline insurers that were on the hook for these senior and super-senior tranches were also taking a bath.

When the internal credit market stops functioning this spills over to other areas as well. For example, student loans are now harder to secure. So this seizing of credit began to threaten the entire credit industry and since credit is the life blood of commerce, we stood on the precipice of a major economic meltdown.

The Federal Reserve, charged with stabilizing the macro economy was facing a major test...

Explaining the Credit Crisis: Act III

Enter the Fed...

[Here is a picture of Ben Bernanke explaining the theory of heavier-than-air flight while in reality the plane is being kept aloft by 50 balloons]

Well, it is not a dramatic as that, the Fed has been keeping watch all along, but with the housing market in full meltdown mode, the Fed needed to act. The problem was that the traditional solution - keep credit cheap and inject liquidity into the market - is not particularly effective when it is banks that won't deal with each other. So they take some non-traditional approaches starting with the Bear Stearns 'bailout' where they guaranteed a bunch of potentially toxic debt in return for JP Morgan Chase to buy the company for pennies on the dollar.

Then the Fed started offering non-traditional lending facilities culminating in the Term Securities Lending Facility (TSLF) which accepted AAA rated debt as collateral. Essentially allowing banks to trade potentially bad AAA debt for Treasuries - solidifying their balance sheets and making banks more comfortable in lending to each other again.

And banks have been using these new windows a lot, here is a look at the Fed's balance sheet. Note especially the area shaded in black, that is the TSLF. What this means is the Fed is now on the hook for some potentially bad bets made by the banks. Is this worth it? Well, if the other option is to see a global credit collapse, I think so. I think in the current climate, concerns over moral hazard are second-order, especially when we are experiencing other economic pressures like high energy costs.

Are the Fed's efforts working. There was some concern for quite a while but here is a statistic that has become quite popular, thanks to Paul Krugman. This is the TED Spread or the difference between the LIBOR and the 3-month Treasury rate. The LIBOR is the London Interbank Offered Rate and can be thought of as the rate banks charge each other for credit. This will go up if banks think other banks are risky borrowers. The 3-month Treasury is about as safe as you get. So if the TED Spread is high, that means banks are weary of lending to each other and is a measure of the amount that internal credit markets have seized. There was a lot of worry in March and April that the Fed's actions were not working (see below), but just recently there is very clear evidence that the internal credit crunch is easing.

So what next? Given inflationary concerns, the Fed has probably done all it can and all it will do for a while. Don't expect the Fed Funds rate to go down anytime soon and expect that it may start to creep up.

I will not go into too much detail about future actions that might be appropriate as it is not the point of this talk, but I will say that since this crisis has significant spill-over effects it is not unreasonable to consider new regulations for the securities industry, new rules for credit rating agencies and help for home buyers. I think we have yet to see the bottom of the housing market so waiting it out is not an attractive option. And the fiscal stimulus that has just be paid out I don't expect to have much effect. If I were to guess I think we are in for 3 to 4 more quarters of very slow growth, though I would be surprised if it were negative.

Eco-nomics: The Cross-Price Elasticity of Demand

It appears that my assumption, made in an earlier post about the stupidity of the gas tax holiday, about inelastic supply from refiners was wrong. Mea culpa. I still think it is a stupid idea, but I won't launch into a back up argument now. I was wrong and that is that (Bob, in the comments was spot-on, I tip my hat to you Bob).

The reason for the incorrect assumption is quite interesting however: demand for retail gas is falling dramatically. Refiners are facing high priced crude but can't sell all of their product at the prices they have to charge to cover costs. Wow, how things change.

We have finally hit the tipping point for gas prices: the point that is finally causing consumers to adjust their behavior and curtail consumption. Oil consumption in the US fell by 3.3% in March compared to a year before according to the New York Times.

What is particularly interesting to us economist nerds is the cross-price elasticity of demand: by how much does the demand for another good change with an increase in gas prices. Well for Tri-Met, the answer is quite a bit. But that is not all, apparently people are also jumping back on their bikes. (Hat tip: Greg Mankiw).

Update: I should have included this as well: More people are flocking to smaller cars. See also this story in the O about the Prius salesman.

Econ 101: Game Theory and Politics

A decent description of modern economics is the study of behaviour in the face of incentives. Game theory is a branch of economics where we study behavior in strategic settings. In this, and in many other areas, economists have confirmed that understanding incentives goes long way toward explaining behavior.

And here is the thing with games: the rules of the game create the incentives. So once we know the game's rules, we internalize these rules, devise strategies that serve to maximize likely outcomes given these rules, and then play the game based on these strategies. At the risk of picking on one candidate too much, it is quite infuriating for someone like Hillary Clinton to say (and I paraphrase): "if the Democratic primaries were run under the same rules as the Republican primaries, I would have already won the nomination."

Oh please, if the rules had been different at the outset, Obama would have had another set of strategies and Hillary would have probably lost then too. We all understand this whether I dress it up as economics or not. What is sad it that she would even use this argument - to whom does she think this appeals? The micro-trending population of poor losers?

This is also true of statements like "well, I won the big states." Yes, but the democratic primary is not the general election - the game is entirely different. It is a false analogy.

Games are defined by their rules - different rules, different game. End of story.

The People Have Spoken - Self-Serve Gas Now!

The readers of The Oregon Economics Blog, who are without a doubt a representative sample of the entire State of Oregon, have by 2/3 rds majority vote come out in favor of allowing self-service gas! Well done! I have never been more heartened by an empty victory in my life.

Score one for liberty... and take that Sara Gelser! It is clear that 2/3 rds of the state of Oregon want self-service gas, who are our government representatives to deny us our smelly hands and dirty pants? I smell initiative - perhaps I should get Bill Sizemore on the job...

The Housing Bust and the Train

Is it just me or is the Willamette and Pacific railroad operating a little less frequently these days? OSU students and alumni, I'm sure, can't forget the dulcet tones of the train horn blasting away at 6:30am as it makes its was across campus. What better way to get you up and ready for your Monday morning 8am class in International Economics?

I am fortunate enough to live close to the tracks and I have noticed what I think is a lot less traffic on the tracks these days as compared to a year ago. Makes sense as the line carries mainly wood products and wood pulp along with some scrap and steel and much of what it carries is either directly consumed by the building industry or is affect by it. And lately there is not a lot of demand for building materials.

But then again it could be that I am just not noticing it as much these days compared to when I first located close to the tracks.

Quick Riff on the Housing Market and Oregon

Fed Chairman Ben Bernanke gave a speech at the Columbia Business School last night in which some interesting data were presented. First was some info about delinquency rates. Counties in Oregon with the lowest percentage of mortgage borrowers 90 days or more delinquent (less than 0.6%) were: Benton, Gilliam, Grant, Jackson, Sherman, and Wheeler. The second quintile (0.6% to 1.2%) included: Baker, Clackamas, Clatsop, Coos, Deschutes, Klamath, Lane, Multnomah, and Tillamook. The middle quintile (1.3% to 1.7%) included: Columbia, Jefferson, Marion, Umatilla, and Wallowa. The fourth quintile (1.8% to 2.5%) included: Lincoln, Linn, and Yamhill. No Oregon counties were in the fifth quintile (over 2.5%).

Next was some data best represented by some nice figures. The first figure represents the change in delinquency rates by county for the USA. Here we see that even if, for example, Deschutes has a relatively low overall delinquency rate, the trend is downward. Ditto for southern Oregon.



The second is the change in OFHEO Home Price Index across the USA (i.e. appreciation/depreciation). Again Bend and Ashland/Medford are the trouble spots in Oregon but Portland seems to be doing pretty well (and Corvallis rocks!). Spare a thought for poor Michigan...

Mea Culpa

Life has been extraordinarily busy and I have been extraordinarily sick and now comes the week in which I scheduled all of my midterms. So I am behind in my posting, but especially in my responses to some great comments and I am not sure I'll catch up for a few days. Hang in there.

In the meantime this is the last chance to register your vote on my very scientific and official poll about self-service gas.

Also, a little Beeronomics fix: via Beervana comes this article in the Eugene Register-Guard about the effect of hops prices on brewers. Enjoy.

Eco-nomics: Gas Prices

I almost bashed in my car radio this morning when I heard Scott Horsley on NPR this morning suggest that the proposed gas-tax holiday would indeed lower prices at the pump (yes, I was driving my car and consuming gas). The host, Steve Inskeep, was clearly expecting him to say the opposite as he asked (and I paraphrase) 'but will consumers really see a decrease in prices at the pumps?'

I agree with Steve, I am not so sure and many others agree: Greg Mankiw, Paul Krugman, Dean Baker are among quite a few economists who think it is likely to have little or no affect on the price at the pump. Come on Scott, do a little homework!

Anyway, do we even want the price of gas to fall? The wonderful thing about gas prices (and yes they hurt me too - especially when I also have to wait for someone to pump my gas) is that they provide clear incentives to try and conserve on fuel. And guess what, it's working! One need only to spend a little time in Europe to understand the impact of high fuel costs has on individual consumption: smaller, more-fuel efficient cars are the norm, not the exception. Isn't this what we want: more energy independence, lower emissions, fewer greenhouse gasses released into the atmosphere? John and Hillary need to drop this proposal - it is just dumb (though probably effective as a bit of campaign rhetoric).

Which brings me to another topic: what to make of the giant SUV hybrids? One argument is that a small gain in fuel efficiency in a large SUV is better than a large on in a compact car. Example: two cars that drive 100,000 miles. One, big, gets 16 MPG and the other, small, gets 30 MPG. Improving the former's fuel economy by 2 MPG to 18 saves 694 gallons of gas, while improving the latter's fuel economy by 4 MPG to 34 saves 392 gallons of gas. But the other perspective is that the big car will burn 5556 gallons along the way, while the little car burns 2941. So if your policy goal is to reduce carbon emissions and oil consumption, it is pretty clear: try and promote consumption of the smaller car, not make a hybrid for the bigger one.