Tuesday, April 29, 2008

Beeronomics: Does Supply Create Its Own Demand?

I am a little late to jump on this, but a while back the Oregon Brewer's Guild released figures that showed the volume of beer produced in Oregon has increased substantially. I will outsource the data analysis to Beervana.

This raises an economics question I have asked in a lot of different ways in this blog: why is the brewing industry in Oregon so robust and why can so many brewpubs survive in a market like Portland?

Perhaps it is a set of exogenous 'fundamentals' (in economist-speak): Maybe Oregonians are predisposed to like beer more than others, and want to drink it fresh in a pub because of some genetic quirk. Perhaps the climate is conducive to not only beer consumption but pub crawling. Maybe it is the fact that we are in a hops producing region. I have no doubt that in each explanation one can come up with along these lines lies a grain of truth, but I can also just as easily imagine lots of other places with similar characteristics but which don't have nearly the beer culture we have here.

This leads me to believe more in endogenous explanations than fundamentals. I think palates and pub culture are created not inherent. I think that the early introduction of such places as BridgePort and McMenamins had the effect of starting a small ball rolling that slowly began to get bigger and bigger. In effect, I think that the supply of micro-brewers and brewpubs created the demand for even more. I also think it was important that the beer started as available primarily in brewpubs - that it was hard to find the beer in the stores. This promoted the pub going culture that so typifies Portland and many other Oregon communities today.

This is not a new idea in economics, there are many goods for which demand increases after consumers learn about its presence by seeing it in stores, think the Nintendo Wii - the demand keeps grouting as more and more people experience it.

I think this can also be related to Network Externalities. This is the idea that the value you get from consuming a product goes up the more that others consume it. (Thus the externality - the benefit from one consumer's purchase of a good that accrues to another consumer) Think about telephones, the very first owner of a telephone probably didn't get a lot of value out of it until all his/her friends got them as well.

How do network externalities fit in with the Oregon microbrewer and brewpub scene? Well, for bottlers, the more that consumers buy craft beer in general, the more retailers will be willing to give up shelf space and taps to microbrew. Thus, one person's purchase of craft beer benefits others by making more available to choose from. For brewpubs it is the same story, the more people frequent brewpubs the better the atmosphere and the greater the variety of the beer offerings.

It is also likely that these effects are not proportional: they might have been small to begin with, but may have snowballed as time passed and have reached a type of critical mass that creates a true, unique culture.

So here is the punchline: Portland (and Oregon in general) may have a substantial advantage over other cities as a place to start a new brewery/brewpub despite the fact that there is so much competition. In fact it may be because there is so much competition that Portland is a great place to start a new pub. Just ask Christian Ettinger of Hopworks Urban Brewery which is off to a roaring start. Sometimes a little competition can be a good thing.

Case-Shiller Update

Here is another look at the Case-Shiller data.

Portland Housing Market: April Update

Here, hot off the web, are the latest Case-Shiller numbers for Portland. I include Seattle and the 20 city composite for comparison.

There is no doubt about it, on average, Portland is now seeing a substantial depreciation of home prices. It is about the same as Seattle and quite a bit tamer than the 20 city composite. The last time the index for Portland was this low was in May 2006. Last year it was March that got it back into growth territory, so next month will be pretty telling in term of what we can expect from the market this year. Here are the same data presented in a graph.

I think one of the key features of numbers like these is that they mask a lot of heterogeneity within cities. Below is a picture of Denver that I happened upon because I was curious about my old neighborhood (South Park Hill - data shown in the lower right corner). My neighborhood is doing fine as are many others in Denver, while nearby neighborhoods are doing a lot worse. Essentially there are two types of places that seem to be depreciating rapidly: the far out suburbs and the marginal neighborhoods that saw a lot of gentrification and are now seeing the reverse.

Monday, April 28, 2008

Fred Thompson, Guest Blogger: Oregon State and Local Taxes

The Oregon Center for Public Policy (OCPP) has once again announced that that a study conducted by the Institute on Taxation and Economic Policy shows that Oregon state and local taxes hit poor and middle class harder than rich. This is an annual phenomenon.
But the conclusions of the study are almost certainly wrong, although the reality is nonetheless dismaying.


The weaknesses of the Institute on Taxation and Economic Policy Micro-simulation model are well known (it was roundly criticized by the discussants when it was presented at the National Tax Association meeting and the paper upon which the presentation was based was not selected for inclusion in the National Tax Journal). Its weaknesses derive from the arbitrary calculation of property-tax incidence and top coding of expenditures combined with the tiny sample sizes of the top two income categories in the sample (this may not be a significant weakness for the country as a whole, but it is for Oregon, which represents 1 percent of the total population in the sample).

The Institute on Taxation and Economic Policy estimates the property tax burden on renters based upon household rental expenditures. However we know this is wrong on the face of it. In the first place it leads to an estimate of property taxes paid on rental properties in Oregon that is greater than the total property tax levied on those properties. Moreover, it assumes that property taxes on rental properties are shifted forward to renters rather than paid by the property owners, which is inconsistent with what we know about the administration of property taxes on commercial properties in this state. A more realistic estimate of the property tax burden of the bottom quintile of the population is probably closer to 2 percent of income than 4.6 percent. Indeed, adjusting for this error would have the effect of reducing the total tax burden on the bottom quintile to about 6.6 percent, the second quintile to about 7.3 percent, the third to about 7.9 percent, and the fourth to about 8.8 percent.

The problem of top coding is harder to sort out, but we know the total property tax levy and total state income taxes paid as well as the adjusted gross incomes of the top quintile as well as the total income and property taxes they reported on their federal income taxes. The income tax results reported by the Institute on Taxation and Economic Policy are roughly consistent with these sources, but the property tax figures are not.

The conclusion I draw is that the overall property tax burden on the top quintile of Oregon households is understated considerably in the Institute on Taxation and Economic Policy study and the state income tax burden may be understated as well, although not by much. In which case, the average burden for the top quintile would be approximately 9 percent.


The Institute on Taxation and Economic Policy study has a couple of other weaknesses that deserves a look. It excludes user fees, which is now the main source of local revenue in Oregon, fines, and lottery revenues. These three categories of revenue now equal nearly 5 percent of total state disposable income. I would guess that the incidence of the first is probably progressive; we know that the incidence of the latter two revenue categories is regressive. Their effect deserves a visit. Finally, the underlying expenditure data used in the micro-simulation (not the income data) are also now over ten years old and should be updated.

Nevertheless, the Institute on Taxation and Economic Policy study’s results for excises are probably still reasonably accurate (at least for the first five income categories
reported) and quite informative. Folks should bear these figures in mind when they contemplate increases in consumption taxes. Unfortunately, this is where most state tax increases have been concentrated in recent years.

Moreover, I would stress that OCPP’s policy conclusions make a lot of sense, even if we adjust the Institute on Taxation and Economic Policy’s figures to make them more realistic. These include "making our tax system more fair by expanding the Earned Income Credit" and that "Oregon’s income tax brackets and rates are flat compared to the federal system." It is unconscionable that Oregon’s lowest tax bracket starts at $2,750 and its highest at $6,851 of earned income. The minimum should be at least $10,000 or $20,000 for a household filing jointly. That would leave us with a flat tax on incomes above those levels. Increasing that rate roughly .5 percent would offset the revenue loss of so doing. The effect would be to make the state income tax at least as progressive as the federal income tax and somewhat more progressive than total federal taxes.

Fred Thompson

Thursday, April 24, 2008

What is a Blog? Economics and the Marketplace of Ideas

Astute readers of this blog will have long ago noticed a connection with the BlueOregon blog edited by Kari Chisholm, Jeff Alworth and Charlie Burr. This connection is personal, not political, and is due to the fact that Jeff is a very close friend and has been for two decades. Jeff and Kari, from time to time, mention my blog on BlueOregon and have increased my traffic considerably. However, I try not to engage in politics (as opposed to policy) in my blog and have just as often rankled BlueOregon readers as have pleased them with my analyses of policy proposals. In my blog roll, I link to BlueOregon and its closest right-wing counterpart, Oregon Catalyst, because I have the arrogance to believe that people of all political persuasions can benefit from some well thought out economic reason.

With that said, BlueOregon has become the target of a little yellow journalism hatchet job from Willamette Week which attacks the blog and suggests bias and conflict of interest. This amuses me for just what does WW think a blog is? It appears it thinks blogs are a form of journalism and thus should be subject to the rules of journalistic ethics. But this is patently absurd. While a few blogs explicitly aspire to a form of journalism, most notably Talking Points Memo and especially its related projects, the vast majority are simply opinion. Even at TPM the bias is up front: "Commentary on political events from a politically left perspective."

I have no illusions about what a blog is; it took me about 3 minutes on Blogger to set up this blog and get it up on the world wide web. This blog is a representation of my opinions, biases, peccadilloes, etc. What I love about the web and the blog-o-sphere is the very embodiment of the "marketplace of ideas." But in this market, as in any market, the burden is on the consumer: "caveat emptor." This does also suggest a burden on producers to truthfully reveal relevant information about the product. I have disclosed that I am a economist and professor and, in fact you can visit my web site and CV to decide if you think anything I say should be taken seriously or not. You can easily satisfy yourself with an echo chamber of like minded bloggers, or you can (as I do) look to find a spectrum of opinions that will challenge your views on an issue and make you a better and more nuanced thinker. It is entirely up to you.

But this is a marketplace and the consumer has only to click a mouse button to quickly express their preferences. Which gets me back to the WW article. The logic of the article seems to go like this, because BlueOregon is so popular it should be held to journalistic standards of ethics, and conflicts of interest on the part of its editors should not be allowed. Then, through strong innuendo they imply terrible bias on the pert of BlueOregon itself (talk about journalistic ethics). There are two things wrong with this argument. First, as I said above, a blog is not journalism, and second, WW does not seem to believe in markets.

If the blog is biased and there are a lot of dissenting voices that are being suppressed, then other outlets could and should emerge. BlueOregon is in a hyper-competitive market: new entrants can start up at zero cost - there are no barriers to entry. This is very different than print journalism in which there are extremely high start-up costs. So the very fact that BlueOregon is so popular does not suggest that they are some kind of gate-keeper for Oregon progressives on the web, it suggests the opposite - that BlueOregon is extremely good at doing what it aspires to do, provide a forum for these progressive minded Oregonians to express themselves. Its success in the marketplace of ideas in other words, is not due to some market power, come corner on the market, but is due rather to the fact that it offers a product many want to consume. There is one requirement for the market outcome to be efficient and that is full information. Thus it is important for the editors of the blog to be up front about conflicts of interest they may have, and the editors of BlueOregon are.

Finally, though it is in one's nature to defend oneself against unfounded and unreasonable attacks, BlueOregon really has no need to do so. The product and its success speaks for itself.

By the way in the further interest of disclosure, I do not define myself by political party but I did once take a (slightly silly) test on Political Compass to assess my economic and social leanings - here is my result:
So there. Apparently I am in good company with the Dalai Lama...

Wednesday, April 23, 2008

The Price Elasticity of Gas...

...is low, but if prices rise high enough: total gas consumption will go down.

Portland Wi-Fi and the Private Provision of Public Goods

On Monday The Oregonian reported on the potential demise of the free public Wi-Fi network in Portland. This is not terribly surprising, as economists have long recognized the public goods problem. I have blogged about the public goods problem before, most notably, perhaps, about the Sellwood Bridge, so I'll be succinct: it is hard to make money from public goods and free markets will provide too little of them relative to the socially optimal amount. The fact that MetroFi's business model was flawed suggests that they forgot to ask an economist about this problem. With free access, it is very hard to figure out a way to make the thing pay for itself. Of course, you could say the same thing about Google and yet they are thriving, but this success rests on the very nature of the web search - the learn a lot about you based on what you search for and can target advertising surprisingly effectively (it turns out). In economics, as a rule, information is gold.

It seems to me that there are two important questions to ask at this juncture. One, is a private, fee-based network the way to go?, and two, is the public benefit of a publicly provided free network larger than the cost?

The first question: is public provision of this public good a good idea or should we just rely on markets? What is interesting about Wi-Fi is that it can be made in to a private good very easily and thus a market solution is possible. The problem with doing this is that it requires a large fixed cost investment in infrastructure (for a city-wide network) and is therefore likely to be only profitable for one company. This is what economists call 'natural monopolies.' Monopolists in general charge more than the competitive market price and provide less of the good. This is why telephone, power and cable monopolies were regulated - to counteract their market power. Market power also rests on the fact that you have a good that has no or few good substitutes and Wi-Fi may have a big one: internet service from cell phone providers. I am not a techno geek and do not know how long it will take for this to become as good as Wi-Fi, but my basic knowledge is that when the digital TV conversion is done the next generation of wireless communication systems will be ready to go to fill the space once occupied by analog TV signals. So it may not even be necessary to regulate even if the network went private. But it may not be profitable at all. If MetroFi has to charge a fee and few people want it, potentially because of competing wireless telecom based services, this business might not be profitable even as a fee based service. And even if it can be profitable, do we want really want a private network?

So this leads to the second question: is public Wi-Fi beneficial enough for Portland to provide it itself? It is possible; it could spur efficiency and productivity, lead to new investment and improve the connectedness and "web-literacy" of Portlanders (and especially kids) - a good skill for the 21st century. But the marginal benefit to free Wi-Fi versus private wireless phone networks is a question - but as many Portlanders would not be able to afford the wireless service, I think this marginal benefit woud be large. There is another factor, which is that the cost to cable and DSL customers should decrease with free Wi-Fi as the demand for these services should fall. I am inclined to believe, therefore, that the overall benefit to Portlanders would be well worth the cost, especially since Portland can amortize the investment cost very cheaply using municipal bonds. In other words, the city of Portland can probably borrow money at much lower rates than MetroFi to finance the building of the network.

So just because MetroFi's management and Portland's city councilors failed to study enough economics should not doom the system, Portland should take the lead and provide Wi-Fi for its citizens.

Tuesday, April 22, 2008

Oregon Housing Update

Let's check in and see what's up with Oregon house prices. Here is the Office of Federal Housing Enterprise Oversight's House Price Index (HPI), which I blogged about before. The Q4 07 results are in and here is what it looks like:

Note that, as before the high fliers are falling the most and the ones that did not see such heavy appreciation are not. Lucky for me, I suppose, Corvallis seems to be doing OK, but data points here are few so it is hard to make any generalizations. Here is the same data as expressed as quarter by quarter percentage changes:

The news is, once again, not good in Bend and Medford and now Eugene has seen its first quarter by quarter decline. Portland barely stays in positive territory and Corvallis has held steady. But the spring data will be especially telling and the Case/Shiller data should be out next week for February.

And, by the way, as more and more news reports are starting to point out, averages hide a lot of heterogeneity in local housing markets. A lot of the decline in house prices is being fueled by steep drops in prices of speculative developments on the far fringes of metro areas (here is a nice story from NPR).

Thursday, April 17, 2008

Econ 101: Will a Gas Tax Holiday Help Consumers?

I haven't been paying too close attention to the specific policy proposals, but this one from John McCain really caught my attention.

PITTSBURGH (AP) — Republican Sen. John McCain on Tuesday called for a summer-long suspension of the federal gasoline tax and several tax cuts as the likely presidential nominee sought to stem the public's pain from a troubled economy.

John McCain in the past has said that he doesn't understand economics. Well, it shows.

Let's start with the fact that refineries are essentially operating at capacity. In summer, when travel is at its peak, this is especially true. This translates to a completely inelastic supply curve. What does economics 101 teach us about taxes and completely inelastic supply curves? It teaches us that there will be virtually NO price effect at the pump. You will just be transferring the tax revenues to the oil companies. So the claim that this would stem the public's pain is absurd.

Here is a graph of the situation. If the tax is removed, P* will still be the price that consumers pay, but it will also become the price producers receive. [In the long-term the tax removal might stimulate a move in the supply curve, but this is a short-term tax].

And, by the way, I am not just picking on Republicans, the Democratic candidates in their rush to find populist appeals have unleashed some questionable proposals. But this is such a simple example of bad economics, I could not resist the teaching opportunity.

Wednesday, April 16, 2008

Beeronomics: Oregon and Colorado

There is a feisty exchange in the beer-o-sphere (the beer blog-o-sphere) concerning a recent article in Time magazine that claims Denver bests Portland in brewery tourism (sacrilege!). This is, of course, patently absurd - and I speak as someone who recently spent 6 years in Denver. But the author (who claims not to like beer - so that explains a lot) does raise an interesting economic conundrum: he claims that Denver is better for his purposes, because, unlike many Portland breweries more Denver breweries bottle and sell in retail outlets far and wide (and so he can later find the beer he likes in a store at home). So, why are there more Colorado breweries bottling relative to brewpubs than in Oregon? First, is this really true? A quick search through my mental archives confirms this. I can think immediately of bottling craft brewers Great Divide, Flying Dog (since moved brewing to Maryland), Avery, Left Hand, Breckenridge, Boulder, New Belgium, Odell, Bristol in Colorado while I can think of only Wynkoop and Bull and Bush as non-chain brewpubs (in Denver).

A few weeks ago I blogged about a related conundrum: why have essentially no new bottling breweries in Oregon opened up in the last 15 years? This is similar: why so many bottling breweries as opposed to brewpubs in Colorado compared to Oregon?

I have a few initial thoughts

-First, tastes and culture: I don't think Colorado (filled with transplants from the plains states) has developed a very sophisticated beer palate yet. So I think many of the breweries are business-plan first operations, designed to make money and serve what the customer wants while selling the Colorado image as part of the beer (don't know what I mean? Compare Rogue to Breckenridge - I rest my case). I find many of the beers virtually indistingusihable from macro-brews (perhaps with slightly more malt and hops). This is, of course, self-reinforcing as palates do not evolve - so customers don't crave the distinct and varied beers that a variety of brewpubs offer. Thus, there is not the brewpub culture there that comes from this constant push and pull between brewer and drinker. So I think this is an equilibrium, just as Oregon is in another type of equilibrium. It may change but probably slowly.

-Second, competition: Coors and Budweiser both have huge plants in the Denver area and thus their influence over tastes and their ability to stock local shelves cheaply is an important influence on Colorado Brewers. Pushing too aggressive beers that are expensive to make could quickly tax the local palates and price themselves out of business. Thus New Belgium arises, offering a little tiny step in taste but not too far.

-Third, retail: since Colorado does not allow real beer to be sold in grocery stores, local outlets are mostly independent liquor stores that have, perhaps, more flexibility to stock many different beer labels which might help the proliferation of local bottling breweries.

Friday, April 11, 2008

Guest Blogger: Wheat Prices and Oregon

Been busy this week. Luckily Jeff Reimer, a professor in the Ag and Resource Economics Department at OSU is here to rescue me with a timely guest blog post:

Wheat is an important crop for Oregon. Oregon farmers plant about 910,000 acres of the stuff per year, mainly east of the Cascades (Umatilla, Morrow, Gilliam, and Sherman counties). Oregon wheat producers should be happy at the moment because wheat prices are at all time highs (see figure below from the Agricultural Statistics Board, NASS USDA - I believe these are nominal prices).

What could cause such as dramatic run-up in prices? Is it poor yields in recent years in countries such as Australia? Is it rising demand from Asian countries experiencing strong economic growth? Is it the government’s incentive for U.S. farmers to plant corn for ethanol in place of food commodities such as wheat?

These are all likely components, but the recent dramatic rise also seems due to speculation. When there's fear of inflation in the general economy, investors may like to shift to agricultural commodities such as wheat, as well as agricultural land. Commodity index funds are said to have about $25 billion invested in grain commodity markets right now.

This of course is very hard on businesses that make intensive use of wheat – such as your favorite pizza parlor and the local bakery. Don’t be surprised if the price of pizza goes up. On the other hand, at least Oregon wheat farmers should be able to afford it this year.

Tuesday, April 8, 2008

The Housing Slump and Oregon's Economy

I was on OPB a couple of months ago talking about the Oregon economy and if our housing market insulates us from the national downturn. My response was that the market for what Oregon makes is national and, especially in timber and wood-products, the national downturn in the housing market could hit Oregon particularly hard. So the fact that locals might not lose their shirts from house prices dropping does not mean we are insulated, though it does help.

Now there is an excellent example of the economic effects of the housing slump on Oregon from the History Channel series "Ax Men" to which I have become quickly addicted. The series profiles and follows four Oregon Logging Crews, filming them doing their business in the coast mountains of NW Oregon. In the last two installments of the show (filmed last fall and winter), the effect of the housing slump hits these crews hard and you can see the immediate impact of the slowdown in housing starts on the Oregon crews. A nice, and painful, lesson in economics. The fact is that there is very little about the state economy that is disconnected from national and international forces.

I highly recommend the series, it is quite fascinating. It is also a good lesson in modern logging, something I got firsthand from a grad school buddy who grew up outside Aberdeen, Washington and whose father ran a logging company. Somehow he decided being an automotive engineer was more for him than being a logger. I don't think his father minded at all.

Monday, April 7, 2008

Gas Stations: A Theory of the Gains from Banning Self-Service

Since in New Jersey, there seems to be this belief in some circles that self-service would lead to higher prices, I tried to come up with an economic model that would generate such an outcome. This is the best I could do (if anyone else has a better idea or more specific information that would inform the model, do share):

Suppose that self-service stations rely more on non-gas retail operations (mini-marts) for their revenues. [This makes some sense, once you are out of your car, you are more likely to wander to the mini-mart, or perhaps you have to go in to pay in cash.] Banning self-service gas therefore reduces the importance of these retail operations in stations’ revenues.

Now assume that building and stocking retail operations requires a large up-front expenditure (what we would call a fixed-cost investment), and that independent gas retailers are more capitally constrained than are Big Oil operated gas stations.

In this case, moving from a ban to allowing self-service could benefit Big Oil more than independent retailers. Big Oil could emphasize more the mini-marts and outspend the independents.

Mini-marts may also benefit from advertising, something that Big Oil stations could do more efficiently because of economies of scale.

If independent/unbranded retailers provide the heaviest price competition on gas itself, losing these retailers could lead to price increases.

Thus, in this model, self-service bans make independent gas stations more competitive by keeping people out of the mini-marts, thus more independent gas stations exist and price competition is heavier so lower gas prices result.

Question that need to be answered:
Are independents really more price competitive? (some evidence to suggest that they are)
Are independents really that much more capitally constrained? (most certainly)
Could not big oil compete in other ways (refinery pricing, more advertising, bigger stations, faster service, etc.) with a ban on self-service? (yes, they could)

So this is the best I can do, but I don’t think it is enough to really hold up, basically because of the third question. There are so many ways Big Oil could compete against independent retailers, I don’t think self-service or not makes much difference. But perhaps…

UPDATE: Perhaps the model is all wrong. This story suggests that being unbranded allows stations to shop for the cheapest gas - giving them a comparative advantage in gas. So I am still puzzled by the idea that self-service matters in all of this.

Self-Service Gas: More Thoughts

This self-service gas poll has been an interesting exercise and it is instructive for me to learn how opinions are formed and how beliefs are entrenched. I want to reinforce a key point that seems to be getting lost: I have no wish to deny anyone their full-service gas and I am quite happy with a mandate that says gas stations must provide the service upon request. All I am asking is to be allowed the right to decline the service if I wish. What can possibly be wrong with that?

My motivations have also been questioned, so let me be explicit about them. When I reflect I think there are three main motives in my head.

1. The first is purely impatience on my part. I am generally quite a patient person (aided by an extended stay in India in the late 80s - nothing teaches patience like India Rail), but I do get impatient at gas stations. I think this is mostly because it is something I could do myself so easily. Waiting around 2-3 minutes for an attendant to pull the hose out of my car is just plain annoying to me. It is also true that as a kid and a young adult in Oregon, it never used to bother me that much, it is only after years away and then returning has it started to irk. But then my life is much more hectic so I am not sure if it is the experience of how quick an easy self-serve is or the fact that my time is more precious that makes me wish for self-serve.

2. This gets to the second motivation - I don't like having others do for me what I can do myself. I have two good friends, recently married, who live in Sao Paulo, Brazil. He is Brazilian and she from Spain. When they got an apartment together, he wished to employ a housecleaner/cook. He said not only is it normal but it is a responsibility of relatively well-off Brazilians to employ those less well-off. She said having someone in their house working for them made her feel uncomfortable and exploitative. I share her discomfort with having someone do something you can do yourself. I am sure it has a lot to do with my upbringing - we changed the oil and repaired our cars ourselves, we did household repairs ourselves, etc. In fact I can hardly remember anyone ever in our house to fix things. As an economist this does not make sense - it is inefficient. Surely my comparative advantage is not in construction: I am slow, inexperienced and make mistakes. And yet a few years ago, I devoted a good portion of my summer do finishing part of my basement. I no longer fix my car myself (except for routine things like changing the battery) and I have my oil changed but when it comes to pumping gas, I don't think I am any less efficient and since time sitting in my car is basically wasted the real opportunity cost is the total time I spend parked at the station, so making that shorter by pumping myself is efficient.

3. The last reason, and the most important reason, is that I am often an advocate of government intervention in cases where there are externalities, public goods, market concentration, etc. But as an advocate of such interventions, I think it is critical that we are also consistent about areas in which government intervention is not well justified. This is really a big point of this blog. So while it may seem a trivial matter, I don't think it is. We need to be clear and consistent about situations in which government involvement is necessary and we need to carefully justify that intervention. Otherwise, I do believe that the default should be free markets. I believe this not only as an economist in the market sense, but also as a political philosophy. So here is a case of a completely unnecessary government intervention in a market and an infringement on my personal liberty and I think these should be eliminated as much as possible.

Finally, I'll say it once more, if you think that banning self-service is good for jobs, prices, competition, consumer welfare, whatever...then there are much BETTER policy responses to these issues. Banning self-service gas is just not a good way to deal with any of this. If, however, most of you are like Jeff Alworth and admit that you just like it because it makes us different, and that is something valuable to you, then it is quite possible that banning self-service gas makes overall welfare in Oregon higher. I am unconvinced that this is such a state treasure to most Oregonians that they are willing to waste time and money for it, but we'll see what the poll says.

N.B. A commenter has noted correctly that I am using the term "full-service" loosely. I am generally referring to anything that is not self-serve.

Friday, April 4, 2008

Econ 101: The Backward Bending Labor Supply Curve - or - Why Does Hillary Want to Be President?

The Clintons just released the last seven years of income tax forms, as reported by the New York Times. Turns out they earned over $109 million between 2000 and 2007. That's a lot of money, quite a bit more than I expected, but what I wonder, more than anything else is: why in the world would Hillary want to be president? I mean it is long hours, lots of travel, an often thankless job and it condemns you to life in a public bubble from which you can't escape.

Economic theory suggests that as incomes rise past a point, people choose to 'purchase' or consume more leisure time which produces a backward bending labor supply curve (here is the Wikipedia graph which is nicer than the one I came up with).

It seems to me that one could spend six years fighting for, and then performing the duties of, the Oval office, or one could relax, travel, read some good books...you know, enjoy life. I know what I would choose.

I suppose being the most powerful person in the world might have something to do with it. And I don't mean that as a snarky comment about Hillary's ambitions. The President of the United States can affect hundreds of millions (even billions) of peoples lives. The ability to do (what one believes to be) a lot of good in the world could be pretty strong incentive, I suppose.

By the way, for those who don't already have $100 million, it appears the Presidency is a pretty good cash cow upon retirement...

Wednesday, April 2, 2008

The Housing Market and Sub-Prime Loans

The NY Fed has just made available this remarkable tool. Go forth and play: click on Oregon and see state wide data then click on your county for county-level data (the county data is not working for me so far).