The Fish and Chip Shop

The Fish and Chip Shop owner Mick Shillingford was kind enough to comment on my post praising his business. Here are his thoughts, hoisted from the comments:

Thanks for coming to the fish and chip shop! Here's a quick update. I'm expanding the dining area (within the next 30 days) so seating room should double. Also I applied for a beer and wine license. People like beer with their F&C yes? Soon hopefully. The cod is fresh year round, I buy true cod over ling, the halibut season started last week so I have fresh and previously frozen right now.(not sure what you guys tried) The market price for fresh is up a little right now. I'm told due to the volcano and the weather in alaska. But it should drop back down soon. ... Also fyi the portion sizes went up, we stopped using lettuce for garnish and switched to green checkered paper. Our menu also has fish and chip combos now, as well as our ala carte menu which seemed to just create confusion. I'm sure as we grow there will be more changes to improve service and quality. Thanks for all the great comments on the F&C. Much appreciated! See ya at the chippy!

A few notes in response:

One, the picture I grabbed from this article (and should have credited, sorry!) because it was pretty and I forgot to snap a pic or two. What I really wanted was a closeup of the storefront, but alas, the internets failed me. Anyway, the lettuce garnish was indeed absent from our plates (which is a good thing, because then you feel guilty that you are not eating any leafy greens - unless you want to eat the leaf under your chips...).

Two, the service was great - fast, friendly and casual. They also have a great kids menu and my son had a good time coloring Mikey the Fish. I am not a professional restaurant reviewer so I don't tend to think about all the stuff I should cover.

Three, they had a great flat screen TV showing football (er, soccer) - it was a Barca v. Mallorca replay when we were there. Learning that Mick hails from London however raises the ugly spectre that it is entirely possible that he is a Tottenham supporter, which, if true, would be too terrible to contemplate... Say it 'aint so Mick! Of course my Grandad thought I must have been switched at birth for supporting Arsenal and not his beloved QPR so there you go.

Fourth, the news that you might soon be able to enjoy a beer with your fish and chips is too wonderful to contemplate. One wonders how far Mick will go to stock British beers given his superhuman efforts to stock British soda. The thought of a good fish and chips with a pint of Theakston's Best Bitter? Oh the rapture!

Hmmm, I am hungry again....

A Better White Stag Sign?

From The Oregonian: Randy Leonard's proposed design.

Portland Housing Market: Case-Shiller January

Last week I posted on some interesting data from the OFHEO. That data showed a modest gain in January home values. Today the Case-Shiller numbers came out for January and they show a steep decline. Here is the graph for Portland, Seattle and the 20 city composite:

What explains the discrepancy? Well, the OFHEO numbers could just be an error (they are preliminary and are subject to revision), or a statistical anomaly from the fairly low home sales in January, but it could also reflect the key differences in the two indices. The CS data are for 20 major metropolitan areas and include all houses of any price. The OFHEO is for both urban and rural areas and include only houses with conforming loans. So if it is expensive houses and urban areas that are driving the downturn in average home values in the US, this could different numbers in the two indices. But these are so different, I suspect the OFHEO data is an aberration.

These are for January and what will be key is to see how home values are responding to the current fed programs and low mortgage rates. What will the March through June numbers look like in other words? Given the dismal employment picture I am not too optimistic

Is Economic Growth Good or Bad?

On April 13th I will be participating in a City Club of Corvallis discussion about economic growth and development and whether it is a good goal for a city like Corvallis. In preparation for the event, John Sechrest, the Economic Development Specialist for the Corvallis-Benton Chamber Coalition, has initiated a preliminary discussion between me and Rob Dietz of the Center for the Advancement of a Steady State Society. The first exchange was about setting the table, defining growth and its implications. Here is a slightly edited version of the first exchange:

Rob Dietz

A large part of the problem with economic policies today is that governments, businesses, and citizens have confused the concepts of"economic growth" and "economic development." Pursuit of economic growth has become the top priority of virtually every nation in the world, and this priority, in turn, affects policies at all scales of society -- from states to regions to cities to communities.

Economic growth is not an end, but rather a means to an end. We are not interested in growth for growth's sake, but presumably to achieve a higher level of individual and societal well-being. Before we can decide whether economic growth is a good way to increase well-being,we need to agree on the meaning of economic growth.

The most policy-relevant and publicly resonant definition of economic growth is increasing production and consumption of goods and services, indicated by rising GDP. Some definitions add a few more words, but they tend to be more convoluted. Instead of "increasing production and consumption," they use phrases like "increasing capacity to produce and consume" or"increasing value of goods and services." Regardless of the phrasing, economic growth boils down to more quantity of more things. For a colorful definition, Brian Czech writes in his book Shoveling Fuel for a Runaway Train that economic growth means "more MacDonald's and Antoine's, more Fords and fiats, more jeep trails and ship sails."

Here are a few definitions from various economic authorities... [He describes them , but for brevity I'll just provide the links]
http://canadianeconomy.gc.ca/english/economy/economic_growth.html
http://www.worldbank.org/depweb/english/beyond/global/glossary.html
http://www.minneapolisfed.org/glossary.cfm#e
http://www.finance-glossary.com/define/economic-growth/12811/0/E
http://www.bloomberg.com/invest/glossary/bfglose.htm

All of these definitions have at their core the concept of quantity. Economic growth is about quantity. Economic development, on the other hand, is about quality. A well developed economy is one that meets peoples needs and provides a high level of well-being for citizens. If increasing quantities of goods and services help achieve that goal, then pursuit of economic growth makes sense. If growing bigger does not help society get better, however, then pursuit of growth is wasteful and potentially hazardous.

Patrick Emerson

All of the definitions of growth are acceptable to me (they are all essentially the same), but the key to all of them is this: growth is about creating more value per person. With that additional created value a society can afford to do more things: more medical care, more and better schools, fund parks and arts and cultural institutions, etc., etc..

Suggesting that growth is about using and consuming more quantity of more things is a bit misleading. Growth is about producing more value - not just about making more material stuff. For example, if someone is good a singing songs and other people find it enjoyable to listen to those songs, the singer can create value by performing in a cafe and charging admission. This activity has created more value where there was not before and thus can caused economic growth to happen. It has also increased both production and consumption, by the way.

The point is that growth and resource depletion are not inexorably linked. Yes, the industrial revolution and growth in the 20th century is closely linked with resource depletion, but future growth will have to be different - it will be driven by increased productivity much more than resource extraction. In fact it is in economic growth that hope for the future rests - without major improvements in things like energy efficiency the future is not so bright. But every increase in average energy efficiency is an increase in growth.

I agree completely that economic growth is a means to an ends and not an ends itself. But these ends are critically important. John [Sechrest] mentions some of the worldwide metrics of the human condition, here is another one: for the almost one billion people that live in the "Low Human Development" countries, life expectancy is 53 years old. Much of this is due to the fact that many of these people do not have access to clean drinking water and basic medical care.

Here are some more statistics (from 2003):
•826 million people do not have enough food
•1 billion people have no access to safe drinking water
•2.4 billion have no sanitation
•10,000 children die EVERY DAY from diseases caused by contaminated water

Some of this is due to political reasons, but most of it is due to poverty. And while growth will not automatically cure these ills, it provides the means to do so. Without growth in these countries there is virtually no hope in improving the lives of the citizenry.

Locally, we have problems with poverty, malnutrition, inadequate access to medical care, under funded schools, etc. I can't imagine that most local residents are satisfied with the way things are and the way to improvement in these areas is through future economic growth.

So I think that growth is not the point but the means to the ends, and in the same vein growth is not the enemy but the friend as long as it is done right. Growth can be dumb or smart, and no one wants dumb growth, but smart growth is the way we can create the town, the state, the nation and the world that we can all be happy with.

What do you think?

Beeronomics: Recession Proof?

The Portland Business Journal is reporting that Widmer-Redhook lost $33.2 million in 2008.

From the article:

In the [annual] report, the company said one-time charges related to the merger, the economic environment and fuller-flavored offerings from big-name domestic brewers have sliced into the company’s sales.

This is the first place where I have seen it said that offerings like Budweiser’s American Amber are starting to cut into craft brewer's markets. I hope this is not a reflection of the market, which only turned really grim in late 2008. As 2009 is horrendous, this would be very worrying for the state of craft brewers if it represents a general trend.

Fish & Chips: The Verdict....So Far

[Note: Spring term begins today and I am in scramble mode after a spring break entirely consumed by illness. The tally: two double ear infections, one viral chest infection, one pneumonia, two colds and counting... Anyway, this is just to say a quick post on F&C (which the pneumonia kid got as a treat) and more blogging tomorrow - I hope]

Well, my search for authentic British fish and chips is over: the perfectly titled "The Fish and Chip Shop" on N. Killingsworth in Portland is a marvel. Absolutely perfect fish and chips in every way and lots of other gastronomic wonders from the Old Country like scotch eggs and, my favorite, Irn Bru soda from Scotland!

Both the fish and chips were exceptionally well done and you have a fine choice of fish. My son and I had the Cod and the Halibut to compare and we both decided, surprisingly, that the Cod was better.

One caveat, this is true British style fish and chips, meaning the batter is thick so as to make the fish finger food. If you are looking for lighter batter necessitating the use of a fork and knife, the pub route might be a better choice (and if you want beer - The Fish and Chip Shop does not serve alcohol). My current front runner on the pub front is the New Old Lompoc's Oaks Bottom (and perhaps it is the same at all of their pubs). The Fish and Chip Shop is a very small place and seems reasonably busy so a call ahead for take-out is probably a good option. But this is truly it: the holy grail for fans of British fish and chips. I look forward to taking me mum there on her next visit.

Enjoy.

Unions - A Mea Culpa and an Anecdote

I have been trying to get back to my unions posts but it has proved more difficult than I anticipated.  I have tried to find some general overview article of the JEL type or some relatively recent paper that presents some convincing and wide ranging evidence, to no avail (but have not had much time to look).  Instead there are a multitude of (mostly older) papers that are hard to generalize but about which I think I can make a few statements.  Call them what, stylized facts?  Unions tend to raise wages and this effect is more pronounced for lower skilled workers.  Unions can also lead to rigidity that cause more unemployment (though this is buy no means a general result at least in my investigation).  Unions have no clear implications for the profitability and success of firms - I have found research that have found both positive and negative effects.  I hope soon to be able to find some time to discuss this in more detail.   

In the meantime, thank you for your comments.  Many have shared personal anecdotes, so I'll share mine:

When I was a UPS delivery person and was still relatively new, around Christmas (Dec 23), I was given a rental truck with hastily lashed 'shelves' that was literally stuffed to the roof with packages in only a minor semblance of order.  I was out until 10pm delivering these packages and at about 6:30pm I finally unearthed a series of packages for a medical office that was now closed given the hour of the day.  This is a cardinal sin at UPS - you make an attempt on every package in your truck and never, ever miss a business delivery.  But I had no control over this.  Anyway, I finally return to the UPS facility exhausted, not having eaten anything for ten hours. I was the last one in and the supervisor (whom I had never met as he was the overnight super) gave me a dressing down for the unattempted packages in my truck.  I gently suggested that if he had seen my truck in the morning, he would understand that it was overloaded and that I had done a pretty good job delivering as many packages as I had.  

So that was bad enough, but when I got to the locker room the union rep came in to tear into me for staying out too late.  All I could do was laugh.  

Now, he was trying to do me a favor, as a new guy, he wanted me to know that I had the right to return earlier and not to let UPS take advantage of me. "No one stays out past 9, said he."  But at that moment I was not interested.

Anyway, are the Teamsters good for UPS and its workers?  Well, I knew that (then, at least) I got paid much more than drivers at FedEx and had fantastic benefits.  Though I also noticed that FedEx workers were always pretty casual and unsweaty - in stark contrast to my haste. UPS was a very successful company and was always on the list of great companies to work for.  They aggressively promoted from within and they tried to stop me from quitting by promising that I would not be in a truck for long with my degree in economics - so clearly they thought of their employees as a long-term investment and wanted to keep them, which is a good thing.  There is also a 3 month probation period during which UPS aggressively weeds out those who cannot cut it which is a part of the union contract.  So in general, I think it is a pretty good model for a successful union shop.  But that is from a pretty small observation period.  As an economist I am trained to be suspicious of such rigidities, but the information asymmetries and job-specific investments present in the UPS example seem to provide a pretty good justification for unionization.  

Just a thought...hopefully more data to follow.

Portland's Economic Malaise as Seen by The New York Times

Peter S. Goodman of The New York Times brings us this article about how the economic downturn is affecting Portland and he does a nice job tracing through some of the interconnections that characterize the economy.

I think he overstates the demand side, however, people can only withhold spending so much and for so long -  which is why the initial fall into recession can be quite steep, but recovery can too.   But for a recovery to be relatively quick and robust, we must have a well functioning credit market.  Hopefully Geithner's plan will pay quick dividends - I am skeptical, but am willing to give it a chance.

Economist's Notebook: The White Stag Sign Redux

Randy Leonard has suggested that the city condemn the "Made in Oregon" sign and take ownership of it to prevent the University of Oregon from changing the wording of the sign. I have blogged about the public goods nature of the sign before: there are good economic reasons for public control over the sign as it is something that affects all Portlanders.  Bravo to Commissioner Leonard for being a good public steward and boo to the U of O for being a bad citizen.  Their hubris is unbecoming and unhelpful.  

The O suggests that this is a strategic ploy to come to some sort of compromise.  I hope not, the sign should either be a public property or it should go away. 

Beeronomics: Back to the Future?

The craft beer cognoscenti often talk about how the new craft beer movement in America is a return to the past where breweries were decidedly local (and perhaps reflected local tastes though most beers were pilsner style beers imported by german and eastern european immigrants).  I agree that the local brewery is a return to the past, but the localization of breweries in the late 19th and early 20th centuries was largely a consequence of the difficulty of transporting a bulky and heavy product.  The modernization of transport, especially post WWII, in my mind at least, was a major factor in the consolidation of brewing which was able to exploit economies of scale in all aspects of the industry.  But of course you loose something in the process: variety (such as it was).  

But this supposes that there was a lot of variety in local markets prior to the great consolidation.  I suspect not, for the very same reason that led to the creation of local breweries: transportation was costly.  On most local shelves in the US in the early 20th century, I suspect, was a choice of only a few locally produced beers. 

So really then, we are currently in an unprecedented era where we now have a dizzying array of beer choices available to us in our local stores.  I used to buy Rogue in Ithaca, NY, and in Portland I can find obscure Belgian beers, microbrews from all around the US, and tons of special brews.  What does it all mean?  Well, for one, we can identify regional tends in styles and flavors more readily and as producers try and distinguish themselves in a crowded marketplace the incentives are probably to try and produce more and more unique beers.  

Which is the point of this rumination: the rise in specialty brews (things like Deschutes' Dissident, Full Sail's Slipknot, etc.) is part and parcel of this newly crowded marketplace.  I think breweries are finding it ever more important to create some buzz and attention through the creation and marketing of these brews.  It is a wonderful trend for the beer enthusiasts, but is also a sign of an industry that is still evolving.  I think a lot about where it will all settle (e.g. how many breweries can the market sustain), but I suspect that this is an industry that will always have a lot of churn - many new breweries starting up and many old ones closing.  This is not necessarily a bad thing, it means lots of constantly changing variety.  Or perhaps the big brewers will successfully capture the market by introducing their own micro-style brews, it all remains to be seen and is pretty fascinating.  

Okay, so in the final analysis this post is pretty aimless, but this is what happens to someone shut in for over a week with sick kids.  Hopefully it makes a little sense.

Fish and Chips Update

Thanks for all the good advice about places to try fish and chips.  Today, on a lark, I tried the Oaks Bottom Public House which is a part of the New Old Lompoc empire.  Good thing too, the fish was perfect: light crispy batter and juicy steaming fish inside.  I was the only person at that time ordering food, so my order came right away and it was clearly the only thing the kitchen had going on, so it is possible that the quality will decline with a busy kitchen, but this time at least it was done perfectly.  The chips were good as well, however they were seasoned with paprika, I think, or perhaps cayenne pepper, so that was a bit weird and took away from the fish a bit, but I grew to like them.  Presumably all of the Lompoc locations offer the dish, so it is worth a try in my opinion. 

In my F&C post, commenter Mick points me to this outfit:

Go to "The Fish and Chip Shop" 1218 N. Killingsworth St. www.thefishandchipshop.com and your search will be over.

I had just read about this place in Portland Monthly Magazine and I had it in mind for today, but sick kiddies kept me close to home.  So I will get there soon and report.  

The Oaks Bottom, to their great credit, has kept a few rotating taps and today they had the Russian River 'Damnation' on tap.  This belgian style ale has received a lot of attention but I found it strange and antiseptic, so I went for the Diamond Knot 'Industrial IPA' which was pretty good and yet another hugely hopped beer of the type that I keep running into (and good for post tax prep cleansing).  

The Oaks Bottom also played a steady stream of late eighties pop/rick and, perhaps depressingly, I found I knew every word to every song.  

Home Prices: Some Good News?

I am not so excited about home sales data, housing starts or median prices, but I am cautiously optimistic about this: the latest OFHEO data on home prices using repeat sales data shows an uptick in home values from December to January for the US as a whole (1.9%) and for all regions but the Pacific. What explains this? Well it could be an anomaly - sales were scarce and this could cause results that do not represent an overall trend - and it could be the lowering cost of mortgages along with some pretty cheap homes. Who knows, but it is better than another bad report in any event.

We will know soon whether this is a robust result when the other repeat sales data index, the Case-Shiller, releases the January numbers next week.

Beeronomics: Death and Taxes and Beer

Well I am not dead, so I guess I had better turn in my tax forms. As I am not enjoying Bend and Mt. Bachelor as was the plan for this spring break and am instead dodging nasty germs that my sick kids are constantly releasing into the stale air of my house, I figured I might as well do my taxes.  But now that they are done, my thoughts turn to beer.  This begs the question, what is the best beer to have post-taxes? (And this year I don't owe any extra taxes so I don't have to go the malt liquor route to drown my sorrows, in fact I can be a bit profligate since I get a modest refund - permanent income hypothesis?, pah!)

Well, I had to go to the local Safeway for a prescription (see: sick kids, above) I figured I'd pick up some post-tax filing celebratory beer.  Unfortunately, Safeway's beer selection is the worst in Portland, but I figured that among the many Widmer beers they sell would be the new 'Drifter' that I am eager to try.  Nope.  Dang.

But aha! Salvation.  Of all random things they have a 22oz-er of Deschutes' hop bomb 'Hop Henge,' this is a perfect post-tax beer.  A huge beer that will nuke your senses and rid you of that bad tax after-taste.  I find 'Hop Henge' and the similar 'Hop Lava' from Double Mountain a wee bit much, yet I still enjoy them immensely and they are perfect for certain situations (and this is one).  I love hops, but these are intentionally out-of-balance for the serious hop heads, so beware should you go looking for that perfect post-tax beer.

After my Hop Henge, all the nasty memories of the Form 1040, the Schedule A, the Form 2441, the Schedules SE and C-EZ and on and on and on fade away and my consciousness is transported to Bend - where I was supposed to be all along.  Thanks Gary and the Deschutes crew! [BTW, be nice to my brother who is in the brewing program at UC Davis and going to be doing an internship with you in April]

So, what is your choice for your "Thank God I am Finished With My Taxes!" beer?

When Life Interrupts...

I did not expect to be blogging much this week, it is spring break for OSU and public schools and we were supposed to go to Bend for a little R&R.  Well that all got torpedoed by illness that started in one kid and passed to the other.  It looks like we are finally all on the mend.

But last Thursday, when it all started, I was scheduled to go on the Bob Miller Show on KPAM to discuss some small yet positive signs in the economy.  Unfortunately I got stuck at home with a sick kid and so I called to cancel, but they wanted to do it with me anyway from my home.  Well, I tried, and for a few minutes it worked, but then my sick child came looking for me...  The result was terribly embarrassing (I am sorry Bob!) and the entire time I was very distracted so I can't imagine I was very coherent.  But you know, life is what it is and sometimes we have to roll with the punches.  It is what being a parent is all about.

Why Study Economics?

As an undergraduate at a small liberal arts college (Lewis & Clark), I studied economics.  I am very glad I did, but when I think back about the things my undergraduate education provided me that I find particularly valuable today, it has little to do with the specific economics content and more to do with the well-rounded liberal arts education in general.  First and foremost, the amount of writing I had to throughout my undergraduate career was invaluable.  As I progressed through graduate school at Wisconsin and then Cornell, I found that my comparative advantage in writing was pronounced and helped me succeed.  As a research economist, I have come to appreciate that, now matter how good the underlying research is, a research paper is only as good as the writing.

I also appreciate the exposure I got to many different ways of viewing the world.  L&C at the time had a core curriculum that emphasized critical thinking and I took courses in many different subjects that forced me to first understand how each discipline analyzed the world and then think critically about this particular way of looking at the world.  These writing and critical thinking skills formed the bedrock of my education, without which subsequent investments in my education would have been worth a lot less.

But that doesn't mean I regret being an economics major, in fact the opposite it true.  In addition to being a subject that interested me, Economics taught me to think logically and precisely.  When I started to focus on international development, I appreciated this level of intellectual rigor for a subject where there was an endless supply of 'good ideas' but a dearth of critical analysis.

This is all to say that I think this article in the Chronicle of Higher Education by David Colander about the popularity of the economics major at liberal arts colleges has it just right. [HT: Greg Mankiw]  In it Colander makes this statement:

Companies like to hire economics majors from liberal-arts colleges not because the students have been trained in business, but because they have a solid background in the liberal arts. What I hear from businesspeople is that they don't care what a job candidate has majored in. They want students who can think, communicate orally, write, and solve problems, and who are comfortable with quantitative analysis. They do not expect colleges to provide students with specific training in business skills.

I try and tell my OSU students this, but most choose Business anyway as they see it as a more useful major and a lot easier.  It is true that the econ major is hard, at my last job the economics department had the second lowest GPA in its classes (Physics had the lowest), but for me as a student this was part of the point.  I was intimidated by it but I wanted to challenge myself as an undergraduate and I think this too served me very well - it forced me to become a much better student which helped me a lot in graduate school.  Colander's research shows that rigor is a motivation for other students as well.

Consider the results of another question in my survey. We asked economics students to identify majors as hard, moderate, or easy, and we found that 33 percent viewed economics as hard, 3 percent said sociology was hard, 7 percent saw psychology as hard, and 13 percent thought political science was hard. Since other social sciences were the primary alternative majors that most of the economics students considered, that data is compelling evidence that the respondents perceived those other majors as too easy. Students likely reasoned that taking a "too easy" major would signal to potential employers that the student had chosen an easy path through college, thereby hurting their chances of being hired.

In my current job I see students that consistently eschew hard courses and majors for what they deem as more practical and more marketable alternatives.  This is part of what I perceive as a general moving away from the liberal arts based undergraduate education to a more vocational approach at large state universities.  I think we need to do a better job informing the students that this may not be the best long-term strategy and that basic skills in writing and math are incredibly valuable assets that you keep with you your entire life - especially as the economy evolves and the vocation you trained for as an undergraduate may not be there for you in the future.

The New Treasury Plan

One thing strikes me about this new plan from Geithner to deal with the toxic assets weighing down the banking sector: doesn't this seem an awful lot like trying to create a new bubble to solve the popping of the old one?  [You could also say this about the housing rescue plan and the Fed actions to drive down long term interest rates]

Let's see, create an awful lot of cheap, non-recourse loans to get the 'market' to realize that these assets really are valuable.  Why? Because the underlying assets are strong?  No.  Because other investors think they are valuable, and all of us think so because this scheme creates a humongous subsidy for these assets.  This is bubble 101.  [Paul Krugman has a nice primer on how this scheme works in reality]

That said, I am not so rah-rah about nationalization as some other, much more prominent economists (like Krugman), because I believe doing so with just one big bank could topple the entire system as investors pull out in droves.  So I do believe in treading carefully.  So I hope this plan works, but I am worried... 

The Decline of Western Civilization, Part 1

I suppose I should mention that this tremendous deal is available to you today at the Pilsner Room. But even better - at least as of last night - there is still some of John Harris' 11 year old imperial stout. If you have the chance you should try this remarkable beer, it is so robust yet so smooth, it will blow your mind. You might even forget you are eating corn dogs, which is a bonus.

It's Official: MLS to PDX in 2011

Econ 101: Financial Intermediaries

Something in Ethan Lindsey's story on OPB about real estate fraud in Bend caught my attention. Bend attorney Martin Hansen was explaining a crooked deal and made this statement about the deal between the allegedly fraudulent firm and its depositors: “It did not authorize any removal for any purpose whatsoever under any terms in any circumstance. Period. It would just be tantamount to your bank removing money from your savings account to investment in real estate. They don’t have the authority, without your consent.”

Um, just how does he think banking works? In fact, this is precisely what you are doing when you deposit your money in the bank, which is why they pay you interest for the right to use your money. They are required to give you your money on demand, that is true, but they aren't paying you for the pleasure of looking at your stack of cash. They don't need your specific consent to use your money, such consent is part of the contract from the outset.

Which brings up a bigger issue, why are we so interested in getting the banking sector working efficiently again? This is because the banking sector plays such an important role in our economy. All of us with savings have idle money that could be put to productive uses but it is hard for an individual to know about these. Some of us invest directly in startups, stocks, etc. But many of us simply don't have the time knowledge or level of savings to do so. Banks, by consolidating the savings of many individual depositors and making these funds available to loan direct this idle capital to productive uses. This investment is vital for the growth of the economy and benefits us all in general and individually: both depositors and borrowers gain from this transaction that would not have happened without the financial intermediation of the banking system.  

No matter what scale we are talking about, the role of the banking system is essentially the same - taking idle capital from one set of economic actors (whether your neighbor or the Chinese) and directing it to its most productive use (from a new coffee shop to an international conglomerate to a sovereign nation).  Without this essential link between savers and investors, investment general crashes and, well, you can see the result.  

This is why, without a well-functioning credit market the economy is unlikely to turn around and why, like many other economists, I believe the key to the recovery lies in getting the credit markets sorted, and soon.  Everything else is secondary.

Beeronomics: Pelican

Its Friday, so let's talk beer because I am just tired of talking about economics.  John Foyston reports in The Oregonian that Pelican Brewery of Pacific City brough back 10 medals from their 10 entries in the Australia International Beer Awards.

This is some well deserved recognition for one of Oregon beers real treasures.  Of course, somehow it seems unfair.  Good beer should come from the dreariest, dankest corners of Oregon.  Pelican, in a spectacular setting on the coast, should cook up some mediocre beer for the tourists and leave well enough alone.  Well, they don't.  Their beer is exceptional with an impressive range and amazingly consistent quality.  

Economists know about compensating wage differentials - what about a compensating beer differential?  Folks in Bend and Pacific City have it all, its not fair.  

NB: Spring break is upon us so spotty blogging ahead for the next week.  I am going to Bend to get my own dose of the good life.  

Quantitative Easing and Oregon

I mused to a colleague a while back that since fiscal stimulus is hard to do well and relatively slow, perhaps we would be better off if the feds just pumped massive amounts of liquidity into credit markets.  Well the Fed appears to have decided that it needed to be more aggressive on quantitative easing.  Will it work?  There needs to be borrowers for this capital that have productive uses for it and with recession in other parts of the world this demand will probably be muted.  But I think it is well worth the risk.  The rate at which we are shedding jobs is phenomenal and bold action is what is called for.

For Oregon this strategy may have a side benefit.  The value of the dollar is declining and this will make Oregon exports more competitive.  Since Oregon is particularly dependent on exports, this decline may be some help.

As seen on this nice NY Times graph the effects are immediate: long term debt just got cheaper. This should also help Oregonians buy homes and stay in their homes as mortgage rates come down.

Confirmed: MLS to Portland

Oregonian gets confirmation from City Hall: MLS will announce Friday that it has awarded the expansion franchise to Portland.  

It's Tourney Time!: Pickin' with Obama

Both Cornell and Wisconsin (my almae matres) are in but are not expected to get past the first round.  Obama doesn't think so either.  Fortunately, I can economize by saying "Go Big Red!" for both.  I wonder what kind of deference he would have given to Oregon State had they made the tournament?

MLS: Vancouver In, Portland Waits

The Vancouver Whitecaps got the nod from MLS today to begin play in the top league in 2011 in (yuck) the BC Place football stadium.  But, they are still trying to get a waterfront stadium built in five years (how cool would that be with Grouse Mountain in the background?).

MLS Commissioner Don Garber stated that the league hopes to announce the other expansion franchise 'shortly.'  Both the Ottawa and St. Louis bids have serious problems and, lets be real, they suck.  St. Louis is a sports saturated medium-sized market with a failing team across the state in KC.  Ottawa is smaller, colder, less-interesting and Canadian.  Actually the last bit is a good think, there is more passion for soccer in Canada and they are more ready to embrace the sport.  But my grandmother hails from Smiths Falls, Ontario and I have family in Ottawa, so I know of what I speak when I say - go for a wonderful summer vacation, but don't put a soccer team there.  Actually, Ottawa is a delightful city (in the summer) but a pretty small market and Ontario already has a team, so I don't think it is a good move for the league.

Why wait? MLS should give Portland the nod now!

UPDATE: Portland Biz Journal reports that an announcement awarding MLS to PDX may come Friday.

Unions: Do They Help or Hurt Business?

Rather than try and do a comprehensive treatment of the economics of labor unions, like I have done before, I want to highlight some particularly robust evidence from the economics literature in bits and pieces to try and provide a platform for informed debate. Today, I want to highlight DiNardo and Lee's 2004 paper "Economic Impacts of New Unionization on Private Sector Employers: 1984–2001"

Like almost all empirical economics studies, we don't have the counter-factual and so we are forced to try and do the best we can with the data we have. In this case they use the newly fashionable regression discontinuity design. In essence, they look at businesses where unionization just barely passed, versus businesses where it just barely failed. Why, well unionization is not likely to be random and unions could form at more profitable businesses that are more likely to pay higher wages. So if you see higher wages at union shops it is impossible to know how much is due to unionization and how much is due to the general profitability of the firm.

What do they find?

The analysis finds small impacts on all outcomes that we examine [business survival, employment, output, productivity, and wages]; estimates for
wages are close to zero. The evidence suggests that—at least in recent
decades—the legal mandate that requires the employer to bargain with a certified
union has had little economic impact on employers, because unions have been
somewhat unsuccessful at securing significant wage gains.

Thus the answer is not much. Unions in this period didn't seem to be effective at bargaining up wages and thus don't have much of an impact on firm performance.

But there remains an open question: in cases where unions did seem to win wage concessions was this at the expense of firm performance? I'll try and find evidence next time...

Beeronomics: 3.2 Beer and Craft Brewing

[Note: Oregon economy is just too grim, so today let's think about beer!]

Beervana blogger Jeff Alworth sent along this little beeronomics puzzle: in Colorado, craft brewers have taken a stance against repealing the restriction that allows only beer with an alcohol content of 3.2% or less to be sold in grocery stores. See news reports on the story here and here.

What gives? Why are craft brewers afraid of this change? Here is Left-Hand Brewing's Eric Wallage: “It’s terrible, if it passes, it’ll completely junk up the market for craft beers.”

The premise is that the 3.2 law basically shuts out the supermarket market for craft beers. This is not really true, it is easy to make beer for this market. I asked my fellow L&C alum who is the brewmeister for Boulder Brewing how they made their 3.2 beer. "Just add water" he replied with a rueful smile... But it is likely that the distinctive flavors and qualities that are the hallmark of craft brews over macro brews are largely lost when drowned in water. So, essentially, they believe that this is not their market (though Fat Tire seems to sell exceedingly well in supermarkets). Thus, they perceive the liquor store as their 'turf' and they want to protect it.

But there is no economic reason to suggest that liquor stores have different incentives when it comes to selling beer, nor is it clear that the clientele is different than in supermarkets (or would be in equilibrium). My experience in Colorado was that liquor stores did not have beer displays that were substantially bigger than supermarkets (especially since groceries are constrained by the 3.2 law) and that liquor stores seemed to devote plenty of space to macro brews. They are profit maximizing firms after all, just like grocery stores, and in absence of the law, I would expect just about equal space being given to craft brews as macros in the groceries. It is all about the demand. In fact, I had a conversation with my local liquor store owner in Denver and it was clear that he was stocking only what sold well (we were talking about the removal of Full Sail), he did not express any real personal devotion to craft beers.

One would expect that being able to sell their beer to a broader market would be in the craft brewers interest. It certainly has not hurt the craft brewing industry in Oregon. This is particularly true because of the fact that demand for craft brew is a function of experience. Craft brew is an acquired taste and the more craft breweries can get people to try their beers, the more future demand they can expect.

So what gives? I suspect that this is a short-sighted political move by the craft beer industry in Colorado to curry favor with liquor stores in hopes that they will give deference to Colorado beers. This is dumb, because of its short-sightedness and because of the aforementioned fact that liquor stores are profit maximizing firms and will respond to demand. When push comes to shove, you can't take goodwill to the bank.

One thing is certain, the real looser in this fight is the consumer who will face higher prices and less convenience. Craft brewers ought to think about that.

Oregon Unemployment: 10.8%

I couple of weeks ago I said this: "I would not be surprised to see Oregon's February unemployment at about 10.8%." I am sad to say I hit it right on the head. Education and Health Services and Government were the only areas to see job gains, while manufacturing continues to be battered.

It is just awful out there.

Oregon Forecolsures

OPB's Ethan Lindsey gets picked up by NPR this morning talking about something I have been saying for a while: Foreclosures in Oregon are now more about unemployment than sub-prime loans and speculation. And with unemployment soaring in Oregon, the situation is going to get a lot worse before it gets better.

Nice job on the story Ethan, kudos.

[Note: This post comes a little late because I have been waiting for the latest Oregon jobs report to structure the post around - but it is not yet out]

MLS and Public Goods: Grass Fields

Okay, now that I have been all rah-rah about MLS in Portland, I think it is a good time to look back at the league's history and future. The summary is: it is mostly a big success story but there are some troubling signs on the horizon - most importantly the move away from natural grass playing surfaces.

The league started as a single ownership structure with 10 teams and only a couple of wealthy backers, most notably, Kansas City Chiefs owner Lamar Hunt. Play was mostly in football stadiums and, truth be told, neither the play nor the atmosphere was very good. For a little while the future was uncertain, the expansion Miami Fusion folded, but the expansion Chicago Fire thrived. Losses were common, but Lamar Hunt's construction of Columbus Crew stadium was seen as a glimpse of the future: soccer specific stadia in which the team controlled all the revenue sources.

Slowly the league became established, more stadiums were built and new teams added, but the most important change was the number of new, deep-pocketed, investors in the league that diversified the league and sent a signal that it was here to stay. Now most existing teams are stable, many have their own soccer-specific stadium, and more stadia are in the works, and the league has solidified the broadcast rights and most games are now shown on TV.

A number of very important decisions were made along the way that facilitated the rise of the league in my opinion. The first was to scrap the silly rules that made MLS an international oddity, most notably the shoot-out that determined outcome in the case of ties. The second was a steadfast determination to get the game out of NFL stadiums and to keep it off of artificial turf. The atmosphere in big stadiums is awful (I know from my time in Denver), and the game on turf is horrible: the ball bounces and skids, and players are reluctant to tackle - a key part of the sport - and in stadiums with football, the gridiron mars the visual experience. All of which degrades the spectator sport badly.

This is where my concerns come in. Recently, in the interest of expansion, the league has gone away from the last two criteria. The Toronto franchise built a soccer specific stadium, but it has a turf field. And the Seattle franchise was allowed to play in Quest field and on turf. Vancouver will likely be awarded a franchise and will play in a NFL-style indoor stadium on turf. The degradation of the quality of the product for the spectator is deeply troubling. The Seattle decision is especially so. In the beginning MLS was seen as a good way for NFL owners to get some revenue out of their otherwise idle stadiums. But it has been a terrible failure: most teams that started in NFL stadiums have either folded, left (or are leaving) or are struggling to fill seats. Seattle may be an exception in the short-run, but the long run impact on the televised product of these reversals in decisions will be painful - especially as TV revenue is the key to the future.

So, should Portland get a franchise, I hope (pray) that Paulson puts in real grass. It is expensive to install and maintain. Apparently Chicago spent 1.7 million on a state-of-the-art natural grass field with heating and drainage compared to about $1 million for a new turf field. Maintenance is more costly for grass and there are concerns about durability. But Chicago is a stadium that hosts football and concerts in addition to soccer so if they can do it, surely Portland can too. I know it is a more expensive short-term option and may even be the individually rational long-term option, but turf is a bad option for the league as a whole. It is time for MLS to insist on grass again and the Timbers should too.

[Note, here is a consenting view, and one that makes another point: if MLS teams want to make money by hosting major international clubs, it is likely that those clubs will refuse to play on turf]

The Great Fish and Chips Search

Friday afternoon blogging: what do you expect, economics? No, my attention shifts elsewhere...

Being the son of an Englishwoman I was bred with an appreciation for fine English cuisine. And there is no finer example of the fine art of English cooking than fish and chips. Okay so maybe you think it is low-brow, but there is not much worse than fish and chips done badly - it becomes a greasy, slimy, tasteless fat fiesta. But done well, the batter is crisp and the fish is moist and juicy and wonderful.

In the US, bad is the norm and good is elusive in the fish and chips world. So I am always on the lookout for good spot. The worst offense in my mind is to try and make it too fancy - using bread crumbs and spices and fancying up the fries just misses the point. Also using too much batter and - gasp - overcooking it are crimes against humanity.

It is a typical pub food and as Oregon is awash with good pubs, you often find it on the menu. But one suspects that in most cases this is just because the pub thinks it 'should' and is not really serious about it. I keep trying however because I am determined to find a great spot for fish and chips.

The best I have had in the last few years was at the McMenamins Corvallis. One summer day me mum and I arrived and both ordered the F&C and a little while later were told that they would be delayed as a new batch of batter had to be whipped up. I suspect this was to our great fortune as, after a wait, the meals arrived piping hot, with absolutely perfectly cooked fish on top of McMenamins perfectly unadorned fries. Mum said it was fabulous and I agreed. But subsequent visits to that and other McPubs have not yielded as good results - the kitchen does not pay enough attention usually is my conclusion - but is probably the best I have yet found on average. Deschutes pub in Portland tries to be too fancy, as does the Rogue pubs, the Thirsty Lion yesterday was decent but not memorable and the Pilsner Room/McCormick and Schmicks use too much/too fancy batter. Glaringly, I have never tried the fish and chips at the Horse Brass, which might be expected to have the best.

So I ask you, fellow fish and chips enthusiasts, where to go next in my quest?

Beeronomics: The Honest Pint Project Goes to Salem

Beervana blogger Jeff Alworth's Honest Pint Project is gaining some serious traction. A new bill has been proposed that would require inspections of pubs and would certify their compliance with a true 16oz pint rule with a official decal (I imagine one like the state health 'complied' and 'exceeded' stickers for restaurants).

Though as an economist I support the Honest Pint Project, I do not support this legislation. I think it is costly, requiring inspections; I think it is not entirely effective, there are plenty of opportunities for cheater pints; and I think there is a better solution.

My solution has always been to do what the Brits do: require marked glassware like in the picture. Glassware suppliers can certify the volume and etch it on the glass itself. It is a lot easier to monitor a few glassware suppliers than hundreds of pubs and restaurants and etching adds very little to the extra cost of glassware (and can be phased in to save a big one-time cost to pubs and restaurants). Besides, having an Oregon state seal on a glass certifying its volume would be cool!


The reason I support this remedy is because it addresses the essential market failure: asymmetric information - drinkers do not know the volume of the glasses their beer is served in. Once full information is restored, the market will do the rest.

The Great Lunchroom Fraud

Driving down to Corvallis this morning, I caught this wonderful story on NPR: "Sweet Memories Of A Snack Food Financial Scheme". Reminds me of my middle school, where a vast unregulated economy developed surrounding the distribution and sale of Jolly Rancher candies. I was not implicated.

Economist's Notebook: Urban and Rural

Two things occurred the other day that got me thinking about the urban and rural divide. First, an old friend of mine (and fellow L&C economics major) called today and mentioned that he took issue with my assertion that we should necessarily give rural residents a break on gas taxes. He thinks we subsidize rural living too much and that urban living is more efficient - and not just in terms of energy usage and environmental harm, but efficiencies in our ability to (in his example) offer more choice to school children. The second thing was my coming across this article by Ed Glaeser that uses The Lorax as a jumping off point to discuss his research on the 'green-ness' of urban living.

First, a digression. I, like Glaeser, think The Lorax is a very good lesson on externalities and public goods and the importance of protecting the environment in the face of market incentives that will not. However, the Once-ler is not an archetypical capitalist as I assume Seuss intended, in fact he is a miserable failure of a capitalist. He fails to replant trees to ensure the future success of the business even though the incentives to do so are clear. However, in his willingness to go after the short-term gain and sacrifice the long-term health of the business, he is perhaps a good model for the bank executives that managed to screw that industry up royally.

Anyway, I believe in density and I believe the future of humanity is largely urban, not rural. I understand urban living has drawbacks: lots of concrete, heat islands, etc. But on balance (and in general) the ability to live efficeintly is greatly enhanced in urban areas and Glaesers research seems to confirm this. So I look very favorably on residential high rise developments in the city center because it is important to have downtown residents that live and work locally.

Personally, I chose to live in my neighborhood in Portland because from my house I can walk a few blocks to the park, the library, a New Seasons and a QFC (this was especially handy during the big snow storm), the bakery, coffee shops, restaurants, the bank, the hardware store and even the river. I am close to a multi-use path that takes my wife and her bike downtown to work most days, I can walk with my children to their schools and there are bus lines a couple of blocks away. I rarely have to get in my car to do anything. When I lived in Corvallis, I was in and out of my car all the time, because though it is a nice bucolic college town it is spread out. I feel my current lifestyle is healthier for me and my environment.

This is not to say that I pass judgement on those that choose to live in rural areas, but as a general trend I hope to see more density in America's urban cores and less sprawl to the exurbs. If you want to see what that is like, visit Denver - though the downtown has come a long way in the last 10 years it is still largely deserted after business hours.

But this vision of an urban ideal does create some conundrums. My wife and I disagree, for example, on agriculture. I tend to think some aspects of large scale agriculture is good. Production happens where it is most viable, economies of scale are large and a relatively small number can support all of the urban residents. My wife is very supportive of local agriculture, the farm-to-table movement and has, as an ideal, small local farms that sell directly to urbanites and do not rely on chemical fertilizers and pesticides. There are valuable aspects to both systems and it is hard to know where the right balance is, but I worry that this local ideal is highly correlated with wealth and it does not provide answers for the poor depend on highly productive agricultural sectors.

Clearly the two sectors, urban and rural, are complementary and we would not be able to live densely without the support of rural agricultural areas. But finding the balance between living efficiency and sustainably on one hand, and being less reliant on industrial agriculture and living 'closer to the earth' is not an easy task - nor is the appropriate balance obvious.

Discussion: Unions?

The debate about the Employee Free Choice Act presents a good opportunity to have a discussion about unions (particularly because OSU does not currently offer a labor economics class - gasp! - something I am actively trying to change). Unions are one of these issues that really divide economists. I am going to try (as I have before) summarize some of the recent economics literature on unions in the coming weeks, but for now a quick synopsis of the pro and con arguments made by economists.

[Full disclosure: I was once a Teamster when I was a UPS delivery person, but OSU faculty are not now represented by a union - though there is a discussion about changing that]

Con: They represent monopsony power that distort labor markets and lead to inefficient outcomes. This leads to higher unemployment and lower mobility.

Pro: Labor markets are asymmetric and employers have undue power over employees who find changing jobs costly - thus they do not necessarily yield efficient outcomes. Unions are an effective way to correct these imbalances.

Now I understand that there are lots of other things that I have not mentioned - but I invite you all to discuss unions and give me your reasons for and against in anticipation of my discussion of the economics literature.

Pay Me for Riding My Bike

Perhaps the stupidest public policy idea I have ever heard of is the proposed bike tax. It is not worth talking about the proposal itself as it is not going anywhere and is, as I think I mentioned, stupid. But what is interesting to me is that, in fact, the appropriate public policy is to subsidize bikes, not tax them.

Why? The negative externalities associated with bike riding: virtually none. Minimal wear and tear on roads, sometimes a slight slowdown in traffic and a extra line of paint for a bike lane. Positive externalities associated with bike riding: lots. Reduced congestion and emissions from those that bike in lieu of taking a car, and better health and fitness of riders reducing the toll on the public health system. Public economic teaches us that to get an efficient amount of economic activity that has externalities you have to get the price to reflect the true cost of the activity. In this case the true cost is less than the price of a bike.

Okay, so this will never happen, but we do get part of the way by providing a better biking infrastructure.

MLS in Portland: Now or Never

A deal has been struck between Merritt Paulson and the city to bring MLS to Portland that addresses all of the community task force's concerns and protects the city against downside risk.  Portland is unlikely to ever have such a deep pocketed, committed investor in sports in the city again.  And it is virtually certain the chance to land MLS will not come around again. It is also pretty much a lock that the city will be awarded a franchise if the city approves the deal. Given the willingness of Merritt Paulson to take on almost all of the risk of the deal, the city should go forward with the deal to bring MLS to Portland.  

The only objection left seems to be the use of urban renewal district money to help fund the projects.  This is a small risk: if these projects do not increase the value of those districts, then this deal will end up being a net diversion of some funds.  However, given the plan now includes a Rose Quarter ballpark, the chance that the deal will substantially increase the value of the that district is very high, especially with the Blazers investing in the area as well.  Though it is unlikely that areas around PGE Park will yield much net revenue, the Rose Quarter drawing thousands of baseball fans all summer long, should provide year-round stability.  And as I have said before, the logic of urban renewal districts has nothing specifically to do with blight, any investment that increases the value of surrounding properties qualifies.  Blighted areas have a greater potential for increased values if the specific investments work, but also include greater risk as the tipping point is farther away.  So, as a whole the deal should provide a lot of positive tangible and intangible benefits to Portland with very little cost and almost no risk.  

Though city councilors suggest the timing is bad given the state of the city budget, I actually think the timing could not be better.  With unemployment rising rapidly and commodities prices at historic lows, the cost of construction should be at a low point, and money borrowed to fund construction projects will stimulate the local economy at a time when we desperately need it and when federal stimulus is not going to do the whole job.  

There are times, and this is one of them, that city leaders need to shed their focus on the day to day business of the city and think about the long-term vitality and livability of the city.  Pioneer Square was a stupid idea - a massive diversion of potential city tax revenue that could have funded schools, essential services, etc.  But looking back it is now seen as a watershed moment in the city's history.  A pivotal decision that created a focal point and revitalized the downtown core.  And even it has had substantial problems.  It took a number of failed businesses before Starbucks became a solid tenant in the restaurant (this was not the original idea) and the former Powell's Travel Bookstore space has been equally problematic.   But would anyone seriously suggest today that the square was a mistake?  Economists understand that we live in a world characterized by scarcity but the fundamental lesson of economic growth is that it takes investment in the future to ensure our prosperity.  Investments necessitate short-term sacrifice for long-term gain.  In this case, thanks to Paulson, the sacrifice is minimal for the city (though large for Mr. Paulson) but the potential gain is huge.  

The city should not look this gift horse in the mouth and made the bold decision to move the city forward even in these difficult times and approve this deal.

Econ 101: Exchange Rates

What determines the exchange rate? The simplest answer is supply and demand. Suppose you are sitting in England and have some savings in pounds and want to buy an asset in the US. To do so, you must sell your pounds for dollars because US based assets are priced in US dollars. This raises the demand for dollars and increases the supply of pounds - leading to an increase in the exchange rate between dollars and pounds. It now takes more pounds to buy dollars than it did before.

The New York Times has a nice article on the rising dollar. In it the author stresses the flight to safety - foreigners are snapping up US Treasuries. This is good for the government, because it keeps the cost of borrowing money low. But the rising dollar is bad for US exporters (and Oregon is one of the states most dependant on exports) because it raises the price of US goods abroad. So people and businesses from all over the world that are worried about loaning money to just about anyone, will still loan to the US government because it has the lowest risk of default of any entity out there. Since it takes dollars to buy treasuries, this raises the demand for dollars and increases the supply of just about every other currency. Voila, a rising dollar.

But it is not just the demand for US treasuries that is causing an appreciation in the dollar (though surely it explains most of the rise), there are also some other anecdotal snippets, like this story about foreigners snapping up houses in Detroit. If Australians and Brits are coming over here to but property, they are bringing with them their own currencies and will have to convert them to actually make a purchase which reinforces the appreciation of the dollar against those currencies. 

MLS in Portland: Can Portland Afford Not To?

The Oregonian once again endorses the idea of bringing an MLS team to Portland. I support it because I am pretty confident that in ten years, it will be seen as one of those brave decisions that ended up being a tremendous boon for Portland. But as always, I am quick to admit that I am a big soccer fan and would benefit from it a lot personally. But MLS is now a solid league with tremendous future potential - there is no other reason franchise fees have increased so dramatically. The market now realizes that the once fledgling league is on solid ground with purpose built stadia and a link to the enormous worldwide soccer market. Portland could very well be the crown jewel franchise - it will, without a doubt, have the very best stadium. Even this stadium being built by Red Bull, while shiny and new, will be in the suburbs. Portland, to go along with its European-like reputation, will have a European-like urban stadium. But caution, Mr. Paulson: it has to be real grass, NO TURF!

However, there does seem to be one thing that has not been discussed much and that is the alternative - where will Portland be in a few years without MLS? Civic Stadium (oops, PGE park) is too big for minor league baseball and it is likely that the Beavers will not be there for long - even if this bid for MLS fails. PSU football brings in a paltry revenue but depends on the stadium. So it is quite probably that in a few years, Portland will have an empty stadium on its hands with debt and no revenue. It seems to me that the city should think hard about what's next if they don't back the MLS.

Oh, and by the way, can anyone tell me what the entirely incoherent column by The O's Ryan White on Sunday was all about? I have read it multiple times and I still can't figure it out.

Gas Tax

The Oregonian focuses today on the gas tax. A gas tax is the right idea, but tying it to road improvements is dumb for two reasons. First, as we have just seen, dedicated funds tie government's hands (well, maybe not so much - see the Cultural Trust - but this just illustrates the point) and make government less effective and efficient. Second, a gas tax is an appropriate tax to address carbon emissions, less so for road wear and tear, so tying it to road maintenance and construction is, well, inappropriate.

I am sure there are lots of political reasons that this makes sense, but sometimes I wonder why legislative leaders don't try and act more boldly. How about instituting a 5% gas tax that goes into the general fund? This is a lot yes, and some mechanism for helping out less wealthy rural residents (who have to drive more) will have to be figured out, but it is a lot less than the $1 a gallon tax James Hansen recommends. Besides, look at the Measure 57 fiasco from the last election: Democrats were so worried about 61 they pushed 57 and now we have a costly mandate in a time when we are cutting essential services (like courts). We now know that 61 would have likely failed on its own.

Oregon wants to be serious about growing a green economy? Let's start be being the first to seriously address the carbon issue. Oh and hey, this is a perfect time to let drivers pump their own. Prices will fall and Dems can show that they are not always 'big government' proponents.

Econ 101: External Economies of Scale

Most people understand internal economies of scale, the reduction in average cost of production that comes from producing in mass quantities. Utilizing machines, specializing tasks, economizing with big shipments all make sense. But economists know that economies of scale can be external as well. These come from the fact that a large industry can create economies of scale in upstream and downstream industries, can promote development of new process innovations and can lead to more efficient distribution networks.

I thought of this when I was listening to a commentator on the radio suggesting that the US automobile industry needs to be much smaller. It is quite possible that he is right, but if the automobile industry shrinks it is likely that producing cars will become more expensive, further hurting the industry that remains. Why? External economies of scale. Producers of components and inputs in general will have fewer customers and thus lower demand meaning that they might not be able to produce at an efficient scale, and the same is potentially true for the suppliers of raw materials.

A local example might be the brewing industry in Oregon. I have no idea how true this is, but one example is the fact that there are now (to my knowledge) two competing mobile bottling firms in the region, up from one a year ago, which is likely to reduce costs for the small brewer. More local breweries might also spur the planting of more hops allowing local cultivators to realize economies of scale and thus reduce input prices.

How does this all relate to the current economic catastrophe? Well at a time when demand is waning, firms might not be able to operate as efficiently as possible due to scaling back of operations and as they fail, supporting firms might also become less efficient. On the other hand, labor costs should be coming down pretty quickly as the demand for jobs skyrockets, so the effect on prices is unclear.

Have a good weekend everyone...

US Unemployment: 8.1%

700,000 was the number I was expecting in terms of job losses, so 651,000 is better than I expected, but still absolutely horrible. US unemployment at 8.1% - given this, I would not be surprised to see Oregon's February unemployment at about 10.8%. This is scary, scary stuff. The point is that we need not only to reverse the job losses to start seeing unemployment go down, but to actually start creating a substantial number of new jobs, and we are so far away from that it is hard to see when we will reverse the downward trend in unemployment.

Economists not generally expect US unemployment to crest at above 10% which is a lot worse than the administration was saying it would get even without the stimulus. Ouch. My hope for Oregon's unemployment avoiding the height of 1982s 12.1% seems misplaced. Now I think we may see 13%. Let's hope not.

[Update: U6 which includes underemployed is at 14.8%. And by the way the 2.6 million jobs lost in the last 4 months is 600,000 more than in the entire state of Oregon at its peak.]

Oregon Homeowners Underwater

From the Calculated Risk Blog comes this interesting graphic constructed from data released today from the First American CoreLogic Negative Equity Report for December 2008.

This shows the proportion of mortgaged properties 'underwater,' or whose value is less than the amount owed on the mortgage. What is comforting is that Oregon is in the bottom few states in terms of negative equity. This could get a lot worse if the job market continues to decline rapidly, but could be helped by the Obama mortgage plan as well as the stimulus and the bailout. The moral for the moment is that we may be one of the worst hit states in terms of unemployment, but at least our housing market is not is complete disarray. Still the number of unsold homes relative to sales is pretty dismal.

Sigh, I'll be so glad when I can start to report actual positive economic news again...

Thank You

The Oregon legislature passed the revised budget for the rest of the fiscal year. The hard truth is that this is a once in a generation (I hope) recession and some very difficult choices had to be made and some unsettling rejiggering of pools of money happened (raiding the cultural trust fund, for example). No one is entirely pleased with the result, but I think they largely got it right. But the bigger truth is that the state government is made up of intelligent, hard working elected officials and career bureaucrats who, for relatively modest compensation, make the very hard choices necessary for the benefit of all of us. And for that they deserve our thanks. This is not a fun time to be doing this job, and I admire them for what they do.

A representative democracy works when those we elect to serve us are allowed to do their jobs without undue constraint. I hope then that people begin to appreciate more the difficulty in having a government work flexibly and efficiently in such times when we continually tie its hands through referenda. I hope as well that the same bureaucrats and elected officials try as much as possible to avoid the plethora of special dedicated taxes that reduces flexibility in times such as these.

But most of all I hope we can get a permanent rainy-day fund passed to ensure the future health and prosperity of all Oregonians.

Economist's Notebook: Enough With the Stock Market Already

I had the misfortune to stumble onto a little CNN the other day and all the talk was all about how "Wall Street" was assessing the Obama performance. I was shocked. The administration even had to defend itself against the stock market performance. Since when is the stock market the indicator of good governance? The stock market skyrocketed during a time of perhaps the worst corporate governance in the history of US capitalism. I know that Wall Street would love a plan that would just hand the banks trillions of US dollars with no stings attached. Imagine how the Dow would respond to that plan.

Wall Street whiners about how the government is not falling over themselves to bail out the banks should be ignored. These fools just don't get it. The reckoning is here, banks are insolvent, and there will be blood - like it or not.

In fact, negative reaction from Wall Street to Obama's plans suggests to me that Obama is not simply kowtowing to the banks and that gives me comfort. Of course, I am years away from retirement...

UPADTE: Jon Stewart beat me to it [HT: Calculated Risk]

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MLS in Portland: Attacking a Straw Man

Once again this week the MLS to Portland idea is being attacked in an Op-Ed in The Oregonian. Earlier in the week William Glasgow had a thoughtful piece in which he expresses support only if the risk were fully born by Merritt Paulson. In general he was against it but for generally good reasons (he doesn't believe the net social benefit is worth the potential net social cost). Today's opinion, however, is disingenuous and uses a fictitious straw man to attack the proposal. Dave Lister latches on to a comment made by Paulson to the legislature that there would be 600 construction jobs and 300 permanent jobs created by a new MLS franchise in Portland. This was clearly a nod to the fiscal stimulus idea during the current downturn. The 600 are short term jobs during a time of excess unemployment, full stop. Mr. Paulson has been admirable in his restraint from talking about the overall growth enhancing aspect of an MLS team because he knows that the evidence for this is just not there.

Yet Mr. Lister in his opinion chooses to construct out of this a straw man that claims Mr. Paulson was claiming exactly that: the MLS team would be an engine of growth. [He also have some seriously convoluted logic claiming that Sam Adams, an MLS supporter, is weakened by scandal and that makes an MLS deal more likely. Say what?] Claims that saying 'no' to previous public goods projects would have funded the Sellwood Bridge replacement and other more worthy endeavors is simply disingenuous. Bonds used to pay for the PGE park renovation and the Convention Center, for example, are still being serviced in large part by operating revenues. The Sellwood bridge will bring in no revenues, so the two are not comparable.

So what does Mr. Lister's prefer? Well, private enterprise of course. In his mind the city should give the $85 million to small businesses and they would be happy to hire folks. So let's pay small businesses to employ people - that's the free market at its best! Seriously, this plan is not about long term jobs it is about the livability and vibrancy of the city. Small business will thrive in Portland if it is a place people want to be, to spend time and where businesses want to locate. I believe that MLS will help enhance the city. I would, though, I am a huge soccer fan. Those who don't like soccer (and have any idea what they are talking about) will probably disagree and this is where the debate should be, not on tired fallacies of engines of economic growth.

The facts are that the MLS, after some early fits and starts, is now a solid sports league with stable profit-making teams. This is evidenced by the explosion in franchise fees, now at $40 million, up from $20 million a few years ago, the number of purpose built stadia, and the steady rise in the quality of play. Recent franchise additions have thrived - Seattle has already sold 20,000 season tickets before they have even played their firs MLS game - partly because tickets are reasonably priced. Smart business people are investing lots of money because soccer, the most watched sport in the world, has huge growth potential not just in domestic markets (like the NFL, for example) but in worldwide markets.

Anyway, as the least happy city in the US, don't you think we could use some more entertainment around here??

[Note: The Miami bid has been pulled, leaving only four bids left (out of seven initial bids) and few serious contenders. The probability of landing a team if a deal can be reached with the city, therefore, is very high - almost a certainty.]