Tuesday, June 30, 2009
Monday, June 29, 2009
Friday, June 26, 2009
Pelican Brewery in Pacific City, Oregon is among the very best Oregon breweries (as evidenced by their many, many national and international awards) and yet it is very hard to find their beers in the store. This something that I wondered about: why aren't they more available in Portland (and other parts of Oregon)?
Update: I was going to write another post about Full Sails new Session Black following John Foyston's great article in the Oregonian, but Beervana beat me to it and has an analysis that is pretty close to what I was going to write. Check it out.
Update 2: John Foyston has posted the original piece on Full Sail, intended for the business section, which is even more fascinating in terms of the business of beer.
Thursday, June 25, 2009
In my search for the perfect car to replace my current one, I have stated that I am in no hurry: mine is pretty fuel efficient, relatively low-mileage and has been a great car to own and drive. Above is a picture of the Tesla S, an all-electric car that should be available when mine is ready for replacement and can go up to 300 miles on a single charge. Now we are talking my language!
Anyway, the idea that I would hasten to trade-in my current car raises some interesting general equilibrium issues as I have mentioned: what does this do to the used car market, the volume of new car production, etc.
The new 'Cash for Clunkers' bill is a good vehicle to use to discuss these issues. In it, if you have a relatively low mileage car (18 mpg or less) no older than a 1984 model, you can get a voucher worth up to $4,500 for trading-in that car and buying one with significantly higher mileage. But will this lower fuel consumption and emissions? It is not clear. First, with all of these traded-in high mileage cars on the used car market we can expect the price to be pushed down significantly which will increase quantity demanded even with the high mileage. So people will buy these cars that might not have bought at car at all or who would have bought a higher mileage car. Second, this may lower the threshold for scrapping cars and increase the production of new cars which is pretty energy intensive one imagines. So will the net effect be a reduction in carbon emissions? I am doubtful.
Wednesday, June 24, 2009
Two soccer stories pop up at the same time making for one efficient blog post. And I know you all turn to the Oregon Economics Blog for your soccer news...
The USA soccer team defeated world number one Spain 2 to 0 in South Africa today in the FIFA Confederations Cup. Spain is far and away more talented top to bottom, but soccer is the ultimate team game and the USA just plain wanted it more. Bravo. They will now likely face Brazil on Sunday as Brazil play South Africa tomorrow. But after today, don't count South Africa out, especially as they are playing at home.
Closer to home, the Portland City Council did the right thing and decouple the Beaver's search for a new stadium and the MLS to PGE park deals. Bravo again. Without this, MLS in Portland would certainly have been scuttled. As I have said many times, is there is better model for the viability of PGE Park than MLS? I don't think so. The Beavers are leaving anyway, best to focus on how to save PGE Park from being a budgetary black hole and provide another entertainment option for poor deprived Portlanders.
Now at the risk of sounding like the crank extraordinaire, Jack Bog, whose rants to me are entirely pointless - what the heck is up with Amanda Fritz? She does not seem very engaged and her stance against the stadium deal is without nuance or sense. I worry that she gets the static picture but not the dynamic one when it comes to economic growth and financial stability. Even Fish is on board with this one...
In my previous quick post about pondering the decision to trade in my car for a Prius I was trying to make the simple point that MPG figures can be misleading in terms of how much going up in fuel efficiency can reduce overall gas consumption. I mentioned that a 5 MPG bump when you start at 15 MPG is better than a 20 MPG bump when you start at 30 MPG. But as I was writing it I could not help but start to think about the general equilibrium aspects of the question (I am an economist after all - once you have swallowed the red pill there is no going back). What I wrote about was really the partial equilibrium - the cost to me all else remaining the same.
The interesting comments I received make me even more curious to know the answers to questions like: What are the effects on the used car market and on overall energy consumption if high mileage cars start accumulating? What are the effects on the markets for inputs (commenter Stacy mentions Lithium mining)? What about the energy inputs into the manufacture of a new car (as Becky mentions), should trading in a relatively new car give me pause? I mentioned the Prius, but until the new one's better mileage ratings, I had assumed that a new 'clean' diesel would be the better option given the preponderance of highway driving I do (as Spencer and Oliver mention), is this a better option? What about the disposal of all those batteries (again, as Stacy mentions)? And, finally, how much should I expect from the promises of newer and better technologies coming soon? The Volt sounds pretty good, for example, but Spencer is a skeptic.
I have a feeling that many others have explored these issues and that there is a lot of information out there of varying quality. So I would like to enlist your help in answering these questions - can you direct me to sources of quality reliable information and research about these issues? I promise to write about what I discover.
Tuesday, June 23, 2009
One of the most important concepts in economics is opportunity cost. Economists know that the true cost of any economic activity includes the value of the next best opportunity that you give up.
Thus, I know that on a day that is relentlessly sunny, warm and breezy the cost of blogging is too high...
Monday, June 22, 2009
Thursday, June 18, 2009
Looks like I am very persuasive:
Portland will pursue soccer renovation without settling plans for a new baseball park
Wednesday, June 17, 2009
Tuesday, June 16, 2009
I am not exactly sure how this deals with the economic fundamentals of the situation: Saab is a small company making cars for a niche market in a country where it is particularly expensive to do so. Koenigsegg has no experience in mass production and Saab's current line up of cars were all designed eons ago. And whatever loyalty people once felt for the brand was largely wiped out by GMs corporatization of the brand.
But at least now I can remain a loyal customer and have this as my next car:
Monday, June 15, 2009
Unfortunately the labor force actually shrunk between April and May, reversing a recent trend (perhaps people fleeing for other states?), but the number of employed fell faster.
The rate of decline is clearly moderating, but we have not hit bottom yet.
Sunday, June 14, 2009
Friday, June 12, 2009
This outstanding article from Goldin and Katz provides a nice and reasonably accessible synopsis. Here are the main points nicely summarized:
The American Dream has been placed on hold. Putting aside the recent financial meltdown and the current recession – if you can – the main reason is an educational slowdown. For most of American history, the average American child was far more educated and better off financially than his parents. But ever since the 1970s, US growth in educational attainment for successive generations has substantially slowed. The slowdown in education spells trouble for economic growth and economic inequality, as many authors have noted, e.g. Heckman (2008).
An educated populace is a key source of economic growth directly, through the improved productivity of workers, and indirectly, by spurring innovation and aiding the diffusion of advanced technologies. Broad access to education was a major factor in US economic ascendancy and in the creation of a broad middle class. The American Dream of upward mobility both within and across generations has been tied to educational access.
Ever since the beginning of the twentieth century, technological change has operated to increase the relative demand for educated and skilled workers. In academic parlance, technological change has been “skill-biased” – smart machines require smart workers. Technological change increases the relative demand for skilled and educated workers, but educational advance increases their relative supply. This “race” between education and technology can produce rising, declining, or stable levels of economic inequality.
US economic inequality has been on a roller coaster ride during the past century. Wage inequality and educational wage differentials decreased from around 1910 to 1950. They remained fairly stable until about 1980, after which economic inequality soared. The contrasting descent and rise of economic inequality in the twentieth century is linked to the history of educational attainment.
Here is the picture worth, in this case, probably about ten thousand words:
Source: U.S. Census Bureau, Historical Income Tables, table F3, updated September 15, 2006.
Note: The figure plots the annual percentage growth rate in mean real family income by quintile and for the top 5 percent of families for 1947 to 1973 and 1973 to 2005. Incomes are converted to constant dollars using the Consumer Price Index Research Series (CPI-U-RS). The income concept used is the official U.S. Census Bureau measure of pre-tax, post-transfer money income.
What this graph shows is how, since the mid seventies, economic growth has been concentrated in the wealthier quintiles. What Goldin and Katz state quite convincingly is that this is an education story, full stop.
As Goldin and Katz note: "For most of American history, the average American child was far more educated and better off financially than his parents. But ever since the 1970s, US growth in educational attainment for successive generations has substantially slowed." In Oregon this trend has already reversed and is only getting worse. To me what this means is that Oregon's future economic prosperity is increasingly going to be tied to well educated immigrants from other states and that native Oregonians are going to find themselves increasingly poorer relative to those immigrants.
Thursday, June 11, 2009
I think Sen. Hass is right but more because piecemeal approaches to the state's revenue are not sensible long term approaches. Make them temporary and work on wholesale reform.
Update: This compromise I like (divert to the rainy-day fund after 2013), but still can't we do this in a more thoughtful way? Still, I understand the budget needs to get done now, so all in all this seems like a good deal, but taxing you way out of a recession is not a good idea, so we need to be prudent about all of this and I think in general this has been the case.
Wednesday, June 10, 2009
Of course if you prefer to attend my alma mater, Lewis & Clark College - and you would (and should) - it is, as far as I know, still welcoming those of modest means.
A caveat, if you are of modest means (as I was) you may end up like me - writing a check every month for 25 years to pay for your education.
Given the premium on a college degree in the adult labor market, however, it is a very good investment. I don't regret it.
Tuesday, June 9, 2009
The fact that you might have trouble identifying it is testament to the fact that the city is blessed with an abundance of natural forested parklands.
Of course Oregon in general is a beautiful place, and as someone who relishes the gray damp wonder that is the Oregon winter, I get a lot of utility from living here. Because of my strong preference for living in Oregon, I accepted a job that payed considerably less than competing offers I had - in the most dramatic case about 50% less than what a big midwestern state university was offering.
Economists call this a compensating wage differential: the extra money you have to pay to get people to accept unpleasant jobs or the lower salaries you have to offer to people for particularly pleasant jobs. You may have to pay more then for a person who pumps septic tanks all day than someone who delivers flowers. It is a simple idea, you have to compensate people for the difference in the disutility of doing different jobs.
Politicians love to say that it is okay that salaries in Oregon's state universities are much lower than other places because of this: Oregon is such a wonderful place to live that talented academics will come anyway. There is some truth to this statement, but Oregon isn't the only place to live and the population of people like me who are willing to accept much less to be here is pretty small. For instance I was offered quite a bit more to go to a university in a lovely seaside California town - I don't suspect many would have made the decision I did. So, yes, economic theory suggests that Oregon can get away with slightly lower salaries, but there is a limit.
Monday, June 8, 2009
Friday, June 5, 2009
Researchers at Granada University in Spain have come across a discovery that will undoubtedly please athletes and sports enthusiasts - a pint of beer post workout or match is better at rehydrating the human body than water.
Professor Manuel Garzon, a member of Granada's medical faculty, made the finding after tests on 25 students over several months. Researchers believe that it is the sugars, salts, and bubbles in a beer that may help people absorb fluids more quickly.
My soccer team will be so pleased to hear that they were right all along...
No matter what you think about the state of the economy and what the tea leaves are saying, the employment situation in the US is going to be dismal for a long, long time.
NOTE: Today is the last day to vote on the end of the recession in Oregon.
Thursday, June 4, 2009
An academic study of NBA officiating found little to no evidence that referees favor teams from large media markets in the playoffs, a favorite conspiracy theory of skeptical fans.
But the same study found that NBA referees tend to favor home teams, teams trailing in a game and teams trailing in a playoff series.
The study, conducted by three economics researchers, fuels the perennial debate about the influence of NBA officials on games. It suggests that forces ranging from league executives to simple human psychology can influence calls in a measurable way -- though not always enough to affect a game's outcome.
Wednesday, June 3, 2009
A STATE AND LOCAL TAX PRIMER
Most states are in fiscal hot water, regardless of their tax structures
Figure one shows the year-over-year quarterly changes in state revenues from major tax sources for all fifty states. Because this is a sum, it tends to smooth out inter-state variations owing to differences in tax rates and bases, income recognition policies, and the like. The figure also suggests that the portfolio effect from relying on a variety of tax types is pretty small.
State tax revenues are volatile; Oregon’s are more volatile than most.
Figure 2 shows year-over-year quarterly changes in total state revenues over the past ten years. While the fluctuations are less dramatic than in Figure 1, the revenue trend is nevertheless characterized by a lot of volatility. These fluctuations are largely driven by underlying changes in the real economy. Another way of putting it is that the systematic component of state revenue growth is driven by changes in GDP. Variations in state product is one explanation for state-specific deviations from the systemic component of state revenue growth; differences in state tax structures and tax administration is another; the rest is random noise.
Generally speaking the more progressive the overall tax structure the greater its volatility. States that rely heavily on a progressive personal income tax, for example, tend to have more volatile revenue growth than states that rely on more regressive tax sources. That is the bad news. The good news is that the elasticity of revenue with respect to income is approximately ergodic. You tend to obtain about the same results over a moment in time that you get over a period of time. What that means is that revenue structures that are more volatile because they are more progressive, also tend to grow revenue faster over time, even without increases in tax rates or coverage.
Oregon state relies heavily on progressive personal income taxes, as seen in Chart 1.
Moreover, while Oregon’s PIT is characterized by a flat marginal tax rate, its pattern of exemptions, exclusions, and deductions renders it highly progressive on average, especially where the household is treated as the unit of analysis, rather than the individual. (I’d like to see the state eliminate the first step of its PIT and expand the EITC, but that is a subject for another time).
Oregon is a low tax state
That claim is true whether one looks at state taxes alone or state and local taxes combined (although that claim would have to be somewhat qualified, if one were to take local user fees into account – these are now the highest in the US by most measures). It is also true whether one looks at average taxes paid or taxes as a proportion of disposable income.
One might ask, how did that happen? It wasn’t very long ago that Oregon was near the top of the tax tables – in the top quartile in terms of taxes paid per capita and the top decile in terms of tax take as a share of disposable income. The answer is fairly straightforward: caps on the rate of growth in the property tax (Measures 5 & 47), the inability of the state to increase taxes (see Figure 3), and changes in corporate-income tax assessment that were supposed to be revenue neutral that weren’t. Oregon also spends more of its tax revenues on tax rebates than any other state (the Kicker).
A State and Local Tax Primer
Tuesday, June 2, 2009
Frank puts this same narrative in evolutionary biology terms, but we know that evolutionary biology and game theory are very closely linked so it makes sense. But Bob is a master at telling a compelling story...
Though Adam Smith is almost universally regarded as the father of modern economics, most economists will eventually see Charles Darwin's ideas as the true intellectual foundation of our discipline. Smith's modern disciples celebrate his invisible hand theory, which says markets harness individual self-interest to serve society's interests. Smith himself was more circumspect, claiming only that self-interested actions often lead to socially benign outcomes. But that claim is remarkable enough. Competition among greedy producers often yields innovations that result in cheaper and better products for everyone.
It was Darwin, however, who better grasped the complex relationship between individual and social interest. And we must turn to his account if we are to understand the recent meltdown in financial markets. His deep insight was that natural selection favours traits and behaviours according to their effect on individual organisms, not groups. Sometimes individual and group interests coincide. But interests at the two levels often conflict.
Male body mass is a case in point. Most vertebrate species are polygynous, meaning that males take more than one mate if they can. The qualifier is important, because when some take multiple mates, others get none. The latter don't pass their genes along, making them the ultimate losers in Darwinian terms. So it is no surprise that males often battle furiously for access to mates. Size matters in those battles. And hence the evolutionary arms races that produce larger males.
Bull elephant seals often weigh more than five times as much as females. But their size is a handicap, making them far more vulnerable to sharks and other predators. Given an opportunity to vote on a proposal to reduce their weight by half, bulls would have every reason to favour it. But they have no such opportunity. And any bull that weighed much less than others would never find a mate.
Similar conflicts arise when individual rewards depend on relative performance. This payoff structure, common in financial markets, helps explain why those markets sometimes fail catastrophically. Wealth managers' salaries depend primarily on how well their investments perform in relative terms. Funds offering higher returns immediately attract cash from rival funds. If the invisible hand functioned as Alan Greenspan and other modern disciples of Adam Smith imagined, there would be no problem. Investors would be fully compensated for any additional risk they took in search of higher returns. But human brains forged by natural selection don't work as assumed in economics textbooks.
As our brains were evolving, immediate threats to survival loomed everywhere. Natural selection thus favoured a nervous system keenly sensitive to immediate relative payoffs, much less so to distant ones. Anyone disinclined to seize immediate gains at the risk of having to incur costs in the future would experience low relative rewards in the short run. And when competition was intense and immediate, such individuals often didn't survive to see the long run.
In market settings, a nervous system biased in favour of short-term relative reward is a recipe for disaster. When the price of an asset like housing is rising steadily, unregulated wealth managers can create leveraged investments that generate enormous rates of return. Even in the early years of this decade, many experienced analysts were warning that several mortgage-backed securities were poised to tumble. But investors faced a tough choice: they could earn high returns by continuing to invest in them, or they could move their money elsewhere. Many rejected the latter strategy because it would have required watching friends and neighbours pass them by.
Wealth managers felt compelled to offer the risky investments, since many customers would otherwise desert them. Managers also knew there would be safety in numbers when things soured, since almost everyone had been following the same strategy. The resulting collapse was inevitable.
Adam Smith's invisible hand is a truly extraordinary insight. But when rewards depend on relative performance, it doesn't always deliver.
The financial meltdown that caught Adam Smith's disciples off guard would not have surprised Darwin. One of his central themes was that because much of life is graded on the curve, wasteful arms races create conflict between individual and social interests. The good news is that unlike other animal species, humans can often resolve such conflicts through intelligent regulation.
Here is Bob on carbon offsets as well.
Monday, June 1, 2009
Ignored in the great soccer-baseball debate is the possibility that the current Lents ballpark proposal blows up and Portland loses minor league baseball, too. The Beavers' lease at PGE Park runs through 2010, and the franchise pays the highest rent in the league.
So here is a little lesson in economics, reporters: the economic 'cost' of an activity includes opportunity cost. So if you are looking at the cost to the city of doing the deal versus the cost to the city of not doing the deal, you have to consider what the alternative is. In this case it is pretty likely that it would be an empty PGE Park with a sizable debt load and no revenue stream to service it. In fact the 'cost' of not doing anything hasn't be reported on at all.
Baseball at PGE Park has been tried by a number of entities in the last 20 years, none with any real success. MLS is quite possibly the best option for keeping the stadium viable.
Of course, following my same argument, you would have to ask what the opportunity cost of keeping the stadium as a stadium and not selling off the property to developers. This is a serious question. But at least for the next few years, it is hard to imagine that there is any private capital for a new development project there and you would need some measure of the social benefit of the stadium and the events it hosts.
When unemployment rates are pushing 12 percent, it’s hard to remember that economic growth and development is not simply about jobs, but that is the case. The sine qua non of per capita growth is increased total factor productivity. At the local level, economic development means replacing less productive jobs with more productive jobs. And, that means growing or attracting high-value added businesses to a region, especially those that export their services to folks who live outside the area. These days, that means activities like product development and design, biotechnology, medical services, mass entertainment, and higher education, generally the kind of work that requires substantial investments in human capital and large doses of creativity and imagination. Two things it does not mean are agriculture and forestry and mining and manufacturing, at least not the fabrication component manufacturing.
This last observation is somewhat paradoxical because no other sectors of the American economy have experience higher total factor productivity growth than these over the last 100 years or so. But the simple fact is that these sectors of the econmy are now so productive that direct labor adds little value to most products, in high-tech businesses, often less than five percent of the total.
This fact is illustrated by the tale of two cities reported in yesterday’s Wall Street Journal, Ann Arbor, Michigan, with a population of 116,000, and Warren, Michigan, population 126,000. Ann Arbor is the home of the University of Michigan; Warren is a factory town. “In 1979, the average family in Warren made $28,538 annually, not much below Ann Arbor's average of $29,840.” By 2007, before the recent layoffs and plant closures, Ann Arbor's average of $106,599 had nearly doubled Warren $60,813.
This is a general phenomenon. We know that manufacturing plants are disproportionately located in minority or poor communities. The environmental justice literature argues that this is because businesses disproportionately chose to site manufacturing plants in minority or poor communities. Recently, however, Ann Wolverton looked at the characteristics of those communities at the time the plant location decision was made, taking account of several variables that are important to a plant's location such as land and labor costs, the quality of labor, and distance to rail transportation. What she found is that, although communities accommodating manufacturing plants now have significantly higher minority and poverty populations, they were not generally poorer and definitely did not have higher minority populations on average when the plants were built. Indeed, according to Wolverton, poverty is generally a deterrent to plant location. The clear implication is that manufacturing plants are linked to poverty, not because poverty attracts them, but because they attract poverty, i.e., they retard local economic development. Similar results have been reported for farms and military bases.
Last year, Willamette University’s Center for Governance and Public Policy Research looked at the economic development of Salem and Marion County. We found that entities like Salem Hospital and Willamette University, even the state prisons (they have high-value added jobs and higher average wages than most of Oregon’s universities, provide services to the whole state, produce small negative spillovers), are the leading contributors to its economic growth. Statewide, one might infer that among Oregon’s more important engines of development are the major state universities – University of Oregon, Oregon State, Portland State University and Oregon Health Sciences University. Over the longer term, however, the state’s productivity growth depends upon the effectiveness of its elementary and high schools – high-productivity jobs are high skill jobs.
Oregon’s legislators should keep these facts uppermost in their minds as they practice the budgetary triage needed to cope with the current fiscal situation. Nobody wants them to be penny wise and pound foolish.