Case-Shiller October Numbers Show Continued Weakness in Housing

Including Portland and Seattle.  Here is the Wall Street Journal's table.

Home Prices, by Metro Area

Metro Area	October 2010	Change from September	Year-over-year change
Atlanta	103.30	-2.9%	-6.2%
Boston	154.35	-1.2%	-0.2%
Charlotte	114.06	-1.1%	-4.2%
Chicago	122.28	-2.0%	-6.5%
Cleveland	102.20	-1.5%	-2.6%
Dallas	116.16	-1.1%	-3.1%
Denver	126.59	-0.6%	-1.8%
Detroit	68.86	-2.5%	-5.5%
Las Vegas	100.97	-0.2%	-3.6%
Los Angeles	174.05	-0.7%	3.3%
Miami	144.03	-1.1%	-3.4%
Minneapolis	121.30	-1.9%	-2.8%
New York	171.50	-1.6%	-1.7%
Phoenix	105.97	-1.1%	-4.3%
Portland	142.16	-1.5%	-5.2%
San Diego	159.99	-1.5%	3.0%
San Francisco	138.84	-1.9%	2.2%
Seattle	143.13	-1.3%	-4.1%
Tampa	135.21	-0.9%	-3.6%
Washington	186.67	-0.2%	3.7%

Source: Standard & Poor’s and FiservData

Oregon's Exports and Trade Weighted Exchange Rates

In the wake of my little post on Oregon's trade weighted dollar index, Josh Lehner at the Oregon Office of Economic Analysis' Blog discusses it in depth and points us to the index that his office keeps. Here is an excerpt:

Given Oregon’s industrial makeup (the state’s manufacturing location quotient for 2009 was 1.143, with durable goods registering a 1.309) and geographic location, the state has long been a major exporter and international trade is a pillar of the state’s economy. According to research, Oregon is the fifth most trade-dependent state in the U.S. and a recent Brookings Institute report (see page 15) shows that the Portland-Vancouver MSA is the second most trade-dependent metro in the country behind only Wichita, KS. (Wichita is the “Air Capital of the World” and has long been a major player in the aircraft industry with operations by Boeing, Airbus, Leerjet and Cessna, among others.) Seeing that exports play a major role in Oregon’s economy and international trade is influenced by exchange rates, tracking the international competitiveness of Oregon’s exports is important to determine the economic health of the state and also to help gauge future trends. It also stands to reason that for a trade-dependent state, such as Oregon, a dollar index is a leading indicator for local employment. As the dollar becomes more competitive, it will boost Oregon exports, which in turn will lead to increased employment as the exporting firms need to hire additional workers to fill orders and the ports will hire additional workers to load/unload the products onto ships, barges and airplanes.

Generally speaking, what the Dallas Fed is now undertaking follows the methodology of our office’s Oregon dollar index, however there are a few differences that lead to slightly different outcomes. First, the graph below illustrates our office’s Oregon dollar index and the Major Currency dollar index from the Federal Reserve over the past 15 years.

***

The fact that the Dallas Fed uses the Top 25 trading partner countries and our office uses just the Top 15 countries may seem like a potentially large difference, however, based on data over the past 15 years, it is not. On average, the Dallas Fed notes that their indexes cover 89 percent of all exports for each state. That means, the Top 25 trading partners account for 89 percent of each states’ exports. In Oregon, the Top 15 trading partners account for an average of 84 percent of all exports and depending upon the year, the exact percentage falls within the 82-88 percent range. With such a small difference between using the Top 15 compared to the Top 25, the overall dollar index for the state would not be changed significantly.

Overall, the continued depreciation of the U.S. dollar and also the Oregon Dollar Index, is good news for exports (and manufacturers of export goods), which should continue to increase as the global expansion continues.

Go read the rest of the post there.

Economist's Notebook: The Free-Rider Problem

When economists talk about the problem of the provision of public goods they generally talk about the free-rider problem.  This is the private incentive to shirk contributions for such good in the belief that it will be provided anyway through the contribution of others.

This is a perfect example.

Brent Wojahn/The Oregonian/2007

Oregon and World Exchange Rates

The Federal Reserve Bank of Dallas has issued a report that creates a real trade weighted value of the dollar for each state.  This is weighted by the specific countries where the state exports to and imports from and by how much they do so.  The point is that national exchange rate indices do not always give an accurate impression of how exchange rates are affecting individual states.  Oregon, for instance, trades relatively heavily with East Asia and relatively little with South America.

First, how important is trade for Oregon?  Well, the statistic I always cite is old, but the most recent we have and shows that in 2006, Oregon was the 5th highest state in terms of the importance of exports to jobs.

As for the importance of trade with East Asia, here is a look at how the East Asian crisis of the late 90s really impacted trade with Western states.

Which is why, of course, when people ask me about Oregon's economic prospects I always point to what is going on in East Asia, which right now is great for us.  But, of course, the prospects of a major real estate bubble, social tension and a manipulated Yuan are all worrisome. 

Printing Money

HT: Greg Mankiw

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Economist's Notebook: Are Holiday Catalogs Good for the Economy?

'Tis the season of the catalog in my mailbox.  This despite the fact that I never use catalogs anymore, as I can do it all on my computer.  Over at the New York Times' Green blog there is a complaint about the waste that all this junk mail represents.

So is it entirely wasteful, given my total disregard for them?  Perhaps not.  Clearly the companies that sell via mail-order still see considerable value in catalogs, they get to passive consumers rather than active ones that seek them out on the web, and yes even I, the rational economist, have flipped though a catalog and found something that I didn't know existed and later purchased.  So they are clearly seeing value from their mailings, and an essential part of markets maximizing social surplus is creating it from where it was not previously (buyers and sellers coming together and making mutually beneficial trades).  The postal service likes them as it represents business for the USPS, as do the producers of paper and the printers.

So the question is, does the disutility from having to deal with catalogs I don't want, plus the environmental cost, outweigh the gain to society from the millions of catalogs being delivered daily to American homes?  Probably not, is my thinking, especially with my free curbside recycling.  They represent information about products and services to American consumers and in general in economics, information is a good thing and leads to more efficient outcomes.  So though I sigh when another stack ends up in my mailbox, I must admit that they are probably a net positive for the economy.

What do you think?

Oregon November Unemployment: Rate Steady at 10.6% but Another Good Month for Jobs

You may remember that the national employment numbers for November were a huge disappointment - very few new jobs were added, when a big gain was expected.  Well in Oregon, largely because of the disappointing national numbers, I expected a very low job gain number and have been surprised again, this time pleasantly so.  6,300 jobs were added in Oregon in November, following 6,700 in October.  Two back to back healthy job gains is good news in this horrible economy.  The unemployment rate is essentially the same at 10.6%

Why the job gains and no budge in the unemployment rate?  Well, Oregon's workforce continues to grow, in fact for the first time ever, Oregon's civilian labor force has eclipsed two million people.  This is most likely due to population growth as Oregon is still a net in-migrtation state.

So it is good news but to give a healthy does of perspective here is a look at the employment numbers from the last decade:

Let's hope that this time we can keep the momentum going.

As for which sectors showed growth and which didn't the good folks at the Oregon Employment Department made this nice graphic:

Construction is still hurting badly, but trade and transport showed robust growth. 

Soccer Shirt Sponsors

While we are on the topic of soccer shirts, for a long time now European clubs have had sponsors names on their shirts.  For the first few years, MLS forbid the practice but over time, like many other things (the clock that used to count down, the shoot-out in the case of a tie, and so on) MLS has slowly converged to the world standard and now allows sponsors on shirt fronts.  Not all have them yet, but the Timbers scored a good one in Alaska Airlines.

Despite the near universality of the practice there was one club that stood out: Barcelona.  Until a few years ago their shirt was beautifully free of commercial messages.  Recently they have put UNICEF on their shirts but actually donate to UNICEF rather than take a payment.  However, apparently even Barcelona has bowed to the economic pressure and will now have a shirt sponsor.  Sad.

Reminds me of the first time a stadium naming right was sold: Candlestick Park in SF became 3COM park.  Seemed crass and ridiculous at the time, but very very quickly the naming rights were sold to just about every other stadium - even iconic ones like Mile High Stadium (though it was a new stadium).

Of course in Oregon we have our own anachronism: The Rose Garden.  I hope this does not go the same way Barcelona has gone, but I don't have a lot of faith that it won't.

HT: Freakonomics

Friday Nonsense: Timbers Edition

I am back from Brazil and facing a ton of work, chores, holiday preparation and on top of it all my 9 year old broke his nose on Wednesday playing soccer.  Sigh.  So thus commences the superfluous blogging!

And since we have mentioned it, let's talk about my favorite pet subject: soccer.  This time the Timbers new uniforms (I refrained from saying kit for you anglophobes).  In a word: nice.  Classy, elegant, with some cute touches and I like the Arsenal style white sleeves.

Also big props for the alternate jerseys.  A lot of MLS teams just go with their color on one and white on the other mimicking other American pro sports, but soccer tradition is a lot different: alternate kits are generally some totally different color scheme and change every few years.  There are a few teams like Arsenal that have a traditional alternate color (in Arsenal's case it is yellow), perhaps we'll see the Timbers follow this tradition - let's hope so, the red for the rose city is inspired.  And there is no doubt in my mind where this came from: looking ahead to games at the Sounders, where the Timbers will have to change from the green, what better way to go than to have bright rose red for the Rose City team in Seattle?  Awesome.    

I have only one quibble about the whole thing: the Timbers crest should never, ever change, it should be green, even on the alternate jerseys, this is how every club does it.  But, then again, who cares, man?  Lets get winter over and the season started.  RCTID.

Portland's Economic Performance

This report, prepared by ECONorthwest has been getting a lot of press.  The Oregonian made it the banner headline yesterday and today makes it the subject of the main editorial.  The problem is, as evidenced by the meandering and confused editorial, is that it is simply a bunch of facts and figures and it is not at all clear what it means and what should be done.

This passage from the Oregonian editorial today is priceless:

Nevertheless, the study provides a useful starting point for discussions about economic development, tax policy and other issues that elected officials concern themselves with. It should remind them of the overarching truth about jobs and income at the urban center of the region: Jobs have been disappearing and wage-earners have lost ground.

The solution to these trends is straightforward: Portland and Multnomah County need more jobs with good wages. Cultivate them and every public service will benefit from the additional income tax revenue they bring.

This illustrates beautifully my point: government needs to cultivate jobs! Don't forget that you need jobs to get taxes! C'mon, we need to make jobs!

Great, thanks for that, so just exactly what is government supposed to do and what has it done wrong? Silence.

To me, all this is a lot of hay about a bunch of old facts. Well, at least thouse fasts that are legible, for a professional consultancy, the report is embarrasingly shoddy, with many tables almost completely illegible.

There are also quite a few instances of pretty shocking comparisons for folks who consider themselves economists - wage comparisons not normed by productivity, singling out Multnomah county instead of looking at the metro region. In fact, my favorite table that is used as a special condemnation of Multnomah County is this one (and a good example of the shoddy report - almost impossible to read):

Notice that Multnomah County is just above some place called Santa Clara County in California.  This is, of course, the epicenter of Silicon Valley - what a disaster of an economy Silicon Valley is - let's be sure not to emulate them!

Of course both of these are just examples of equilibrium effects as jobs have been added in Washington County and Clark County, just economic theory would predict, as the core area of Mult. Co. becomes dense and relatively expensive.  The same process is happening in the San Francisco Bay Area.

But the general story of Oregon being less prosperous as our neighbors is true.  This is neither new nor surprising: Oregon with its resource extractive past, its over emphasis on blue collar, manufacturing jobs and its relatively poor education system and support is both burdened by its history and hampered by its present.

What is government doing wrong?  Well, this is hard to pinpoint.  Sure it would be good to have a more stable and well-funded education system, but a lot of the instability in education funding is due to national economic forces and the choices Oregon voters made to give us our present tax structure.

As someone who started living in Portland in 1982, my personal perception is much different than the negative one portrayed in the report.  I view Oregon is a place that has long had to struggle with the fact that its comparative advantage is in resource extraction and low-skilled activities.  These are deeply entrenched economic forces and not easy to change. To see the Portland of the 21st century and compare it to the Portland of the 1980s, to me illustrates the remarkable transformation of the regional economy in a short thirty years from a blue collar manufacturing based economy to a much more diverse and vibrant economy with a healthy professional class.  Unfortunately, this has been achieved through the successful importation of human capital from elsewhere.  What is going to hold the metro region and state back going forward is our continued inability to create human capital on our own.

Which brings us to what government should be doing.  As I have said all along government has limited ability to 'create' jobs (as the editorial suggests) - if they could, they would, and life would be so simple.  What changes the forces of comparative advantage are investments in education, R&D and infrastructure.  These are slow to show effects and don't make a lot of good political theater because the results don't become evident two years later.

It is disappointing that the report doesn't even try to begin to examine the causal links, rather they are satisfied to make a lot of noise about general comparisons that really don't tell us anything about policy.

Education around the World

One thing that really struck me, as I was sitting in a conference on education in São Paulo, was how similar is the debate about education reform in low, middle and high income countries.  Questions of accountability, standardized testing, incentives are just as relevant there as here and we are all struggling to find the right way forward.

For the US, the problem is clear:

The answers are not.

World Cup 2022 - Qatar

Well, now that the World Cup 2022 was awarded to Qatar (disappointing the USA which looked like the favorite), we begin to think of what this World Cup might look like.  And so the NY Times' Economix blog points us to a site about buying alcohol in Qatar.  The general idea is it is very hard.

Perhaps they'll make it easier during the cup, or perhaps England will fail to qualify, which should solve the problem.

Leapfrogging in Brazil

Leapfrogging is a term that development economists, such as myself, use to describe situations in which less developed countries can simply jump over technology that they have been slow in developing.  The best example of this is perhaps telephones.  Old telephone systems required extensive networks of wire and relays that were expensive to construct and maintain.  It used to be in order to 'catch-up' to more developed countries in communications, less developed countries had to spend a lot of time and money to create these networks.  But not any more.  Technology has advanced making wireless telephony a much better and cheaper way to connect a country.  It is no surprise that some of the most explosive growth in cell phone use has been in developing countries and some of the slowest has been in places like the US.

I was reminded of this today when my friend suddenly remembered a bill he had that was due to be paid today.  Off he went to the bank where the ATM machines will read a standardized barcode printed on most bills and then allow you to instantaneously pay the bill with funds from your account.  Yes, you can do on-line bill pay as in the US, but as many Brazilians don't have access to computers or the internet, so the ATM solution is a useful option.  Wow, I said, I am from a backward country, we can't do this.

But then I got to thinking about why this has been developed here and not in the US.  My best guess is the expense and reliability of the US Postal Service.  Paying bills through the mail here is safe and reliable - perhaps this is different in Brazil.  I don't know, but it would not surprise me if mail service in Brazil has, at least in the past been slow, unreliable and expensive.  Rather than spending a lot of money trying to improve the postal service in Brazil, the market is figuring ways to use technology to get around it.

By the way, ATMs here do a lot of other things, like print checks when you need them and read biometric data from the palm of your hand - this to improve security.  The US is so backward.

In Brazil

Silvia Izquierdo/Associated Press

I am in Brazil in part to attend and present at a conference on education.  I am learning a lot, including some misperceptions about what we know about some aspects of education reform.  I hope to blog about this this week.

In the meantime all the talk has been about the military take over of a favela in Rio.  Interestingly, the tactic (apparently the blueprint is Medellin in Colombia) is the same as the US in Iraq and Afghanistan: clear, hold and build.  The idea is to clear out the gangs and drug dealers, create permanent (or long-term) police stations and then build relationships through providing community services like health clinics.  These favela are almost stateless places within Brazil, ungoverned by the state but governed by criminal gangs.  Interesting.

Ironically, the very best real estate in Rio aside from beachfront property belongs to the favelas.  The city prohibited official building up the hillsides to preserve the natural environment but had insufficient resources to deal with the illegal building that eventually became essentially permanent neighborhoods: slums with million dollar views.  Ah Brazil.

Not to gloat, but the São Paulo weather has been fabulous: sunny and in the 70s (okay, yes, to gloat).  The last two days have seen tremendous tropical rain storms that last about 30 minutes but absolutely drench the city (including me today).  Here is a picture of the sun to warm yourself by taken from my apartment balcony.  No I am not rich - the research center provides the apartment.

Unlike last time I was here when a dollar bought about 3.5 Reais, the exchange rate is down to 1.6 and São Paulo is EXPENSIVE!  My meal last night with two beers and plate of Picadinho was $60!  Ouch.

Ciao.

Happy Thanksgiving and Scheduling Notes

I am taking the week off blogging this week (I have to recover from the shocking Arsenal loss to that other North London club that shall not be named) and then will be traveling to São Paulo, Brazil for research and a conference on Saturday. I will be there until the follow ing Monday.  I will try to do some Brazil blogging while there.

Ill tweet anything particularly relevant and will try and tweet from Brazil.

Happy Thanksgiving!

Friday Omnibus Post

I have been traveling and thus have a bit of catching up to do.  So today I'll mostly direct you elsewhere for your fill-up of all things Oregon and Economic.

While I was away the state released its unemployment data for October:  The news is good, though the unemployment rate is stuck at 10.5%, the state added a very healthy 7,600 jobs in October.  This mimics the good national number for October.

On the New York Times' Economix blog, Ed Glaeser has a nice post on why economics helps a lot on the how questions in policy but not as much on the what. It reminds me of the astonished look I got from a thoughtful econ major at OSU when I said there is a point at which economics stops and has no answers to moral questions like how much poverty is acceptable and does a society have an obligation to help the disadvantaged.  Once a society decides that it will help the poor, economics is good at helping design effective and efficient programs but can't give you an answer to the basic question.

In the Wall Steet Journal, David Wessel interprets Ben Bernanke's speech today in Germany.

And now, the picture of the day:

Do Better Students Make Better Teachers?

The Oregonian/Jim Springhetti

On Sunday, The Oregonian published a massively long op-ed piece by two McKinsey consultants arguing that the US has a big problem in the fact that out very top students are not going into teaching (K-12).  They spend a long time describing how poor the US is at attracting top college students to go into teaching relative to other countries that have top performing education systems.  They spend a long time discussing the ways that the US could go about fixing this problem and how it is not a daunting as it seems.

But throughout the entire article is the assumption, left unexamined until the last paragraph despite its massive length, that better students make better teachers.  The problem with this is that the answer appears to be no.

Here is a passage from a New York Times Magazine article on what makes a good teacher:

But what makes a good teacher? There have been many quests for the one essential trait, and they have all come up empty-handed. Among the factors that do not predict whether a teacher will succeed: a graduate-school degree, a high score on the SAT, an extroverted personality, politeness, confidence, warmth, enthusiasm and having passed the teacher-certification exam on the first try.

This is a pretty good summary of the (good) evidence: things that we can observe about teachers (where they went to school, their certifications, their academic success) are not good predictors of being effective teachers in the classroom.

Particularly gauling is the last paragraph of the Oregonian Op-Ed which finally gets around to trying to make the case that recruiting better students is critical to improve educational performance:

Some U.S. researchers say there's little evidence that teachers with stronger academic backgrounds produce higher student achievement, but this conclusion is starkly at odds with the experiences of Singapore, Finland and South Korea. Our McKinsey colleagues have studied more than 50 school systems around the world and have never seen a nation achieve or sustain world-class educational performance without drawing its teachers from the top third of their class. Should we really bet our children's future on the possibility that our country might be the exception?

Er...those 'some U.S. researchers' are the ones that very carefully try and isolate the causal link.  Unlike McKinsey and Co. that appears to have no concept of the problem confusing correlation with causality.  We don't know the counterfactual and cannot, I repeat, CANNOT make any causal statement about the effectiveness of teachers from this observed correlation.  

Okay now that I have vented, what interests me even more than the bad scholarship is the essential question this raises: do we really want our best and brightest becoming K-12 teachers?  I am not sure it takes a person with an amazing aptitude for astro-physics to teach a second grader how to add.  I think I'd rather have the astro-physics prodigy go off and do astro-physics.  Or a talented biologist teaching kids about chrysalis instead of finding a cure for cancer.  Or a exceptional engineer teaching Phys. Ed. rather than solving the energy problem.   In other words, rather than viewing the current state of affairs in US education as a failure, it is quite possible that this represents a strength of how free labor markets are in the country.  Perhaps we have the comparative advantage equation all figured out - channeling talent where it is relatively most effective (okay, if we ignore investment bankers).

This is likely to be seen as provocative, but as an economist I don't see it that way, when I think about my own kids, I am not sure it matters to me if their grade school teachers scored 800 on the math section of the SAT, but it matter a lot to me if they can connect with students, adjust to their different needs and inspire them.  And, by the way, I am the son of a public high school english teacher who went to Stanford and is pretty damn smart, so I am not dismissing intelligence, rather making a case for other attributes that may matter as much or more.

And the every widening skill premium accounts for some of what has been the declining relative pay for teachers.  With all the productivity enhancing technology out in the world the difference between productivity in areas where technology makes a big impact and areas where it doesn't (teaching) means that relative returns are going to diverge (see: cost disease).  This is true for my profession as well - economists in the private sector have wage gains that far exceed those of us that chose education.

By the way, that NY Times Magazine article is about whether we can make good and effective teachers or are some people just born to be good and we can't do much.  It is very interesting and I don't know the answer, but I suspect that both are important.  Good training can make anyone better but some have a knack and some don't.  Which again to an economist is not a mark of shame, but simply a skill/requirement mismatch.

This is the lesson of comparative advantage: we are all relatively good at something.

Portland Public Schools' Bond Measure

I largely agree with the spin PPS is putting on its proposed $548 million bond measure: investments in schools are good for economies, communities and property values.

But I have one question: nowhere in the coverage of this proposal have I heard a single thing about what I have been assuming is the number one priority in terms of PPS's facilities need - making sure that most school buildings don't fall down upon Portland's children when the big earthquake hits - so what gives?

From academic literature we know that making schools fancier is not going to help student performance substantially other than perhaps attracting and keeping good students (peer effects are huge).  So, if I am thinking about priorities, the fact that we are due for a major earthquake that could cause devastating structural failures makes me think I would rather ensure kids safety first.

The fact that this is not being mentioned at all makes me suspect that PPS does not want to have this discussion at the same time.  But they should.  It is all about marginal benefit and marginal cost.

Dumb and Dumber Public Policy: Portland's Leaf Fee

Roger Jensen/The Oregonian

In this recessed economy municipalities are struggling with diminished revenue in the same way states are. It is becoming harder and harder for them to provide the same services in this new economic reality. So many cities are looking for new ways to impose fees for services that were once funded with general revenues. Portland is no different.

And so the mayor saw the big wad of money spent on fall feaf removal as an opportunity to raise new revenue by imposing a leaf cleanup fee for the neighborhoods where the cleanup occurs. The problem with this tactic is twofold: charging specific fees for public goods is dumb public policy, and ironically, allowing households to opt-out actually makes it dumber.

To properly frame the policy we should begin by discussing public goods and to properly discuss public goods we can start by asking the question: why does government provide things like roads, parks and fire departments?  The answer should be clear to anyone who has had even the most basic economics education: these things are public goods - they have elements of non-rivalry (one persons's consumption does not leave less for another) and non-excludability (you cannot prevent people from consuming).  City parks are a clear example, you cannot prevent people from using them and if I stroll through a park, there is plenty left for the next person.  The moral of public goods is that given these two elements, private provision of them is always going to be inadequate relative to what is optional and so government steps in to correct this market failure.   

Roads are also public goods - especially city roads.  Yes, I use the road on which my house is situated more than the average Portland resident, but I rely on the entire network of Portland's roads to walk, bike and drive and to keep traffic evenly spread throughout the city.  This is why the network of safe and well-maintained roads is the city government's responsibility and a big part of what my taxes pay for.  So while the leaves that my and my neighbors trees deposit on the street may seem like and obvious thing to charge us for, the benefit of clearing them from the street accrues to everyone.  Streets free from leaves are safer for anyone who travels on them and also prevents clogging up the city's sewer system that we are all responsible for.

The logic of why we don't leave street maintenance up to individual neighborhoods is obvious.  One neighborhood's decision to spend less and degrade their streets imposes a cost to local residents in terms of bad roads to traverse to get to and from home, but it also imposes a cost to the the rest of the city. Of course a cost is imposed on those who travel through the neighborhood, but also in terms of displaced traffic from those who avoid the neighborhood and thus cause congestion and additional wear and tear on other neighborhoods' streets - a classic externality problem.

Using the same logic of the leaf fee removal program leads to plenty of other absurd policy options.  We could charge an extra police fee to residents of high-crime neighborhoods.  Or we could impose a park fee for those that live within two blocks of a park.  [As an aside, we already pay for this in the differential values of our homes though Measures 5 and 50 have de-linked taxes with market values but the historical value remains the basis of the tax assessment]  Clearly, these are absurd suggestions, crime affects us all, we all enjoy parks, etc.

So the leaf fee policy is dumb, but the opt-out actually makes it dumber.  You see, since the leaf fee can be avoided be cleaning up the street in front of your property yourself, this creates a dis-incentive to have and maintain street trees - something the city is actively promoting (the water bureau Environmental Services bureau even has, or had, a program by which they gave you a $50 credit for planting a tree).  It is also not going to be very good for neighbor relations - what if I sweep my leaves over in front of my neighbors house?  What if I have no trees, but by neighbor's trees drop tons of leaves on my part of the street? In fact, I think perhaps each block should pool and every house but one sweeps their leaves in front of one house and everyone chips in to play that house's leaf fee.  You can see how this program creates perverse incentives.   

I understand the cities desire to find new revenue to help support its services, but this policy is just plain dumb.

Remembrance Day

I know this is anglo-phyllic and all, remarking on Remembrance Day and not Veterans Day, but my grandfather was in the RAF in WWII, crashed in North Africa, shattered both legs and was hobbled for the rest of his life. His presence in my life, and his constant suffering and struggle with his injuries and the mental scars, was the one real and personal connection to the war for me, and a small testament to the sacrifice that his generation made for subsequent ones like mine.  That he recently died serves as a reminder that his generation is dwindling and that we must therefore be the keepers of their memories.

My uncle, a Canadian whose regiment was thus under British command, was killed in Normandy.  He died as a result of wounds suffered in the D-Day invasion of Juno beach.  He is buried in Calvados, France.

And so today I remember their sacrifice and give thanks.

Oregon's Exports and Currency Manipuation

Rich Read has a very nice article in today's Oregonian about the healthy uptick in Oregon's exports.  This is what I have been telling reporters for some time now, the silver lining for Oregon is the very healthy growth happening in East Asia, particularly China.  The trend highlighted by Read suggests that though Oregon is one of the harder hit states in this recession, we might have an earlier and healthier rebound than other states.

But this brings up a fascinating global debate right now about countries and their currencies and how currency manipulation can lead to unfair trade advantages.

To make is as clear as possible let's get a few preliminaries out of the way.  Exchange rates determine the cost of imports in a country.  So if the dollar goes up relative to other foreign currencies imports become cheaper for US consumers.  At the same time exports become more expensive.  As we import a lot of what we consume, the overall welfare affect of currency movements is not clear: a cheaper dollar helps US exporters, but makes imported inputs (like rare earths for example), and final goods consumption more expensive.

The US is currently putting pressure on China to stop actively keeping the value of its currency low so that US exports to China will become more affordable to the 1.2 billion Chinese consumers that are quickly getting real buying power.  Doing so will make Chinese imports to the US more expensive, so that iPhone you want may raise in price should this happen.

What will happen to Oregon is not exactly clear.  We export a lot of raw materials and inputs (like computer chips) to China where they are turned into finished consumer goods and sent back here.  So the inputs will become cheaper to Chinese manufacturers but the final good will become more expensive.  The value added in China will increase so overall one would expect a decrease in demand for these goods in the US.  But this is almost surely to be countered by the increase in demand for these same products in China.

Of course, the US is now facing similar criticisms for its policy of quantitative easing.  By printing new money, you increase the global supply of dollars and this will cause the dollar to fall relative to other currencies.  So is this unfair manipulation?  Now you see why it is so hard to write rules about this in the context of the WTO.  The Obama administration makes the point (very valid in my view) that a strong rebound of the US economy would more than make up for the devaluation.  We are the world's biggest importer and the biggest market for most of the world's export goods.  Getting US consumers back in the game is probably the first order of priority.  

So, in the end I don't think Chinese currency manipulation is that big a deal for Oregon in the short-run given the nature of what we ship over there, but could have significant impacts in the long-run.  If Chinese consumers suddenly had increased buying power for consumer electronics then this would help Intel for example.  And I don't think that the temporary quantitative easing is a big deal either in terms of global trade.  The key distinction in my mind is the short-term manipulation for a clear policy goal of the US versus the systematic long-term manipulation of the Chinese.  The former is not a problem, but the latter cannot go on forever.

Soccernomics: Dumping

The Scot Thompson announcement go me thinking again about the Timbers and some of the economic decisions they have been making.  One thing that has interested me ever since the crest fiasco is what the Timbers would do with all of the launch merchandise.

A little background for the uninitiated: the Timbers, with much fanfare, unveiled their new logo this past summer.  Unfortunately, they had not kept the Timbers Army (TA) in the loop and the Army, the Timbers supporters group, hated it and let their hate be known loudly and clearly.

The Timbers, to their credit, quickly met with the Army and made some subtle but significant changes to the logo.  I have posted the before and after above.

Of course, in anticipation of the launch, the Timbers ordered an avalanche of merchandise.  And why not, it doesn't have a sell-by date, so making sure you have enough on hand is important.  Ex post, however, they had a real conundrum: tons of suddenly obsolete merchandise waiting to be sold.

I assumed that they would just eat the loss and that soon poor people across Africa would suddenly be wearing the original Timbers logo along with their new Texas Rangers World Series Champions gear.  But no, the Timbers apparently decided that the changes they made were small enough that the original merchandise was just fine.  So they kept on selling it (without any disclaimer) on their web-site and in stores like Sports Authority.

At first this might have been because they didn't have updated merchandise to replace it, but now, it is well clear that they intend to get whatever money they can for the original stuff and withhold the new stuff until they are able to offload as much as the old stuff as they can.

I say this because I watched new logo merchandise slowly creep in to their on-line store alongside the old stuff, but it was never exactly replacement merchandise.  Then, all of a sudden, all of the new logo stuff was completely removed and they are currently only selling the original logo stuff, but now at a deep discount.  One suspects that they are trying for one last push to get the old stuff out the door before they dump it completely.

I got a t-shirt for the boy about a week before the new logo was released.  The Timbers store told me they would gladly exchange the shirt once new logo shirts were in.  They expected them months ago and I suspect they have had them that long.  For us it is a moot point, they boy likes and has already practically worn out the shirt.  

As an economist I have no problem with the strategy save for the part where they don't explicitly explain to the punters what they are buying.  The market can decide how much the original stuff is worth, and it is worth something, but in order to do so, full information is necessary.   I also don't like the holding back of the new stuff so that people like me can't or don't bother to exchange.  Seems a little nickel and dime.

I find it curious that they wouldn't just dump it all and start fresh, however, diluting the marketplace with an old brand is odd I think given the magnitude of the investment in what they hope will be a long running brand in Portland.  But then, the Timbers have shown themselves to be shrewd businesspeople and so I reserve judgement. I don't know if there is a blueprint for this type of thing, but I have to admit it smacks just a little bit of greed.  I mean, how much money could we really be talking about?  Is it really worth it in the long run?

A Class Act

Scot (with one T ;-) ) Thompson announced yesterday that he was retiring.  Read Geoffrey Arnold's nice article about Scot to get a sense of his background and who he is as a person.  I can add to this personally as a father of a son who has participated in a Timbers soccer camp Scot ran.  Scot was gracious, warm, engaging and great with the kids.  And while the other players there were good spirits, you could tell their hearts were not totally into hosting a bunch of kids for a day.  Scot, by contrast, really made the extra effort, seemed genuinely enthusiastic about having the kids around, and you could see the kids respond immediately to his enthusiasm and warmth.  I left with a decent impression of the Timbers but with a fantastic impression of Scot.

If the Timbers have any sense at all, they will make sure Scot stays a part of the organization, he is a class act.

High Unemployment Cyclical not Structural

Or so says the SF Fed:

An increase in U.S. aggregate labor demand reflected in rising job vacancies has not been accompanied by a similar decline in the unemployment rate. Some analysts maintain that unemployed workers lack the skills to fill available jobs, a mismatch that contributes to an elevated level of structural unemployment. However, analysis of data on employment growth and jobless rates across industries, occupations, and states suggests only a limited increase in structural unemployment, indicating that cyclical factors account for most of the rise in the unemployment rate.

Not really news to those who follow economics blogs where the point has been repeatedly made that if there is a mismatch of skills we should see some industries where wages are increasing rapidly as firms have to bid for scarce skills and other industries wages decline as there are too many workers with redundant skills. The evidence for this is just not there.

Which is good news in a way, there is no reason employment can't recover fully except for the fact that our consumers are seriously de-leveraging and we may not see the same level of consumer spending for a while.

Gold, Gold, Gold

Gold.  Look at it ... its ... golden.  Shiny, heavy and ... real ... unlike money which is all a shared illusion.  When the real collapse of the global economy comes, people will laugh at your worthless dollars but rob you of your gold!  So buy gold now!  Hurry!

See, the fundamentals of gold are can't miss:

And now, even people as serious as the president of the World Bank are becoming gold bugs and arguing for a return to the gold standard:

The system should also consider employing gold as an international reference point of market expectations about inflation, deflation and future currency values. Although textbooks may view gold as the old money, markets are using gold as an alternative monetary asset today.

In fact, right now with the Fed creating money left and right people are starting to worry about how their wealth could rise or fall dramatically with the whims of the econo-bureaucrats in Washington. Gold, it is thought, takes the human element out of the equation - anchor our money to something real and tangible, the argument goes, and never again will you have to worry about ... anything.

So why not? Well, Martin Wolf does a good job of explaining:

...the obvious form of a contemporary gold standard would be a direct link between base money and gold. Base money — the note issue, plus reserves of commercial banks at the central bank (if any such institution survives) — would be 100 per cent gold-backed. The central bank would then become a currency board in gold, with the unit of account (the dollar, say) defined in terms of a given weight of gold.

In a less rigid version of such a system, the central bank might keep an excess gold reserve, which would allow it to act as lender of last resort to the financial system in times of crisis. That is how the Bank of England behaved during the 19th century, as explained by Walter Bagehot in his classic book, Lombard Street.

So what would be the objections to such a system? There are three: difficulties with the transition; instability; and lack of credibility.

The biggest transition problem is the mismatch between the value of official gold holdings and the size of the monetary system. The value of gold held by central banks is apparently about $1,300bn, while global deposits of the banking system were about $61,000bn in 2008, according to the McKinsey Global Institute. To survive the slightest financial panic, the ratio of gold to bank money would need to be perhaps an order of magnitude higher.

One obvious objection is that this would generate huge windfall gains to holders of gold. More important, if policymakers set this initial price wrong, as they certainly would, they could unleash either deflation or inflation: the latter is far more likely, in fact, because private holders would start selling their gold to the central banks at such a high price. Apparently, about 90 per cent of gold is now privately held. So the expansion in the monetary base could be enormous.

Moreover, gold reserves are distributed quite erratically around the world. So some currencies would have to experience inflation and others severe deflation. A similar problem explains why it was impossible to recreate the gold standard after the First World War: too much of the world’s gold reserves were then held by the US.

What, then, about the problems of the steady state? One obvious point is that we would be back to the world in which the balance of payments would be settled by physical shipment of gold or, as it was later, by movements within central bank vaults. That would, at the least, be absurd.

A far more important problem is that of financial stability. Economists of the Austrian school wish to abolish fractional reserve banking. But we know that this is a natural consequence of market forces. It is wasteful to hold a 100 per cent reserve in a bank, if depositors do not need their money almost all of the time. Banks have a strong incentive to lend some of the money deposited with them, so expanding the aggregate supply of money and credit.

The government might seek to impose narrow banking: banks would have to back any deposits with notes or reserves at the central bank. But entrepreneurs could then create quasi-banks (let us call them “shadow banks”). These would hold deposits in the safe narrow banks and offer higher returns to customers, because they lend out surplus reserves for profit.

Such a system is unstable. In good times, credit, deposit money and the ratio of deposit money to the monetary base expands. In bad times, this pyramid collapses. The result is financial crises, as happened repeatedly in the 19th century. To prevent this one would have to move into the world of limited purpose banking recommended by Larry Kotlikoff, in which no financial institution would be allowed to promise redemption at par unless it held matching assets.* If so, the pure gold standard would require abandonment of the current banking system altogether.

A further danger is that the response to all shocks would have to come via nominal wage and price flexibility. A less obvious point is that the gold standard does not guarantee price stability. Depending on the supply conditions for gold, the price level might move up or down. In the long-run, however, the price level would probably tend to fall (because the supply of gold fails to keep pace with global activity). Such a world of trend deflation is liable to depressions if or when the equilibrium real rate of interest is less than the rate of deflation.

Another and, in my view, even more serious, threat to the stability of any gold standard regime is international. A peg to gold may prove radically destabilising for any currency if other significant countries failed to sustain domestic monetary and financial stability. There could then be floods of gold into or out of a currency that is well managed. The monetary and financial consequences could be dramatic, with severe deflation one obvious threat. This is precisely what happened in the interwar years, with the chaos emanating mainly from the US.

Finally, there is the fundamental problem of credibility - or rather lack of it. As Bennett McCallum of Carnegie Mellon University also notes in the Cato Journal, the forces that now demand inflation from time-to-time would demand a change in the gold weight of the currency as happened in the 1930s. “Historically”, he notes, “the gold standard provided a reasonable degree of price level stability over long spans of time because the population at large had at that time a semi-religious belief that the price of gold should not be varied but should be maintained ‘forever’.”

That faith has perished. Moreover, everybody knows it has perished. So whenever the economy was in difficulty, the only question would be how soon the gold price would be changed or the link abandoned.

The fact is that gold is no different than any other commodity - subject to the whims of the market. And especially so since it has little real use to most of its holders. When people worry about the value of their dollars they convert to gold and the price is driven up, but when things settle down the price will fall. There is nothing magic about gold other than it is shiny and rare.  Its historical hold on our collective human psyche is impressive though.

And now time to repost a classic:

The Colbert Report	Mon - Thurs 11:30pm / 10:30c
Prescott Financial Sells Gold, Women & Sheep
http://www.colbertnation.com/
Colbert Report Full Episodes Political Humor U.S. Speedskating

Picture of the Day: Jobs

What do you make of this picture?  Strong overall trend toward recovery and growth or a recovery that has seriously faltered?  This picture is from the NY Times' Economix blog, go here for Leonhardt's interesting discussion.