Vacation

I am off with the boys for a vacation and am therefore putting the OEB on hiatus for the next two weeks. I tweet interesting things that happen across my smartphone, but otherwise cease and desist the blogging of real content (insert joke here about how this happened weeks/months/years ago).

See you when I get back.

A Timbers Dilemma

The New York Red Bulls will be making their Portland debut this Sunday and what is an Arsenal and Timbers supporter to do??  For the Arsenal legend, Thierry Henry, is coming but in a Red Bulls uniform.

Henry is the all time leading goalscorer for the Arsenal and was a member of two Premiership winning teams including the 'invincibles' of the 2003-2004 season that did not lose a single game.  Of course, I will root for the Timbers to win the match, but I can't help but cheer for Henry.

The match itself should be very interesting.  The Timbers lost again last weekend, but to the current MLS champions the Colorado Rapids, and though the end result was a disappointment there is no doubt in my mind that the Timbers played their best game at Jeld-Wen and made a huge turnaround from the terrible performance they gave against DC United.  They were playing out from the back instead of punting it up, trying to move the ball and keep possession, Chara was (finally) actively trying to get forward and get involved in the attack and the entire team seemed to have better movement and energy.

But the Red Bulls are a dangerous and talented team and are a real test.  However they are missing some key players thanks to the Gold Cup: Rafa Marquez is on duty for Mexico and Tim Ream and Juan Agudelo are on duty with the US squad.  Thus the Timbers have a chance to catch a depleted side, but they will have to be very careful with Henry.  Even at 33 he is a class above and capable of scoring from all over the pitch.

Should be a blast!

Friday Links

As promised I have been lame this week and there is probably much more lameness in the near future.

In that vein, I shall now punt and direct you to some interesting reads.

Josh Lehner at the Oregon Office of Economic Analysis has a couple of very nice posts about the employment situation in Oregon.

Here is a teaser:

In the old "correlation is not causation" vein, Justin Wolfers takes on the Economist in the Freakonomics Blog.  Here is another teaser:

Finally, how does Oregon's unemployment rate compare?  See the Wall Street Journal for some interesting discussion.  And, of course, the tease:

Oregon Unemployment Falls to 9.3% in May

The Oregon economy returned to positive job growth in May, adding 1,300 jobs and the state's unemployment rate fell to 9.3%, almost matching the US average.   Manufacturing was a disappointment, it added only 100 jobs when 1,100 new jobs is usual, thus it lost 1,000 jobs on a seasonally adjusted basis.  By contrast, financial activities added 1,500 jobs on a seasonally adjusted basis.  Trade, transport and utilities and educational and health services both saw strong gains as well.

Picture of the Day: Taxes

Here is one perspective on US taxes from the left-leaning Center for American Progress which argues that the US is a low-tax country.  I think graph 2 makes the best case in general, and it is not really surprising - we certainly have different notions of the appropriate role of government then, say, Denmark.

Meaningful?  Discuss.

The Jerks Have Landed! Sellwood Cycle Repair's New Digs

[NOTE: The spring term just ended and I am exhausted and a bit burned out on economics to be honest (as, I am sure, are my students), so there will probably be mostly intermittent and econ-less blogging this week, my apologies]

On the list of great improvements in the neighborhood, this is at the very top: into the old Furbish Chemical and Supply Co. building has moved the amazing Sellwood Cycle Repair.  These guys are the best (search around for the source of the 'What a Bunch of Jerks' moniker - they are anything but).

They bought the dreary chemical building, completely renovated it and they now have a space that is ten times bigger than their old shop on SE Milwaukie.  The new shop is magnificent and, contrary to what the name suggests, they are a full service retail shop as well with bikes, equipment and supplies.  They are now open and I can't be happier as my bike is badly in need of a complete tune-up.

My love affair with this place started when I just arrived in the neighborhood and our Burley trailer was having a problem with a wheel that was rubbing against the frame.  We took it in and they couldn't see an immediate remedy.  So the manager (I believe that is what he is), Jeremiah, called the manufacturer who (to their great credit as well) admitted to a manufacturing or design defect that affected this model and swapped it for a brand new model - all through the shop which had neither sold it to us nor was a Burley dealer.  After a number of phone calls on our behalf, shipping the old one off, receiving the new one, and finally building the new one for us they didn't ask us for a penny in return.  We finally got them to accept some money for building the new trailer for us after we insisted.

We now go to them for all our bike servicing needs and not just because they are convenient - because they are great! Now with the new store I can go to them for all the other stuff too: bikes, helmets, locks, etc.  Super-cool.

Besides they are now even closer to my house than before.  Welcome the jerks!

NB: I blogged about two other new beery neighbors in my beer blog if you are interested in Sellwood comings and goings.

India: Growth Despite Government

Absolutely essential reading from The New York Times: an article on India's extraordinary economic growth that has come despite a government that struggles to provide even the most basic infrastructure:

In Gurgaon [a suburb of New Delhi] and elsewhere in India, the answer is that growth usually occurs despite the government rather than because of it. India and China are often considered to be the world’s rising economic powers, yet if China’s growth has been led by the state, India’s growth is often impeded by the state. China’s authoritarian leaders have built world-class infrastructure; India’s infrastructure and bureaucracy are both considered woefully outdated.

Yet over the past decade, India has emerged as one of the world’s most important new engines of growth, despite itself. Even now, with its economy feeling the pressure from global inflation and higher interest rates, some economists predict that India will become the world’s third largest economy within 15 years and could much sooner supplant China as the fastest-growing major economy.

Moreover, India’s unorthodox path illustrates, on a grand scale, the struggles of many smaller developing countries to deliver growth despite weak, ineffective governments. Many have tried to emulate China’s top-down economic model, but most are stuck with the Indian reality. In India, Gurgaon epitomizes that reality, managing to be both a complete mess and an economic powerhouse, a microcosm of Indian dynamism and dysfunction.

In Gurgaon, economic growth is often the product of a private sector improvising to overcome the inadequacies of the government.

To compensate for electricity blackouts, Gurgaon’s companies and real estate developers operate massive diesel generators capable of powering small towns. No water? Drill private borewells. No public transportation? Companies employ hundreds of private buses and taxis. Worried about crime? Gurgaon has almost four times as many private security guards as police officers.

“You could call it the United States of Gurgaon,” said Sanjay Kaul, an activist critical of the city’s lack of planning who argues that Gurgaon is a patchwork of private islands more than an interconnected city. “You are on your own.”

I am busy today so I'll only add this thought: Much of this reveals a pattern of allowing the wealthy minority to build for themselves a society within a society. But this will soon test India's democratic identity, for this cannot go on indefinitely without the 90% of India that is left out. The state must begin to step in and start to provide essential services for those who cannot afford to buy them privately. And the private provision of these services is usually hugely inefficient and will eventually become a major drag on growth.  India needs to begin aggressively inserting the state back into the fray in other words.

It also reminds me a bit of Brazil, but for all the corruption and inefficiency in Brazil, the state is much better functioning in general.  They lost control of the favelas, but have began a program of re-integrating favelas into the bureaucracy: providing services, enforcing building codes, etc.  This might be a model for India.

Soccernomics: Size Matters Redux

Emirates Stadium - Home of the Arsenal

I see the Timbers are getting a little touchy about the size of their field:

Portland are 5-1 in league play at their home. And yet, over the past month, a couple of opposing coaches have publicly taken issue with JELD-WEN Field’s size and suggested that it plays into the Timbers’ favor.

“The pitch, because it’s a little bit too small, when you watch the games they played at home, it’s a little pinball,” Philadelphia Union coach Peter Nowak told local reporters prior to the May 6 game in Portland. “[The Timbers] press the other team, and we’ve got to figure out a good plan for that.”

Too small?

At 70 yards wide, 110 yards long, the pitch at JELD-WEN Field is FIFA certified and meets the governing body’s guidelines as well as those of MLS. Field dimensions are not fixed from one pitch to the next and are a bit like Major League Baseball ballparks in that sense.

The oldest club in English Premier League soccer, Stoke City, play in a stadium with exactly the same dimensions as JELD-WEN. Do other EPL teams complain that it is too small?

Less than two weeks after Nowak brought it up, Columbus Crew coach Robert Warzycha chimed in with his thoughts on Portland’s success at home.

“More than anything, it’s the [artificial] turf and the field dimensions,” Warzycha told the Columbus Dispatch. “And the way they play at home. They’re scoring on set pieces.”

For the record, Portland did score on set pieces to beat both Philadelphia and Columbus. But was the size of the field really working against the opponent?

At JELD-WEN Field, the dimensions are dictated to some degree by the configuration of a stadium footprint that dates to 1926. It also has to do with sight lines for spectators. (From the press box, it is difficult to see the near touchline with out standing up.)

They doth protest too much.  Of course the quote from Ben Olsen that was in my last post was from the coach of a winning team so there is no suggestion of making excuses with him.

Anyway, what strikes me in all of this is the explanation that sight lines are to blame, but not from the stands mind, from the press box!  Are you serious?  You would shrink your field just so those in the press box don't have to stand up?!?  That is so lame.

And by the way, bringing up Stoke City is neither here nor there, but since they did, there is a big difference between the level of play in the Premier League and the MLS for one, and for two Stoke City is grass so the size is not amplified by a fast bouncy plastic surface.  I don't believe that any other Premier League team has a pitch smaller than the 75x110 yards (the modern stadium standard).  Arsenal did have a Jeld-Wen size field and used to be known for cynical defensive football, but then Arsene Wenger came in and instilled a possession, quick passing style of play utilizing world class players who could pull it off.  Still, when they built their new stadium they went to 75x115.

Just sayin'

Eco-nomics: Malthus and Global Warming - Will There be Enough Food?

Josh Haner/The New York Times

Over the weekend, The New York Times had an interesting and provocative article on the fate of the world food supply in the face of global warming.  And, once again, we are faced with the prospect of a planet that keeps adding more people and a food supply that might not be able to keep up.  Similar to debates in the 1960s and 1970s that went away with the Green Revolution, new debates are beginning to arise about how, and if, humanity will adjust:

Perhaps the most hopeful sign nowadays is that poor countries themselves are starting to invest in agriculture in a serious way, as many did not do in the years when food was cheap.

In Africa, largely bypassed by the Green Revolution but with enormous potential, a dozen countries are on the verge of fulfilling a promise to devote 10 percent of their budgets to farm development, up from 5 percent or less.

“In my country, every penny counts,” Agnes Kalibata, the agriculture minister of Rwanda, said in an interview. With difficulty, Rwanda has met the 10 percent pledge, and she cited a terracing project in the country’s highlands that has raised potato yields by 600 percent for some farmers.

Yet the leading agricultural experts say that poor countries cannot solve the problems by themselves. The United Nations recently projected that global population would hit 10 billion by the end of the century, 3 billion more than today. Coupled with the demand for diets richer in protein, the projections mean that food production may need to double by later in the century.

Unlike in the past, that demand must somehow be met on a planet where little new land is available for farming, where water supplies are tightening, where the temperature is rising, where the weather has become erratic and where the food system is already showing serious signs of instability.

“We’ve doubled the world’s food production several times before in history, and now we have to do it one more time,” said Jonathan A. Foley, a researcher at the University of Minnesota. “The last doubling is the hardest. It is possible, but it’s not going to be easy.”

The debate has been labeled as one between the Malthusians (i.e. those pessimistic about food supplies keeping ups with population) and economists (who generally believe that with dwindling supplies come higher prices and strong incentives to innovate). The author of that article has a follow-up in the Times' Green blog that discusses precisely this debate.  The tenor of his article and his blog post is essentially 'this time we might not be able to innovate out of the problem:'

In general, these pessimists about the human future have turned out to be wrong — so far. The missing ingredient in doomsday prognostications, about the food supply or anything else, is an appreciation of the power of innovation to solve problems.

***

Economists consider Malthusianism, at least as understood in modern times, to be a discredited doctrine. From their perspective, one powerful lever explains why innovation always seems to come to the rescue when it is needed most: prices.

Most people intuitively understand that the reason prices rise in times of scarcity is to allocate the available supply. It may be less obvious that higher prices serve another, more crucial function: they call forth additional supply. Higher prices reverberate through an economy like a clarion call, saying to capitalists everywhere: Produce more!

***

“Where Malthus and his modern-day followers go wrong is that they miss the power of prices to drive the technological change that has helped societies adapt to all kinds of events and will help us to adapt to climate change,” Michael Greenstone, an economist at the Massachusetts Institute of Technology, told me by e-mail. “It is certainly possible that agricultural prices may end up being higher, but the apocalyptic visions of shortages are not supported by the long history of markets directing people to innovate in the areas where it is needed most.”

Without question, the potential for agriculture to adapt to climate change, to higher demand and to the other problems that confront it is substantial. Farmers can grow different varieties; they can plant them earlier to avoid hot spells; they can invest capital in water-saving systems like drip irrigation.

Within limits, agriculture can move north as the climate warms; some projections show wheat being grown in the future as far north as the shores of Hudson Bay, and even in parts of Alaska.

Gary Toenniessen, head of agricultural programs at the Rockefeller Foundation, pointed out to me that if prices got high enough, much of the United States could grow two crops a year instead of one. That is already done in parts of the country where winter wheat is grown, and it is being done even more intensively in Asia.

Both are very interesting reads and worthy of your investment in time, but the point I was to make here is that the price of food has many effects. Yes, it does provide a strong inventive to innovate, to use land and water more carefully, etc., but is also have an effect on households: larger families become more and more expensive.  Which, of course, was really Malthus' point in the first place - that humans respond to these market signals.

So, I am aligned with the economist camp described above, but I believe that if we do struggle with food production, the resulting higher prices will have a myriad of effects: agricultural innovation, shrinking households, more kitchen gardens, etc.  It is wrong, in other words, to focus only on whether science will keep up with humanity's appetite, but rather we should think through all the implications of rising commodities prices.

Horrible: The May Jobs Report

The US economy added only 54,000 jobs in May and unemployment is up to 9.1%.  54K is not enough to even keep up with population growth.  In other words we are losing ground not gaining.

More and more do I worry about the lost decade that Krugman has warned of repeatedly.  I have thought him a bit alarmist, but his insistence that the government is not taking this seriously enough and doing too little looks pretty prescient right now.

Let's hope this is true:

The dismal numbers may change the economic debate in Washington and potentially revive calls for the Federal Reserve to engage in another round of asset purchases, Mr. Ashworth said. Democrats and labor-oriented groups have also amplified their pleas for Congress to delay deficit-reduction measures.

“Living here in Washington, in the past few weeks there has been all this talk about deficits and the debt ceiling as though that were the biggest problem right now,” said Heather Boushey, a senior economist at the Center for American Progress, a liberal research organization. “My fervent hope is that this shocks policy makers into realizing the most urgent problem in front of us right now is jobs.”

Some smart analysis from the Economist:

It's not too difficult to spot the sources of economic weakness in the details of the report. Manufacturing employment fell by 5,000 jobs in May after rising steadily in previous months, a testament to the worsening outlook for exports in a weakening global economy. Retail trade employment growth also tumbled, as nervous consumers trimmed spending. America's job woes have also been self-inflicted. Private firms have added over 1.7m jobs in the past 12 months, but the government has shed nearly half a million over the same period (not counting the loss of temporary Census jobs last year). Local governments alone have cut 446,000 positions since September of 2008. Some of those government jobs losses reflect a sensible rationalisation of workforces. Too many of them reflect the damaging effect of pro-cyclical budget cutting due to balanced-budget rules in cash-strapped states. More federal aid to states might have dampened the reductions, easing the drag on national growth.

Budget issues at the federal level may also be contributing to the slowdown. Unexpectedly large federal budget cuts are chipping away at quarterly growth rates with less of a cushion than previously imagined. The 0.5 percentage point drag due to slashed spending seems less problematic when the economy is expected to expand at 4%—as was once hoped for the first half of 2011—than when it's growing at less than 2%, as America's did in the first quarter, and as forecasters are increasingly predicting for the second quarter.

I have, for my part, warned of the problem of 50 states making drastic budget cuts simultaneously and argued for some very quick and VERY easy fiscal stimulus: block grants to the states. Now, I think, we are beginning to see the problem manifest itself. Bad days.

Economist's Notebook: A Lesson in Cost Disease

From Jack Bog's Blog I find this wonderful picture from a Radio Shack ad that was in a Popular Mechanics magazine from 1987.

Note the super duper lightweight portable cellular phone for only $1499!  That is almost $2900 in today's dollars.  Not only are cell phones remarkably cheaper, but they are an order of magnitude more capable.  You can buy an iPhone for $300 that is a super-computer by 1987 standards.

Which is a nice jumping off point for the discussion of 'cost disease.'  Which is actually a fairly simple concept.  When we measure inflation through time, we use the average price increases over a whole basket of goods which means we do it over a whole range of industries.  Some of these goods/industries (like cell phones/consumer electronics) are prone to huge productivity increases - meaning we can make the same good much less expensively now than before.  Other things are not a prone to such increases.  Books, for example, or (you know this was coming) craft beer.  

For example, I grabbed a book I bought around the same time off my shelf: In Exile from the Land of Snows. It has a cover price of $9.95.  The very same book today has a cover price of $16.00. [This was bought and ready during my time studying and traveling in India and Nepal, it is an account of the Dalai Lama and the Tibetan government in exile and is is highly recommended]  The price increase for the book is slightly lower than inflation but partly this represents the fixed costs (the price of the manuscript) being spread ever more thinly.  But in general, though we can now do electronic type setting and other productivity enhancing things, the printing of the word onto paper and binding it to ship and sell has not seen a lot of productivity enhancement over the last 25 years.

Anyway the point is that some products are less prone to productivity increases. The classic Baumol example is the symphony orchestra which takes just as many musicians just as much time to play a Mozart or Beethoven piece today as in the late 1700s.  There has been no productivity gain at all.

When you put them altogether and average the price increases across all different industries, you will see industries (like symphonies) that routinely see price increases greater than inflation and other industries (like consumer electronics) where prices actually keep falling.  We describe industries of the former type those that experience 'cost disease' because it is a natural consequence of an industry where productivity does not increase much.

Picture of the Day: The Bear that Saved the Day

Photo credit: Oregonian

Here is the Tualatin bear romping through the school field.  My son would like to invite it to his school since the Bear gave the Tualatin kids a day off school.  Way to go bear!

Picture of the Day: Income Expectations

From Mark Thoma via the Cleveland Fed comes this startling and depressing bit of survey data:

This is not what you want to see if you are hoping consumers will start the great recovery.