Happy Holidays

I am taking a break from regular blogging for the next two weeks.  I will post occasionally when the mood strikes but otherwise I will be back to regular blogging after the new year.

Have a great holiday.

My Op-Ed

UPDATE: Here is the link to the OP-Ed in The Oregonian.

Well since The Oregonian never got it on the web page, I suppose it is safe for me to do so now.  Here is my original text (its all I have in a digital version) with my addition of the word 'substantial.' As far as I can tell it is the same as was published.

I have written a number of Op-Ed pieces that have been published in the Oregonian over the last few years, but never had nearly the response as I have had on this one, nor even close to the level of passion people have surrounding the movement, both for and against.  What this tells me is that the movement is really striking a chord that resonates with a lot of people.  The point of the editorial is that the movement can't just vent the frustration and anger symptomatic of the deep unrest with the outcomes of our political and economic system over the last few decades and be successful. It has to become a focused agent of change or it will all come to nothing; they now have to pivot from protest to advocacy.

I have been attacked by both those for and against the movement for in my words they managed to paint me as either opposed to the movement or a fellow traveler.  The truth is I am neither, I can't tell you if I support the movement because I am not entirely sure what it is they are advocating for.  And by the way, you can be critical of something and still support it - one would hope self-analysis and criticism is a key part of the occupiers themselves.  If they can't take my mild criticism, I have little hope for the movement.

Anyway, here you go:

The Occupy Portland movement managed to close down terminals as the Port of Portland Monday in an act of protest, putting a number of their fellow 99% out of work for the day. The reasons for targeting the Port were vague: apparently they were trying to hurt companies that do business at the port which are responsible for some rich people getting even richer. I fear the Occupy movement has lost the plot.

There is nothing unique about these businesses. It is hard to find a business that is not in some way connected to the global economy and that supports, however indirectly, a very wealthy person’s income. Imagine a small local business that gets a small business loan from a local bank. This seems safe enough, right? But that small local bank probably does business with a larger bank whose bosses are the very villains the Occupy movement is targeting. And the local business may ship goods to customers in foreign countries, enriching shipping magnates and importers, and so on. In other words, in trying to identify and protest a particular part of the economy they are chasing their tails and muddling their own message.

Thus the problem with the Occupy movement is not the general sense of a growing disenfranchisement of the middle and lower classes – this trend is real and identifiable – but what they suggest to do about it. What policies do they oppose exactly? What do they propose as alternatives?

I understand the general sense that the modern economy, ever more global and huge, is responsible for the growing inequality in the United States and how this inequality translates to a lack of political power. But it is not the global capitalist system itself that is causing these outcomes, but how we as a country restrain the system through our policies and our laws. And therein lies the genesis of a real and well-articulated message.

For example, it is now well known that our financial regulations were inadequate to restrain firms that were involved in a returns arms race – forever trying to best each other by producing impossibly high returns on loose credit without regard to the sustainability of such actions. We have made very little progress in improving such regulations.

It is also well known that the modern and global economy is creating ever more dramatic differences in returns to education. High school graduates have hardly made any advance in earnings for decades, while those with four-year university degrees and higher are continuing to advance. But instead of redressing one of the real root causes of inequality, we are dramatically disinvesting in public education in the United States.

Given the ever increasing inequality, the collapse of the financial sector and the worst economic downturn since the great depression, it is remarkable how little is being done in Washington to improve financial regulation and invest in the education of American children. Which leads to another policy lacuna: the inability to balance the needs and rights of corporate America with that of the vast majority of its citizens that have not seen their standard of living [substantially] improve in two generations.

So here is a suggested start for the Occupy movement. Do not put port workers out of work for a day: port workers are impacted dramatically by such economic disruptions while the fat-cats hardly notice. Use the collective energy of the movement to call for real financial reform, for a reinvestment in public education and to restrain the influence of money on government. It is a just a start, but an articulate one.

Finally, I realize I should get the Oregonian to mention my blog because it provides a forum for those who would like to debate the issue. [Perhaps this is why they never posted my Op-Ed: to save me the inevitable abuse that would have come from the generally caustic comments that appear on the O's web page] Anyway, I will not answer any more e-mails about this. You want to discuss, do it in the comments here, but keep it respectful.

Karma

I got a little blowback from Occupy folks from yesterday's Op-Ed.  Undeserved methinks, I don't think I am alone in not understanding the message behind the port protest and worrying that they are losing the plot, but I'm glad folks are paying attention.

But, since then I have had to have a root canal and my son told me he supports Tottenham Hotspur.  So if you are upset with me, don't worry the fates have punished me sufficiently.

Today I take a break from blogging to convalesce.

Update: A reader admonished me for my statement that "...the vast majority of American citizens, who have not seen their standard of living improve in two generations."

I agree, I had intended to write "substantially improve" but failed. My bad. But the motivation of the Occupy movement and it's supporters was not the point.

I have also been taken to task for both criticizing and supporting the Occupy movement. I was doing neither - I understand from whence the passion comes, but don't know if I agree with the remedies proposed, because I have not heard much about their remedies. Which was the part pf the point of the Op-Ed.

Occupy Portland: In Need of Focus and a Message

Credit: The Oregonian

My Op-Ed in todays Oregonian. [Not yet on-line - I will link when it is] Here is a tease:

The Occupy Portland movement managed to close down terminals as the Port of Portland Monday in an act of protest, putting a number of their fellow 99% out of work for the day. The reasons for targeting the Port were vague: apparently they were trying to hurt companies that do business at the port which are responsible for some rich people getting even richer. I fear the Occupy movement has lost the plot.

Who needs on-line? Go spend a buck and read the rest, I am so worth it!

I will add that it is absolutely okay to protest the outcomes of a system without understanding the fixes. Economics is complex and full of connections that are not always readily apparent. But by the time you have decided to shut down ports, you should have a good idea why you are doing it. There are plenty of knowledgeable folks to call upon to start to formulate a real message and to focus on the real problems. Acting without such preliminary groundwork is what makes me fear for the future of the movement.

And today is an Emerson two-fer as Rich Read and I chatted about unemployment and I sounded the Grinch note: focus on jobs, not the rate, and job creation sucks right now.

Oregon Unemployment Drops to 9.1% in November

Oregon's November unemployment rate dropped to 9.1% in November, but the number of employed dropped by 1,600 on a seasonally adjusted basis.  Similar to the national data the drop in the rate of unemployment is due to the number of people who exited the labor force by no longer looking for work.  That number declined by almost 7,000 people.  So there is not a lot to cheer.  Especially noteworthy was the 2,300 decline in manufacturing jobs.

The Portland Economy: Incomes are Better than Average After All

Last week the Portland Business Alliance released a report produced by ECONorthwest which was reported on by The Oregonian.  In it the big news was how much worse off were Portland metro workers relative to the US average:

A telling graph in the report, “A Checkup on the Portland Region’s Economic Health,” shows that as personal incomes wobble, tax revenues bounce wildly wreaking havoc in budgets for state services.

“If we want to improve revenue available to support these services, we need to start with good-quality jobs that generate the wages and incomes that can be taxed,” said Sandi McDonough, chief executive of the Portland Business Alliance, greater Portland’s chamber of commerce.

This is the same report that, last year, I criticized quite strongly for being sloppy and misleading and took ECONorthwest to task for the low quality of the work.   So you'd like to think that they paid particular attention to year's report and made sure it was excellent. Nope. Today, The Oregonian reports that the headline data from the report was all wrong, and the conclusion is exactly the opposite:

Portland-area incomes didn't fall faster and farther during the recession than national per capita income, as a study issued last week by local business groups reported.

In fact, per capita incomes in metro Portland declined slightly more slowly than national incomes -- and rebounded somewhat faster.

***

The mistakes occurred in final editing conducted by the Portland Business Alliance and ECONorthwest, a consulting firm that provided the data. Josh Lehner, an economist at the Oregon Office of Economic Analysis, spotted the errors.

Good old Josh Lehner, you all know him as the author of the OEA blog and Twitter feed, but I know him as the go-to guy on state economy data.  As for ECONorthwest, what can you say?  "Mistakes in final editing?!?" Final editing? That is total horsepucky: they mucked up the most basic data comparison, they should at least own their mistake.  These are people who charge a premium because they are supposed to be good at this stuff - you'd hope they would be a bit more careful, especially on such a high profile project.  And if you go to the report, you'll find no mention that it was revised, which is totally inexcusable.

I wondered about this, by the way, when I blogged about the report that said state personal income tax collections were rising much faster than the national average.  Yes the change and the level are not the same thing, but the erroneous graph suggests that the rate of change is lower as well.

So spare a thought for the beleaguered corps of exceptionally talented bureaucrats like Josh who toil in relative anonymity and yet day after day provide excellent service to Oregonians.  They are under-appreciated.    

Bike-o-nomics: If You Build It, They Will Ride, Redux

From Felix Salmon a graph made from data from the NYC Commuting Cycling Indicator showing the rise in bike commuting in NYC.  Felix makes a point that the big rise in bike commuting corresponds with the arrival of Janette Sadik-Khan, the controversial transportation commissioner for NYC who is a big biking advocate.

I blogged about the relation between bike infrastructure and bike riding before, suggesting that the correlation is suggestive of it having a big impact on riding.  Here is more suggestive evidence.  Not that this is terribly surprising: you lower the cost of an activity and people tent to choose more of it.

Now a good research question is whether expenditures on bike infrastructure are a good investment.  I suspect that they are one of the best in terms of cost savings down the road in health care, environment, and so on, but I'd like to see some good research that connects the dots convincingly.  If you know of some, do let me know.

State Tax Revenues on the Rise

Or so says the Rockefeller Institute who tracks state tax revenue from 48 states:

Preliminary tax collection data for the July-September quarter of 2011 show growth in overall state tax collections, as well as for personal income tax and sales tax revenue, for the seventh consecutive quarter. While still strong, revenue growth was more moderate than in the previous three quarters. We will provide a full report on the July-September period after Census Bureau data for the quarter are available.

The Rockefeller Institute's compilation of data from 48 early reporting states shows collections from major tax sources increased by 7.3 percent in nominal terms in the third quarter of 2011 compared to the same quarter of 2010. This is a noticeable slowdown from the 10.8 percent year-over-year growth reported in the second quarter of 2011. Tax collections now have been rising for seven straight quarters, following the five quarters of declines that were brought on by the Great Recession.

Here are the data for Oregon and Washington (PIT=Personal Income Tax; CIT=Corp. Inc. Tax; Sales=Sales Tax):

Percent Change in State Tax Revenue, July-September 2010 to 2011

Fortunately for Oregon personal income taxes in general are recovering faster than are sales taxes as people are probably using new income to pay down debt and build up savings (though the saving rate has begun to dip again, so sales taxes will probably pick up soon).  Overall a 10.4% increase is a nice healthy rebound for Oregon and from what I understand, above both of the two most recent forecasts for Oregon.  This from the OEA blog:

Let's hope the trend continues.  If the Euro mess can get sorted (and today there is good news on that front), this fledgling US recovery might just start to gain some momentum.

Reinhardt and Krugman on the World Economy

Watch live streaming video from nytimesopinion at livestream.com

Gingrich and Child Labor

My friend and colleague, Eric Edmonds of Dartmouth, takes up the bizarre promotion of child labor by Newt Gingrich in Reuters.  Here is an excerpt:

Republican Presidential frontrunner Newt Gingrich continues to insist that child labor laws in the U.S. are “truly stupid,” that the poor lack good work habits, and that the former would solve the latter. He hasn’t mentioned any specific policy changes, yet it’s clear that he doesn’t like the way things are done now, and that that he thinks America would be better off if kids worked more. If only the economics agreed.

***

The biggest hole in Gingrich’s plan is a simple one: adding more workers does not create new jobs. With 1,373,000 youths 16 to 19 currently looking for work, according to the Bureau of Labor Statistics, adding even younger children to this pile would likely serve to increase unemployment or reduce unskilled wages further.

***

The issue is that workers that start unskilled stay unskilled. Especially if their education is suffering as a result. Working children do not learn skills that are going to help them to succeed in today’s technologically advanced global economy. How is learning to be an unskilled laborer at an early age going to help families in the long-run?

It is not. Implicit in Mr. Gingrich’s argument is that the act of working itself teaches some transferable skill that then makes the child laborer a better worker overall. We’ve seen what happens when successive generations of families need their children to work. They are unable to escape poverty.  Some of the best evidence on this comes from Brazil, where, according to two economists’ research, former child laborers are three times more likely to need their own children to work.

The research from Brazil he is referring to is my own conducted with André Portela Souza. We also have research that shows that participants in child labor end up with lower earnings as adults, all else equal. Research that we are working on now is focused on understanding the effect of working while continuing to go to school. Results are preliminary but suggest a significant decline in the how much and how well child laborers learn relative to their peers who do not, even when controlling for other socio-economic disparity.

Economist's Notebook: On Economics

I had never encountered this quote before I read it in Greg Mankiw's New York Times Op-Ed this past sunday.  It is from Keynes:

“The theory of economics does not furnish a body of settled conclusions immediately applicable to policy. It is a method rather than a doctrine, an apparatus of the mind, a technique for thinking, which helps the possessor to draw correct conclusions.”

I think this is about as perfect a statement on economics as there can be.  I often describe economics as simply a system of logic - a precise way to think about how the world is organized.  In another article in the same Times, Nobelist Tom Sargent referred to a former TA who called economics 'organized common sense,' which is also a good description as long as the emphasis is on the 'organized.'

I like economics because it allows me to see connections clearly, understand society better and be able to be precise and clear when I think about economic challenges and potential solutions.  In fact it was the frustration of living and studying in India as a junior in college that really cemented this in my mind: all around were examples of exceptional poverty and economic malaise and all of the discussions about the cause of the problems were notional and poorly focused.  I wanted answers, or lacking that, a precise way to think about the problems.  Economics gave me just that, and I now spend my life trying to find answers.

But the discipline of economics does not promote capitalism, nor any particular political philosophy.  You can be as liberal as Krugman or as conservative as Friedman and still understand that economics allows us to understand markets clearly - both the benefits and the drawbacks - and reasonable people can draw very different conclusions about the way society should be organized around them.  This is a strength, not a weakness of the discipline: we are looking for facts, not considered opinion.  

What you shouldn't be is an advocate for any economic structure without understanding neo-classical economics.  Which is why, frankly, I think the bulk of the heterodox folks, who have established a separate and parallel discipline, have it wrong.  You have to base your advocacy for non-market based economic systems on a reasonable critique of market outcomes based on neo-classical economics. By dismissing the core of economic thought and attacking straw men caricatures of the same you are not even competing in the marketplace of ideas, but relegating yourself to the fringe.

I say this because if the Occupy movement wants to argue that the current system is flawed and needs fundamental reform, they should study hard in principles of economics rather than walk out and dismiss it out of hand.  There is plenty there to serve as the foundation of a progressive critique of the current system. And there is plenty there to serve as a conservative rebuke as well.  Such is the beauty and utility of economics.

Uh-oh

I can see I am not going to be very popular in the state for a while.  Go Badgers.

Eco-nomics: Biofuels Might Not be the Answer

Photo Credit: Tiffany Woods

A new study by Bill Jaeger and others at OSU questions whether biofuels would do much to displace fossil fuels and would likely lead to increased, not decreased, greenhouse gas emissions.

Here is an excerpt from the press release:

"Our results suggest that existing biofuel policies have been very costly, produce negligible reductions in fossil fuel use and increase, rather than decrease, greenhouse gas emissions," said Jaeger, a professor in the agricultural and resource economics department at OSU.

Biofuels were initially seen as a solution to energy and environmental problems, Jaeger said, because the carbon dioxide that's emitted when they're burned is equivalent to what they had absorbed from the atmosphere when the crops were growing. Thus, biofuels were assumed to add little or no carbon dioxide to the atmosphere.

But the bigger picture is more complex, Jaeger said, in part because biofuels are produced and transported using fossil fuels. For example, nitrogen fertilizer, which is made using natural gas, is used to grow corn for ethanol. Additionally, growing biofuel feedstocks can push food production onto previously unfarmed land, according to well-documented research, Jaeger said. When this new acreage is cleared and tilled, it can release carbon that accumulated over long periods in soil and vegetation, thus increasing greenhouse gas emissions, he said.

The costs of these side effects tend to be overlooked by policies that focus only on gallon-for-gallon substitutions, he added.

You can see the original paper here.

And Now For Something Completely Different

If You Build It, They Will Drive

A reader and transportation advocate in Salem alerted me to a paper that had escaped my attention by Duranton and Turner, two economists from the University of Toronto. It was published in the October 2011 American Economic Review - one of, if not the, pre-eminent journals in economics - and is entitled "The Fundamental Law of Road Congestion: Evidence from US Cities.  In it, the authors try and estimate the capacity elasticity of vehicle kilometers travelled (VKT).  In other words, by how much will vehicle travel increase in response to increases road capacity.  This paper seeks to answer the question: will new road construction ease overall congestion?

[As an aside, how is a paper about driving in the US and published in a US journal allowed to get away with using kilometers instead of miles?? It is an abomination!]

This question is a lot harder to answer than it may appear initially.  You can't just look at road construction and subsequent changes in miles driven (yes, I said miles) because you don't know if the road was built in response to the increase in miles driven, if the increase in miles driven was in response to the new road capacity, or if miles driven would have increased just the same regardless of road construction.  Empirically, this presents a very tricky problem. I won't get into the minutiae of how they addressed this save to say they used historical data on transportation planning to instrument for the road capacity in order to identify the true effect of capacity on VKT.  [Econ students should now be thinking hard about local average treatment effects: the identification comes from things like the original planning document for the interstate highway network in 1947 - how does the variation in planned highways in 1947 affect VKT today?]  The methods are pretty convincing and the results, to my mind, are pretty startling.  Here is the abstract:

We investigate the effect of lane kilometers of roads on vehicle-kilometers traveled (VKT) in US cities. VKT increases proportionately to roadway lane kilometers for interstate highways and probably slightly less rapidly for other types of roads. The sources for this extra VKT are increases in driving by current residents, increases in commercial traffic, and migration. Increasing lane kilometers for one type of road diverts little traffic from other types of road. We find no evidence that the provision of public transportation affects VKT. We conclude that increased provision of roads or public transit is unlikely to relieve congestion.

What this says is that the capacity of elasticity of VKT is one: that for every new lane kilometer of road you build you will get a corresponding increase in traffic - yielding no net benefit to congestion.  Wow.  So opponents of the CRC, for example, might be pleased to note that claims of quicker travel times are probably completely bogus.

But there is more.  They find exactly the same effect for public transportation (and by extrapolation we can pretty safely say the same is true for bike travel) that every car taken off the road by, say, a new MAX route, will be replaced by a new car yielding no net benefit to congestion.

There are a number of pretty serious caveats here though.  They find that was fills in these new roads is a pretty robust increase in commercial truck transport and in the change in individual driving behavior.  This makes sense to this economist - if road congestion is an equilibrium result of the market for driving, if you lower the marginal cost curve, you expect more driving to get back to the point of marginal cost equals marginal benefit (since the benefit hasn't changed).  So if you are a CRC advocate, you can point to the potential increase in commercial truck activity that will result as evidence of increased economic activity in the region in response to the better transportation network.

Interestingly, the increase in highway usage does not appear to come from those switching from city roads to highways - so such new highway construction should not be expected to ease congestion on surface roads.

There is also the fact that this elasticity works both ways.  So it may be that by getting a person to take a bus or ride a bike only convinces someone else to start driving, removing road capacity in order to provide more bike or transportation infrastructure should result in a proportional decrease in overall VKT.

Finally, these results are for highways, but they do have some, arguably less robust results for major roads in urban areas where the elasticity estimates range from 0.67 to 0.89, so high but not 1.  Which means that building out major roads in urban areas should be expected to decrease congestion, but by relatively small amounts.  For example if we use 0.75 as a intermediate number than increasing urban road capacity by 10% should yield only a 7.5% increase in VKT.

So there is lots here for advocates on both sides to wrangle over.  I, being the Scholar, have a duty only to report and interpret.  Go forth and wrangle away...