More Guns, More Crime

I, like most folks, was totally horrorstruck by the news last Friday of the school shooting in Connecticut.  Being the father of a first and fifth grader it was especially horrifying.  There were a lot of tears and grief stricken faces at the school pick-up that day among the parents.  The kids, fortunately, were blissfully unaware. 

There has been a lot of gun violence lately that has made the news, but we often forget just how much gun violence goes on day to day in the US.  I don't know the precise policy response but I am convinced by one thing: the evidence is pretty convincing that more guns leads to more gun violence.  The one really stupid response to these tragedies would be to call for even more guns: let's arm everyone because that will make us safer! 

And so of course the NRA today does exactly that and has come out with a statement that essentially says the answer to the problem of gun violence is ... wait for it ... more guns!  I know I am venturing into dangerous ground here criticizing the NRA but this is truly stupid.  Do we really want kids to grow up knowing armed guards are necessary to protect their safety?  And the same folks who are calling for armed police in schools are likely the same ones who will complain loudest when taxes have to be raised to pay for it.  

And, by the way, any argument that the Newtown tragedy would have happened independent of guns is absurd, so let's just not even go there. But this is an economics blog and the point of this post is to point to the evidence.

Here is an excerpt from an old blog post:

One thing we can't do is look at correlations: the fact that gun ownership and crime are positively correlated tells us nothing about the causal link.  So what economist Mark Duggan did, in his groundbreaking paper "More Guns, More Crime" was to find something that is correlated with gun ownership, but uncorrelated with unexplained variation in crime.  In his case he looks at subscriptions to gun magazines.  This is plausibly correlated with gun ownership and unrelated to unexplained variation in homicide rates.  Using these data to instrument for gun ownership he finds that gun ownership is significantly positively related to the homicide rate - almost exclusively related to homicides committed with a gun.  Ayres and Donohue have also examined the evidence on concealed weapons laws and found that the evidence is mixed, but the bulk of the evidence suggests that, if anything, concealed carry laws increase the incidence of crimes. 

In my mind there are two arguments, both a flawed: one is that regardless of guns crazy people will find a way to  kill.  This ignores the fact that crazy homicidal people are an order of magnitude more lethal with guns.  The other is that if there are more guns around people will know it and be deterred.  But the crazy homicidal person is ready to die anyway and is crazy, meaning rational calculations do not figure in.  

Though policy should not be based in anecdote, the Newtown tragedy was all about guns.  No guns, no tragedy.

Economist's Notebook: Subsidizing Pro Sports

There is almost nothing that gets people more inflamed than the sweetheart deals pro sports owners (typically multi-millionaires and billionaires) get to construct new stadiums and renovate old ones.  I totally get the populist angst, why should the public support these dudes?  But I am confused by the belligerence and outrage caused by the insinuation that sports owners are somehow evil wizards that have been able to enchant us and defraud us.

To me there are two glaringly obvious problems with this hysteria.  The first is kind of obvious: these are public performance places no different than the theaters and auditoriums that cities typically subsidize, why?, because people enjoy them and ticket sales alone are not enough to finance their existence.  Even though I have yet not gone to a performance at Portland Center Stage, I am glad the Armory theater exists and plan on seeing a performance there in the future so I am willing to help subsidize it.

But operas, theater companies, orchestras and ballets are typically non-profits so that makes it all OK, plus they are 'art' and worth subsidizing go the typical arguments.  I think this is a bit arrogant and it brings me to the second, larger, point: the fact that so much public money has gone into spots venues is not a demonstration of evil wizardry as much as it is a reveled preference.  People like live sports as entertainment, they value sports teams in their communities and they are willing to help support their existence.  What is interesting to this economic naturalist is that it appears that even if you only watch them on TV people value the existence of team in their communities - they want to support 'our' team.

Arguing otherwise is silly, in my opinion.  The market has spoken.  We readily accept this when we are talking about the Pontiac Aztek (or Pontiac for that matter) but refuse to accept it because among the beneficiaries are very rich people.  So we have to construct narratives that speak to some dark magic that somehow has made us all irrational.  You may not like the fact that these things matter to people and you may wish, as I do, that there would be the same amount of emotional appeal for education, for example, but it is what it is.

I am not in any way endorsing this, by the way, just making the obvious point that the fact that so much public money has gone into these project seems pretty good evidence that they are valuable to their communities.

Guest Post: Make Nike Happy, but Fix the Department of Revenue

It is a great pleasure to welcome back Fred Thompson of Willamette University with this guest post on the Nike deal.  I have been simply too busy to do this blog and many recent Oregon policy topics (like this one) justice so Fred's contribution is both timely and very welcome.

Governor Kitzhaber has called the state legislature into special session to give him the authority to make special guarantees to big employers to stabilize their tax structures for specified periods.

This proposal is addressed to an arcane aspect of corporate income-tax policy called apportionment. Apportionment determines how much of a multi-state business’s income is subject to in-state taxation. Most states apportion corporate tax liabilities on three factors: in-state revenue, employment, and assets. For example, if a business earned 5 percent of its revenue, employed 25 percent of its payroll and located 45 percent of its investment in plant and equipment in Oregon, 21 percent of its total income would be subject to Oregon taxes. Recently Oregon changed its corporate tax structure to apportion it on a single factor: revenue. In the example I just cited, only 5 percent of the business’s income would be subject to in-state taxes. The reason Oregon abandoned three-factor apportionment is that it taxes and, thereby, discourages two things that we want to promote: employment and productive investment.

How is single-factor apportionment working for us? Evidently, fairly well. Since Oregon moved to single-factor apportionment, it has outperformed nearly every other state. In fact, only North Dakota’s inflation-adjusted gross state product (GSP) increased faster than Oregon’s during this period. Moreover, Oregon has gone from a middling state in manufacturing to number one, measured in terms of the rate of growth in manufacturing plant and equipment and as a share of value-added GSP. I cannot say that the shift to single-factor apportionment caused these changes, but it certainly didn’t hurt.

Single-factor apportionment has one important drawback. It is associated with greatly reduced corporate income-tax collections – typically on the order of fifteen to forty percent; the higher the tax rate, the bigger the drop. The reason is simple. Single-factor apportionment makes it easy for businesses to bamboozle state tax collectors. One doesn’t have to be very sharp to count employees or buildings. Accurately measuring revenue, especially where businesses hire legions of accountants and lawyers to minimize their tax liabilities, is tough. As a result, although in theory moving from three-factor to single-factor apportionment ought to be revenue neutral, in practice it is not. Consequently, public employee unions, education activists and other groups are pushing to restore three-factor apportionment. This agitation has made Nike and other big employers nervous. Governor Kitzhaber wants to reassure them that they won’t be punished for locating in Oregon.

On balance I think the Governor’s proposal has a lot of merit. But it has two big flaws. The first is that it is discretionary. That means that the Governor would have the authority to make the best possible deal for the people of Oregon. It also means that he would have the authority to make the best possible deal for himself or his party. There is a reason why we prefer our tax rules to be universal and transparent; this proposal violates those reasons. This flaw is easily fixed.

Second, the shift to single-factor apportionment should have been accompanied by an upgrade of tax administration. Most observers believe that Oregon could increase tax payments $450 million a year through better enforcement of the tax code, a fourth of which is due to avoidable underreporting of business income. The state doesn’t have to make reporting requirements more onerous or interactions with taxpayers nastier to collect these taxes. It has the data it needs. What it lacks is the information technology and the sophistication to use that data effectively. For fifteen years upgrading the Department of Revenue’s systems and procedures has been placed on the back burner. It is ironic that the same day the governor asked for authority to reassure employers about its tax policy, it was announced that modernization of the Department of Revenue’s information systems had been deleted once more from the Governor’s budget.

Give the Governor and Nike what they want, but the real priority ought to be upgrading the state’s tax administration. The policy and administration issues are directly linked. Unfortunately, this governor seems more interested in policy than administration. It took him over a year to appoint a successor to Elizabeth Harchenko after she retired as director of the Department of Revenue.

Picture of the Day: Slow Going

From Catherine Rampell of The New York Times.

Soccernomics: Growing Grass in Winter

Grow lights at Arsenal

On the day the US unemployment numbers are released, I choose to blog frivolously because I just cannot be moved to again write - recovery, happening but painfully slow.  Then of course I move on to remind folks that the situation in Europe remains painfully dire and so on.  [Actually as an aside, the ongoing crisis in Europe gets lots of press in Brazil, unlike the US where it is of passing interest to the MSM - it shouldn't be]

So let's move on to far less serious things.  I see with some delight that the Timbers have already widened their field to 74 yards.  They are now 74 by 110.  Much better than before but they could use another 5 years in length as well.  When the whole MLS Timbers things was getting underway I worried about the prospect of watching ugly soccer played on a too-small plastic field.  And while I am a season ticket holder and loyal supporter it is very hard for me to recall beautifully-worked goals at Jeld-Wen, most goals come of set plays or sloppy rebounds or, every so often a bit of magic like Nagbe's goal of the season two seasons ago.  In fact most of what I worried about came to pas: despite the ignorant rantings of the Timbers front office the play on the field was sloppy and unattractive.

So now the Timbers are starting to get it (a couple of years too late, but better late than never) and have widened their field.  I am happy with this because, given the rabid fan base (and kudos for having an 96% renewal rate in season tickets), they could very easily not do anything at all to make the on field product better.  So if nothing else good happens, it seems incoming coach Caleb Porter has already affected a positive change.

But if a bigger field is better, it is still plastic.  It is a damn good plastic field to be sure, but no matter how good plastic is, it is not close to grass.  In one of the open houses I attended during the final phase of the construction of Jeld-Wen a statement was made that grass was out of the question as the MAC club blocks the sun for a good part of the year and as such the grass would never grow properly in the north end.  Fortunately, there is now a solution for that and one which is now in use across Europe and even in US soccer and football stadiums: Stadium Grow Lighting.  The Green Bay Packers use it, as do the NY Red Bulls.

Now, there are nights when any grass field is going to have trouble keeping up with the rain in Portland, even with hybrid grass and sophisticated active drainage systems, but nevertheless eventually grass has to happen and the only real excuse left is cost.  But with 15,000+ season ticket holders becoming more and more sophisticated soccer fans, both the financial resources are there and the future demand for a better version of soccer to watch.  Plus you get the added benefit of staging international matches and friendlies with bigger clubs that will not come and play on turf (witness the Sounders hosting of clubs like Chelsea and spending $1 million on a temporary pitch that makes the soccer even worse).

Paulson has said that they will continue to look at grass within the constraints of the usage of the stadium and evolving grass technology.  I think the technology is getting better and I hope that within the next 5 or so years we might see the Timbers make the switch.  

You can begin the debate about the environmental impact of artificial turf versus grass for which you have to apply lots of energy in the form of artificial light...

Paying for Parking in Two Ways

Bruce Ely/The Oregonian

One of the most important lessons economists try and teach new economics students is that costs are both monetary and non-monetary and that in economics costs include opportunity costs: the value of the next best thing you give up by choosing a certain economic activity.

I was reminded of this when I read Beth Slovic's article in The Oregonian about the proposal to bring parking meters to the NW shopping district of NE 21st and 23rd.  I was surprised at the local merchants apparent conviction that this would lead to fewer customers.

I am not convinced. I, for one, used to live at NW 23rd and Glisan prior to the gentrification of the neighborhood, when it was one of the only thriving neighborhood shopping districts and a real treat of a place to live (not that it isn't now just that back then - circa 1990 - it was a no-brainer to live there as a young 20-something with access to Escape fro NY Pizza, the Mission Theatre, Cinema 21, the Blue Moon, Coffee People and so on).

I almost never go there anymore, in fact I have a hard time remembering the last time I spent time in the neighborhood.  The reason is parking.  It is a nightmare and I really don't feel like driving around for 20 minutes looking for a spot.  So I would happily pay a few bucks for easier access to parking and would be more likely to shop there if I knew that parking would be easier to find. 

So for me the opportunity cost of searching for a free parking spot outweighs the cost of metered parking.  I suspect that, especially given the up-scale shopping featured in the neighborhood, the typical out of neighborhood shopper is similar to me in this respect.  I would be curious, therefore, to know where the merchants get their data.  I have no idea if my generalization is correct but I am suspicious of claims of a big negative impact.  

Oregon's Quirky Property Tax System

The Oregonian over the weekend had a nice article on how property tax compression is affecting local option levies for school districts: returning far less money than anticipated by the voters that passed them.  It is a big problem for school districts and an even bigger problem politically because the system has become so complicated that most voters don't understand it.

Which is why it is nice to have a good ol' school newspaper to help highlight and explain such things.  Here is Findley Merritt in the O:

The answer is both complicated and quite simple.

The simple part is this: In 1990, voters passed Measure 5, setting various limits on property taxes. One of those limits was on school funding. No matter how many taxing districts were out there, an individual property owner would pay no more than $5 per $1,000 of real market value in education taxes (excluding bond levies). For example, if you owned a home appraised and assessed at $200,000, you would never pay more than $1,000 a year for school taxes.

In 1997, the real market value was separated from the assessed value. Properties were taxed on 90 percent of the real market value, creating a new, lower assessed value. And that assessed value could increase no more than 3 percent per year.

But what if multiple tax districts popped up and each of them taxed your property? Let's say the local school district charged $3.50 per $1,000 of the assessed value, then later added a local option levy that tacked on another $1 per $1,000. But there's also a regional education service district charging 50 cents per $1,000, and a local college district charging another 50 cents. Add those up and you're being charged $5.50 for every $1,000 in assessed value. The bill on your house is now $1,100.

Well, that's when the Measure 5 limit kicks in, bringing your total bill back down to $5 per $1,000 of real market value.

So which of those taxing districts loses out? There's an order for that, too, and the first one on the list is the local option tax. In our example, that $1 per $1,000 local option levy is effectively reduced to 50 cents per $1,000 for your house. In tax talk, it's called "compression."

With the housing market collapse, market values declined, causing the Measure 5 limit to reduce taxes more than in the past. With values significantly lower, the local option levy is bringing in far less, causing the shortages.

To compound things, as the state has reduced school funding, districts have increased their basic tax rates, and many of them are near or above the $5 limit, further reducing local option levy rates and pinching other districts.

I have pushed the limits of fair use here because I think this is a very fine piece of writing and reporting on a very complicated topic. Kudos to Ms. Merritt.

It also provides me a chance to get up on my soapbox again an extoll the virtues of the good old ink and paper newspaper. In order for this to get on the front page and into peoples consciousness it takes editors who are thinking about what are the important issues that readers need to know and understand. It takes real reporters out there who go and dig out the information. And hopefully it takes credulous readers who are willing to read beyond just the things that are most interesting and relevant. In other words it takes a lot more than what blogs and other non mainstream media offer.

Anyway, it is certainly time to rethink the way we constrain property taxes though I am a little nervous about piecemeal solutions as we just wriggle ourselves further into the straightjackets we have made for ourselves. I have no real hope that it will happen but I can dream of wholesale reform of our revenue system that provides stability that is lost when we limit property taxes (which I think we should at some level).

Finally, one more note about the dear old O: it is getting dizzying trying to keep up with the staff of reporters - it seems like every week there are new ones arriving and 'old' (those that have more than 1 year) off to the greener pastures of PR.

For a while (like 6 months) it was Molly Hottle who was doing a lot of business reporting then suddenly she is gone to Providence as a PR flack and in comes another Molly, Molly Young, who is doing business stuff. Hard to remember whom I am talking to when they call for a quote... I hope someday soon things will stabilize for the MSM and old-school newspapers can once again become a career destination and not a 1 year paid internship for newly minted journalism students on the pay to a PR job. Because we need newspapers.

Investing in a College Education

I'm back in Oregon and clawing my way up to the top of the massive pile of things to do, but I thought I'd finally check in with the virtual world and try and breathe some life back into the blog.  Fortunately there has been some interesting reporting by The Oregonian to comment on.

I'll start today by commenting on the interesting piece by Molly Young on the escalating debt burdens of recent college grads.  Now this makes interesting reading and it certainly is a story worth writing, but it is essentially the same story as the escalating college costs that has been reported on for the last couple of decades.  Recently college costs have soared as states, faced with recessionary belt-tightening, have ratcheted back state support of colleges and universities and they, in turn, have ratcheted up tuition and fees.

What concerns me is that by focusing on the individual debt burdens of college students you are telling a cautionary tale that might dissuade people from investing in college.  This is a huge mistake. Investing in college is about the best investment you can make and pays off for the rest of your life. Yes, it has become more expensive, but it is still a great investment. From my post a while back on the same subject I repost this graph:

A good way to think about the investment is to put it in terms of other investments you might consider.  For example consider $10,000 you might consider borrowing to invest in weatherproofing you home.  If the monthly payment for this loan is $100 a month but you save $150 a month in energy costs, it would be a smart investment.  You would have an extra $50 a month.  College education is the same calculus.

Joe Cortright had the key quote from Molly Young's article which I am glad the print edition highlighted: "The only thing worse than going into debt for your college education is not going to college for your economic opportunity." Which is to say that letting the concerns about debt dissuade you is a mistake.

I can speak from experience, I still write a decent sized check every month to pay off my accumulated student loans that began when I was a freshman at Lewis & Clark. Yes, it is a drag to be sure and, yes, I think about what I could be doing with that money, but I never regret making the investment.  Both in money terms and in life satisfaction I am well in the black even when you figure in the debt and the interest.

Now a final word of caution, a college degree is only what you make of it.  It is not a guarantee of a fixed income for life. It is a key that opens doors and opportunities - but your return will depend on how seriously you take your studies while in college and how well you perform after college.  I worry that the mindset of today's student is a little too focused on the diploma and not the knowledge itself.

Happy Ação de Graças

Black Friday at Extra, the local version of Walmart

Happy Thanksgiving from Brazil.  Here, of course, its just another day - I had my português class in the morning and its off the the office this afternoon/evening.  There is no reason Brazilians should know about Thanksgiving and, other than the other American in my class, no one has noted it (in my class are or have been students from Italy, Switzerland, England, Venezuela, Colombia, Peru and France).

Though it is expected it makes all the more surprising the fact that Brazilian retailers have totally gone for 'Black Friday.'  This seems totally weird and incomprehensible to me, they even use the English 'Black Friday' rather than the Portuguese 'sexta-feira preta' or something like that.  It has become such a big deal both the nightly news and the newspapers cover it, and at least they bother explaining from whence it comes:

Criado nos EUA, o dia da pechincha é tradicionalmente realizado após o feriado de Ação de Graças (comemorado hoje) e costuma lotar as lojas de consumidores.

As for me, my family is planning a second Thanksgiving for when I return.  Tonight I'll probably have pasta again and be thankful to live in such an interesting and diverse world and to have the chance to explore it.

Notes from the South

As you might have guessed by the complete absence of posts I am crazy busy these days in Brazil.  So many bureaucratic tasks, language classes and regular work to do leaves me with little time and even less energy to blog.  Besides I have little time to keep up with events either here or back home.  Instead what I have been able to do mostly is to experience with a mix of awe and befuddledness the byzantine bureaucratic maze I have to navigate.  I am very close to the finish line, I am happy to report.

In the past few months, in order to pull of a short sabbatical stay in Brazil I have had to procure documents a varied as a criminal background check, proof of health insurance, my birth certificate (many times), have had to go to the consulate in San Francisco, the post office, a notary office many times, the Receita Federal (IRS) and the Federal Police, and I have even had to be fingerprinted and photographed.  But I have now done it all and have left only to open a bank account once I can provide some DNA (joke).

Hopefully now I'll have a little time to enjoy São Paulo.  And maybe some more blogging.

Sunset over São Paulo, taken from the bar atop the Edificio Italia

 

Brazil for Estrangeiros, Part 1: The CPF

Why am I in Alto de Ipiranga?

Because I am currently learning everything the hard way, I am going to share what I learned here in the blog in hopes that it might help someone else.

After a three month delay I finally have my temporary visa for Brazil in which I am identified as a pesquisador (researcher) which I find pretty amusing.  Anyway, now that I am here on the real visa (as opposed to the tourist visa) I have to do a few things, most notably register with the national police as a foreigner (estrangeiro).  Before that, however, I decided to get my CPF.

The CPF is an interesting thing, it is part social security number, part taxpayer ID.  In Brazil you need a CPF to make a lot of purchases.  For foreigners two of the main purchases you need the CPF for are SIM cards and domestic flights.  It used to be pretty hard to get the CPF but not anymore, as long as you know what to do.  In São Paulo, I can help.

First and foremost, disregard the information all over the web sites of the Brazilian Receita Federal (their IRS) saying that you can go to the Correios (post office) or any branch of the Banco do Brazil or Caxia (the two state owned banks).  Recently the system changed and you have to go to a Correios. There you need only to have your passport, no other documents are required of foreigners.  You need to tell them your mother's full name and give them a local address (hotel, for example - in my case I gave the school's address). Done.  It takes about 3 minutes.  The Correios generate a receipt with a number for the Receita Federal.

Now you have to take the receipt to the Receita Federal in Shopping Light in the center of town.  Shopping Light is so named because the power company with the name Light used to be housed there. Now it is a huge multi-story mall.  On the Second floor (third to Americans) there is the Receita office.  There was a long line when I was there so it took about 45 minutes.  But they check your passport again, check again your details entered by the Correios (amusingly, the nice lady at the Correios put may last name first as many Brazilians have Emerson as a first name).  Then they print a piece of paper that is your CPF card.  In the past they would give you the number but the card would be sent later.  Now they print it out and you are supposed to 'plasticar' (laminate) it and you are done.  Easy peasy.

Suggestion: go directly to the Shopping Light. On the metro you get out at Anhangabaú on the Vermelha (red) line and Shopping light is right there.  Right next door to the Receita is a Correios.  Stop first at the Correios and tell them you want to get a CPF and show them your passport.  They will charge you R$ 5.70 and generate the receipt. Then you go next door to the Receita immediately and get your CPF.  If you do it right it'll take you about an hour (as opposed to three days in my case).

Now for my misadventures.  I started by going to a Caxia and, after waiting for 30 minutes being told "oh no, you can't do that here anymore, you must go to the Correios."  So the next day I went to a Correios, but it turns out that this one was a limited service office and could not help me.  So the next day I went to another Correios where they could and did help me and the incredibly nice lady told me where to go to the Receita and how to get there on the Metro.  She gave me impeccable directions, but for some reason I decided when I got to the metro and took the map that Anhangabaú was Alto de Ipiranga.  Why?  I have no idea - it is not even on the right line - it is on the Verde line not Vermelha.  Anyway, as soon as I got out of the station and realized I was not in Centro - I turned around immediately and corrected my error.

Finally I got to Shopping Light but could not find a map of the mall so I just started to go up and it didn't take long to find the Receita (I saw a long line and guessed - correctly - that it must be where I needed to go).  So finally, after three days, I have a CPF and can buy a SIM card.  Phew.

Soo to sum up:

Getting a CPF in São Paulo

1. Go to Shopping Light in Centro (take the Metro to Anhangabaú on the Vermelha line) with your passport.
2. Go to the 2nd floor (3rd floor in American) and find the Correios.
3. At Correios initiate the CPF process, show your passport and pay R$ 5.70.
4. Take the receipt next door with your passport and get your CPF.
5. Done.

This all should take about an hour with normal lines.

So, even if only in Brazil for a couple of weeks it is probably worth it if you want a phone, buy flights to other places (which, if you are in São Paulo, you should go to other places - my suggestion is Rio or Bahia).

Election Night from the Southern Hemisphere

...looks a lot like the US, this is from Globo News as the early polls came in.  Then I went to bed as it was already midnight.  I was very amused when the hosts of the Globo program got into a big discussion explaining the electoral college.  They kept saying how little sense it makes. Hear hear.  It is one of those things everyone agrees is crazy and yet we will never be rid of it.

Silicon Valley South?

Potentially, says The Huffington Post who tags São Paulo as an "emerging tech epicenter."  Actually they mention specifically Campinas which is outside the city proper.  Maybe so, but I have a hard time getting my cell phone to work and experience lots of wonky internet (except at the university which has great internet).  I have been told that Telephonica has inadequate infrastructure for their residential internet service, not what you'd expect for an emerging tech epicenter.

Em São Paulo, Novamente

Back in Brazil where, by the way, bicycle sharing has arrived in, of all places São Paulo:

Now bicycle sharing is great, and I'd love to do it, but there are three things holing me back.

One, São Paulo traffic is insane and there is very little room on the too small streets (yes, São Paulo was never planned as a megalopolis).

Two, the district they are in, Jardins, is very hilly and getting anywhere on these one speed bikes is going to be a big challenge.

Three, there is no way I am venturing out on the streets (see number one) without a helmet which are, sadly, not provided.

Blogging will be erratic and Brazil-centric for a while (I am here all month as I conduct research and learn a little more Portuguese while on sabbatical).

In Praise of Prices

And a cautionary tale of trying to control them.  Before getting all pedantic let's cut to the chase and point out two things about 'price gouging' now that the topic is all the rage (see here and here) given gas and other shortages in the NY/NJ area:

1. Allowing prices to rise uncontrolled will act as a efficient allocation mechanism, doing away with shortages and assuring those whose valuation of the good is highest get it.

2.  This has absolutely nothing to do with 'fairness' or 'equity' and it is very much the case that high valuations and income are highly correlated.

What, of course, is true is that I have just described free markets in general.  

So now to the pedantic part.  Here is Matt Yglesias making point number one:

The basic imperative to allocate goods efficiently doesn’t vanish in a storm or other crisis. If anything, it becomes more important. And price controls in an emergency have the same results as they do any other time: They lead to shortages and overconsumption. Letting merchants raise prices if they think customers will be willing to pay more isn’t a concession to greed. Rather, it creates much-needed incentives for people to think harder about what they really need and appropriately rewards vendors who manage their inventories well.

The last part is a bit of a stretch, it is a windfall profit that vendors get but no more so than the seller of vitamins after a new study shows a daily dose vitamin Q will cause you to live forever not because they are brilliant inventory managers.  But the basic idea is correct: prices are an efficient way to ration a scarce resource.  The part about the vendor also missing the most important point, if gas prices are allowed to rise to market levels, imagine how much harder suppliers would try to get gas deliveries in, how much harder gas stations would work to get temporary power, and so on.

But the second point is not made in either linked article (well, article and radio story) which is that those that would end up with scarce and essential resources would disproportionately be the wealthier members of society.  This is not new, Ferraris are scarce, gold is scarce, 20,000 square foot mansions are scarce, and so on.   So even in the absence of disaster, this is how markets work - something we have known for a long time: markets are efficient but not 'fair.'

None of this solves the question of how we ration scarce resources in a time of crisis, however, and in such this is a lesson in both the power and limitations of free markets. The key, though, is that free markets do a lot better job than price controls.  Price controls mean that, in large part, the lucky get resources and the unlucky do not.

Lines are a rationing mechanism, those with the most need are more willing to wait on line for hours upon hours, but they are terribly inefficient, that time is also a valuable resource where they could be doing more productive things. But prices, for their faults, will assure efficient distributions, will ration and will promote the speedy replenishment of resources.  And the great thing about prices is that it takes no institutional control - all of the efficient rationing would take place immediately and naturally.

A crisis is not the time, I suppose one could say, to start worrying too much about the inequality prevalent in our society - it amplifies it and perhaps suggests we should be doing much more - but price controls only make a bad situation worse.

Now, there could potentially be hybrid solutions - the first two gallons of gas, say at reduced prices, but then whatever price the station wants to charge - but these take institutional control.  It could be that low income folks can get vouchers for stuff, but that would be hard to implement in a crisis. In the end, despite their problems, prices are the first best solution.

The Triumph of SF Over Detroit

The San Francisco Giants (my team) swept past the Detroit Tigers to win the World Series for the second time in three years (remarkably with an almost completely different line-up and without their superstar Melky Cabrera and with only minor contributions from their ace Tim Lincecum).  Ed Glaeser, the urban economist, sees a metaphor for the fate of the two cities in an article that makes fascinating reading.

It seems almost funny to think about a city that is now the capital of the high tech, information technology world as a blue-collar industrial place, but that is exactly what it was in the post WWII era.  The San Francisco bay was ringed by giant shipyards, oil refineries, military bases and factories.  The renaissance started in the 1970s, right about the beginning of the decline of Detroit, also a blue collar, industrial .  So why has San Francisco prospered and Detroit suffered in the intervening years?  Glaeser provides some insight:

But vast factories, such as Ford’s River Rouge, are kingdoms unto themselves. They don’t need the cities that surround them, and when economic conditions change, factories are relocated to lower-cost areas, such as the right-to-work states of the South and the developing world.

San Francisco’s manufacturing base, including its once- mighty shipyard at Hunter’s Point, also declined after World War II. But the city, unlike Detroit, was able to rebuild itself, because it had skills and entrepreneurship.

Detroit in its heyday was marvelously productive, but it was never education-intensive. In 1950, only 5 percent of the Detroit area’s adults had college degrees and that number had only increased to 9 percent by 1970. Wages were so good in the factories, why would anyone waste time in college? Nine percent of the San Francisco area’s adults had college degrees in 1950, and that number had doubled by 1970.

From 1940 to 2000, those places that started with slightly more education typically experienced far faster growth in human capital. By 2000, 44 percent of greater San Francisco had a bachelor’s degree, as opposed to 23 percent of adults in greater Detroit.

Informal skills, learned on the job and at the breakfast table, such as the talent and inclination to be an entrepreneur can be even more important for urban success. Detroit taught plenty of informal skills, especially around the assembly line, but its big companies didn’t inculcate entrepreneurship.

The middle managers of General Motors may have been superb cogs in a corporate machine, but they were not trained to start an electronic greeting company if things went wrong for GM. San Francisco had fewer dominant companies and consequently more entrepreneurs per capita. Entrepreneurs, such as Donald Fisher, who founded San Francisco’s the Gap, always play an outsize role in urban rebirth.

Skills enabled San Francisco to specialize in creating ideas, while Detroit remained a center of goods production. Measures of skill, such as the share of the population with a college degree, do a good job explaining the relative success of U.S. cities. Measures of entrepreneurship, such as having a lot of small companies, also predict employment growth.

Glaeser then goes on to talk about weather. Places with better weather have fared better in the post WWII era. One reason is that entrepreneurship has become more mobile as it becomes more service oriented and less capital intensive (or at least where the capital intensive activities are easier to do at an arms length) and so people are more apt to move to a place they enjoy living.

But I think there is another factor, one that I think about a lot as a development economist. At the heyday of Detroit's auto industry and the power of the unions, you could have a very good middle class life as an auto worker. Because there were very good careers available for high school educated individuals, the incentives to go and get a college degree were lessened and, not surprisingly, few people did. I think the double whammy of this being less true for SF workers (supposition - I don't know this to be true) and the rise of both the UC and CSU systems (and the rise to prominence of Stanford University) created an environment with very different incentives.

Anyway, I was rooting heartily for the Giants, but did feel a little bad. I was hoping Detroit could take a game or two in Detroit to make the fans happy. I also feel a little guilty: I had only to wait half my life (I hope) to see the Giants win while my father, a Bostonian, had to wait most of his to see his beloved Red Sox win.

And, as an aside, my diverse sporting allegiances are explained by my formative years having been spent (in almost equal measure) in San Francisco, Madison, Wisconsin, and Portland while being raised by a London-born mother. In my earlier SF years, I was taken to many Giants games at Candlestick, then later after being transplanted to the midwest, the Badgers and Packers became central, and later the Blazers of the later 80s and early 90s were my passion.  Finally, as a graduate student in a department almost completely made up of foreign students from Italy, Argentina, Brazil, Turkey, Chile and so on, I learned the true passion of the soccer fan and my allegiance to Arsenal was cemented.

So recent years have been very good: the rise of the Badgers from perennial dormat to regular top 25 team in both basketball and Football, the Super Bowls of the Packers, the World Series of the Giants, the success of the Blazers has been good - but we need an NBA championship - and the Arsenal (save for the most recent few years) have played attractive and successful soccer.

Is it any wonder then that Portland, Madison Wisconsin and SF have all prospered relatively in those years as well?  There is one common denominator - me.  Clearly there is a causal link between my presence and success.   After all, OSU hired me and promptly won two national championships in baseball.  I rest my case.

A Note on the Case-Shiller PDX Numbers

The August Case-Shiller numbers are out and finally the Portland area has some strong growth to report.  August is in the prime home buying season and it is good to finally see some good numbers after trolling for so long on the bottom.  Now we wait to see if this trend can be sustained.

From the O:

Month-over-month growth has slowed, and Case-Shiller may reflect the usual seasonal decline in home prices in coming months. "Fits and starts would fit with the general pattern you might expect," said Josh Lehner, an economist with the Oregon Office of Economic Analysis. "When you're at this low level of growth, you're very susceptible to shocks. If you're at stronger growth levels, you're a little more isolated from these kinds of variations."

Well said.  With this and the rosy prognosis of the Fed, perhaps better days are ahead for our state...

Picture of the Day: Oregon Poised to Return to Strong Growth?

Molly Young at The Oregonian has the story.

Destructive Storms and Economics

A question that gets asked once in a while is how destructive storms affect the economy - could they possibly be a good thing?  After all, there are a lot of businesses that stand to benefit from the related clean-up and reconstruction activities.  The answer is yes and no.  The yes part comes from the same old fiscal stimulus idea - spending money causes it to circulate, multiplier effects, yadda, yadda yadda...

But this is a minor consideration - mostly destructive storms destroy value and this makes us poorer as a society.  Loosing ones house, car, etc. to a storm does not do anything but take away or diminish the value of a valuable and productive asset.  So, sure the money you spend to have the house fixed, for example, might give a little boost to the local economy but it will make you less well off - it is money that, prior to the storm, you didn't have to part with to have your asset be at full value.  

Just a thought I have on the day Sandy makes landfall.  It is also a day in which I awoke to find a big giant tree branch fallen in my driveway.  Nice to provide work to aborists and all that, but the few hundred dollars it will probably cost me is not fun to part with.

Election 2012: Who Will Win?

Do you believe pollsters? Or do you believe economists?

I think the truth is that this election cycle is so different that inference from previous experience is not very reliable.

I figure I'll know when I wake up on November 7.

Stimulus v. Austerity, Redux: US and UK on Divergent Paths

Over at Vox Eu, Alan Taylor and Moritz Schularick compare the performance of the US and the UK in a financial recession. They find the US doing a bit better than what one would predict and the UK doing considerably worse.

The takeaway is, of course, that this is suggestive of fiscal stimulus being a better response than austerity in such times.  But, as with everything, we will never have the counterfactual and so more general conclusions are probably best to avoid.  Still, the bulk of the evidence right now seems to be in Keynes' corner.

A Note on Ballot Measures

In years past I would have been all over the ballot measures, trying to do a relatively sober economic analysis of the pros and cons of such measures.  This year I have not done so and there are a few reasons for this.

One: I think I have covered a lot of the territory before. I have weighed in many times on school funding and have discussed the bond measure on capital construction for PPS. I did a post a few years ago on what the economic literature says about the social cost of gambling when the first Wood Village proposal was put forth. I think the economic evidence in support of inheritance taxes is strong. Finally, I just have no interest into getting into the weeds on the marijuana measure (get it? 'weeds' ... I crack myself up...), but there is some interesting evidence about how marijuana use and adolescent sexual behavior are linked (weakly), how marijuana laws and drunk driving interact (more marijuana, many fewer DUI arrests), decriminalization and high school graduation rates (improve - strangely enough) and the economic impact of decriminalization and taxation (lots of $$).  Have fun.

Two: there are some very tough calls, most notably Measure 85 which would take the corporate kicker and devote it instead to school funding.  I am a huge proponent of school funding and a kicker skeptic so you'd think I'd be all for this.  But I have serious reservations.  I think we need wholesale fiscal reform to provide stability to the state budget and I think we need to incorporate the kickers into a rainy-day fund.  This does not do anything of the sort (I wish it put funds into a dedicated rainy-day schools fund that stipulated the terms of its use).  And, in fact, may not help schools at all as the state government can (and most likely will) just shift other general funds away from schools in response.  But I don't think the kicker matters much to businesses anyway - they can count on them and therefore don't plan for them.  So the only question to me is: will the passage of this measure make it more or less likely that a more wholesale reform will take place?  Not sure, but there is a reasonable argument that through the passage of this measure the government will hear that Oregonians think schools are important and are willing to trade off the kicker for more school support.  But it could also bury the idea of reform by giving a false sense that we have already made a big step in that direction.  I just don't know.

Three: I am busy, busy, busy and have already wasted too much time on the blog today!

So good luck in making your own choices, I hope some of this helps, but whatever you decide to do, please vote!

Picture of the Day: Who are the 47%?

From a provocative post at the CBPP.  Debate away.  I'll just throw in here (as is mentioned at the bottom of the post) that the EITC is responsible for a bunch on low-wage earners not paying income taxes - the EITC is the centerpiece of the "workfare" movement that rewards those that take low-income jobs rather than staying on the dole.

College is Still One of the Best Investments You'll Ever Make

A fantastic article from the Hamilton Project via Brookings that makes very clear that the investment you make in your own human capital through a college education is about as good as they get. [HT: Greg Mankiw]

While rising student debt and payments to colleges are a cause for concern, we have found that college is still one of the best investments an individual can make. Ensuring that all students have access to this investment requires both a commitment to making it financially feasible at all income levels and a productive K-12 system that prepares students for the next level of education.

If you had any doubt here are two graphs that should convince you:

Note that this not only says that benefits far outweigh costs, but that this difference is not shrinking durning the recession and in the long-term is growing despite the increasing cost of college.  As far as a long term investment an overage 16% lifetime return is pretty darn good:

Having said all of this, there is one big caveat: you don't just pay your tuition, receive your degree and get a better income - college is hard work.  What you are buying is the OPPORTUNITY to substantially increase your human capital.  It is still up to you to maximize the return on this investment through very hard work while in college.  I see so many students sleep-walking through college and I always think about what a shame they are not maximizing their investment (read: potential).

So, while these are average returns, individual returns will vary and are probably very highly correlated with the amount of effort expended in college.

Most Important Picture of the Day Ever!

From The Economist.  Pierce Brosnan the most deadly, but Daniel Craig the most bedrunken.  Sadly Craig has less time for the ladies - but maybe Skyfall will correct this.  Dalton, who we must all agree was the worst of them all, shows the magnitude of his impotence.  Interestingly, Connery, whom I associate with the era of hard drinks and cocktails was practically a teetotaler.  I refuse to slag off Roger Moore whom I grew up with as Bond, even though many would.

Okay, extra credit: put these in chronological order and correlate them with some economic stat and call it the bond index.  Trust me, it will be pure gold.  I am too busy lazy to do it.

Some Interesting Economics Reads

Reinhardt and Rogoff argue that this US recovery is very typical, not exceptional, for recovery from financial crises. Above graphic from The Big Picture blog.

I have been conspicuously silent on the economics Nobel this year for the simple reason that I am only vaguely familiar with their work.  But here is an interesting entry, a paper on how to make the NFL draft more efficient.  I should state that this is NOT a new idea, I went to grad school with a friend who, prior to his Cornell PhD studies, worked for NERA and at that time pitched to the NFL a better draft solution which entailed monetizing it and running it as an auction.  They didn't bite.

Does income inequality impede economic growth?  The evidence is mounting.

The economics of stolen bicycles.  And the economic solution?

Reagan budget director David Stockman on why Romney's claims of job creation are false.

Profile of Romney's "go to economist," Glenn Hubbard.

And here is a watch, not a read.  From The Wall Street Journal, Nobel award winning economist Michael Spence on why he thinks Obama's economic plan is better than Romney's:

Oregon September Unemployment 8.7%

Oregon's unemployment rate fell slightly, from 8.9% to 8.7% but, as I have been saying all along, this is not the number that matters as it represents the supply and demand equilibrium.  What matters are jobs and in September the state shed a whopping 7,900 of them on a seasonally adjusted basis.  This bucks the national numbers which saw strong job growth so perhaps we will see a significant future revision.  Either way, it is further evidence of a recovery that is like an engine with a bad carburetor - it goes but in a sputtering and halting way. 

Convention Centers: A Cautionary Tale of Supply and Demand

Via Jack Bog I found this very interesting article about the glut of new convention space and the lack of any new demand for said space.  Yes there was a crash of attendance with the housing bust but in general since 2000 there has not been much new demand.

The question for convention center hotel advocates is, I suppose, does Portland have a comparative advantage in the convention business?  What makes planners confident that conventions will come and fill up those hotel beds?

The School Bond

I was quite bemused by an op-ed in today's Oregonian against the school bond measure.  It is both typical and confused:

When the Big One hits Portland Public Schools, it won't be an earthquake. It will be the realization that a half-billion dollar school bond can't buy a good education in Portland Public Schools.

Why?

Because money can't buy parental involvement -- one of the most important influences on every child's education.

That half-billion dollar bond will not be used to hire more and better teachers.

Nor will it add more classroom days. In 2012-13, Portland school students have almost 170 days. The national norm is 180 days.

And the bond will not lengthen the school day.

Instead, school bond supporters have seized on seismic safety. This is an emotional ploy, just as they have resorted to the kind of empty proclamations -- "a great city deserves great schools" -- that is associated with advertising, not education.

Typical in that the authors talk about instructional issues as missing from the bond.  Yes, the bond does not address the day-to-day operations of the schools and yes class size, contact hours and rewarding and promoting effective teachers is important and not part of the bond.

Confused in that these are all recurring budgetary items that are quite distinct than the one time expenditure the bond is proposing.  This bond is not about fixing the recurring budgetary woes of PPS but about addressing infrastructure.  Mashing the two together is misguided and misleading.  And then trowing in parental involvement, which has nothing to do about either, as the lead?  Bizarre.

And to belittle seismic safety as an emotional ploy is alarming and offensive.  If you know anything about PPS buildings and are not absolutely terrified of an earthquake then you are not paying close enough attention.

Here is a typically confused line:

What will the students gain? Upgraded middle-school science labs, some roofs, and disability access, which we thoroughly support. But a half-billion dollars, spent on buildings, cannot be spent on operating costs. The operating levy passed last year will not be enough to save teacher positions next year nor the next three years after.

Ummm...first of how about gaining buildings that will not collapse upon them and crush them to death in the inevitable earthquake.  Second, once again, the levy is not about operating costs - that is a recurring budgetary item that is mainly handled at the state level, this is about infrastructure.

The authors go on to state that PPS did not learn enough from last year's no vote.  I think they did.  My biggest concern last year was the lack of attention to seismic safety which I thought should be the number one priority.  I know, as do the authors of the op-ed that fancy facilities matter little in student achievement, but this has nothing to do with seismic safety. The bond is not about 'fancifying' facilities, but making sure they are minimally structurally sound.

Yes, they should have made a better proposal last year and I am frankly glad it failed, because we finally have a bond measure that addresses the elephant in the room: the threat of a big earthquake and the devastation it will reap on PPS schools.

[Full disclosure: I have two kids who attend a PPS school in one of the most seismically vulnerable buildings.  But I believe that in ten years, when they are out of PPS, I will still feel the same way about the vulnerability of our kids to the big earthquake and support expenditures to rectify the situation.]

US October Jobs Report

Yes the headlines will all be about how there was a significant drop in the unemployment rate from 8.1% to 7.8%.  I say significant because psychologically a drop from the 8 range to the 7 range has a big impact, but otherwise it is still pretty modest 0.3% drop (and psychology matters a lot, mind).  What we should be focusing on, as I have said all along, is the jobs numbers and even at 114,000 this is a very anemic number - barely eclipsing the growth of the labor force.  A robust recovery would look like 250,000 to 300,000 jobs.

Still, I suppose it gives Obama the headline number he is looking for going into the election, though arguably Romney has the stronger talking point about job growth.

In better news, revisions the jobs numbers for July (revised upward by 40,000 to 181,000) and for August (by 46,000 to 142,000) suggest a lot stronger job growth over the summer than we thought. Not 'robust' by any stretch of the imagination, but very solid numbers suggesting a growing economy.  This gives Obama a pretty strong talking point himself and a pretty solid platform to suggest the economy is on the right track if not yet up to speed.

Both arguments are valid in my view: yes we are on the right track and recovering, but we are also recovering very slowly.  I'll show my cards (well not really, I have mentioned this many times here) and say I am in the camp that thinks a more forceful stimulus response is what we needed (remember my cries for block grants to the states?) and that austerity is exactly the wrong response to this particular crisis.  

But I am getting a bit too far into the political weeds here and simply say that as an economist I am still disappointed in these numbers and won't be happy until we have a string of 200,000-plus job growth months. But we are getting there and I blame Europe mostly for the current headwinds but I am worried about China going forward.

Comparative Advantage, Learning Curves and Streetcars

Faith Cathcart/The Oregonian

The news that the huge delays and problems with the locally built streetcars will cost Tri-Met a bunch of extra money to pay for oversight of the engineering work by United Streetcar brings me back to a post I wrote a while ago.  What I said then, and bears repeating now, is that by insisting on building our own streetcar we are ignoring comparative advantage and that could cost us.

Previously Portland bought streetcars built in the Czech Republic by Inekon Trams.  The Czech Republic has both more expertise in streetcar manufacturing and lower labor costs. Thus, there is good reason to suspect that they have a comparative advantage in streetcar manufacturing relative to the US.  Economic theory is clear that both the Czech Republic and the US are made better off by concentrating on manufacturing what we do best and buying the stuff that we don't from the other country.

The objection is that by buying local ones we are helping the local economy, putting local people to work, etc. And in this one specific case this is true.  But overall we are not doing ourselves any favors.  We are essentially wasting money buy buying a more expensive and potentially less reliable product.  That is money that could have been invested rather than wasted which would be a net gain to the economy.  We may have put a specific few lucky iron workers to work but the rest of the economy suffers.  [As a quick example think of the unemployed bus drivers who can't get work because Tri-Met has to cut back on busses thanks, in part, to the extra cost of the local streetcars]

I am pretty confident this is true at the moment and for the short term, but does it mean we made a mistake?  Not necessarily.  Once we look at a dynamic model it may turn out that investing in local streetcars was a good idea.  How? Well consider the idea of the learning curve.  Currently United Streetcar of Oregon is suffering from a decided lack of experience in building streetcars, but they are learning and eventually they could become a low cost provider.  Here is the basic model in a single graph from Krugman's International Economics text:

Suppose Inekon's cost curve is the upper one labeled L and United Streetcar is the one below labeled L*.  Currently, because they have been doing for a while and know a lot about building streetcars, they are at Q* and there unit cost is C1.  United Streetcar is just beginning and so their cost is C0, which is higher than C1.  Over time, however, they will learn, their costs will come down and they may actually be able to better Inekon in terms of cost. So by supporting a fledgling local industry now, you may create a competitive and viable industry later.  

But, and there is always a but, is there any reason to suspect the cost curve of United Streetcar to be below that of Inekon?  I suspect not from labor costs alone.  But there is also a similar model whose graph looks almost identical except instead of a learning curve it describes economies of scale.  

If you change the horizontal axis to total current output instead of cumulative output you get a story of economies of scale.  In fact with economies of scale, United Streetcar's cost curve can be the upper one and Inekon's the lower one, but if United Streetcar can grow to a sufficient size while Inekon stays relatively small, United Streetcar can gain the cost advantage purely through scale effects.    My doubt about this story is that it is hard to imagine the streetcar market growing to one where there is sufficient output to justify mechanization of a lot of manufacturing processes that is the source of a lot of economy of scale effects. 

I also doubt it because other communities are getting in on the act.  Seattle announced last year that their streetcar would also be manufactured locally - though you'll notice that it is in partnership with Inekon and the streetcars will be assembled locally but most of it will be manufactured in the Czech Republic.  Anyway the point is if all US cities doing streetcars start manufacturing locally, than there will be no great scale effects coming to United Streetcar.

So consider this a cautionary tale: what seems great for the local economy could just be doing it harm.

Tax Refugees Redux

An interesting Op-Ed in The Oregonian today that echoes the post I read yesterday decrying The Oregonian's use of the bogus boogeyman of the tax refugee. Today, Jon Roark, who has done real empirical work in the area (as opposed to drawing ridiculous conclusions from one statistic) refutes the idea of the tax refugee entirely:

The evidence shows Measure 84 won't affect whether people come and go from Oregon. If you still believe taxes matter more than anything else when choosing a place to call home, it may just be because you already live near your family without any snow. After all, if taxes were the dominant force, everyone would live in New Hampshire, where there are neither income nor sales taxes. Then again, it is cold there.

So let's put to rest this idea of the tax refugee and talk about the tax system and potential reform substantively.  And Oregonian editorial board, please contribute positively to this debate and don't help drag it into the muck where it will inevitably get stuck.

On Tax Refugees and the Oregonian

One of the most familiar boogymen of anti-tax activists is the tax refugee.  All of those rich people who are flooding out of Oregon to escape our taxes. Unfortunately for them the evidence is not on their side.    Yet, despite this the scare tactic never seems to go away.  And so it was with considerable dismay that I see that The Oregonian editorial board has decided to use the scare tactic and cite a totally meaningless statistic to back it up.

This is exceptionally poor. It is intellectually dishonest or lazy or both and does not befit a board that wishes to be taken seriously.

Don't get me wrong, I am perfectly happy to engage in a discussion about the appropriate way to deal with capital gains in the tax code and the disincentive of the high rate of taxation relative to the benefits the revenues provide.  And I am even willing to identify it as one thing that a comprehensive reform should potentially address.  But let's not get silly about it.

Here is the big table and the related passage from the editorial:

The rates imposed by individual states matter because people may move freely, and taxpayers can time their capital gains. Don't want to pay the tax? Don't sell your asset until you've established residency in a more hospitable state -- like Washington, which, like eight other states, does not tax capital gains.

Numbers provided by the Oregon Department of Revenue illustrate the phenomenon (please see graphic). In tax year 2007, for example, 297 Oregonians with capital gains income moved to Clark County, Wash. Their average capital gain that year was $166,455, or four and a half times the size of the average capital gain reported by the roughly 264,000 capital gains payers who remained in Oregon. And the year before packing up for tax-friendly Washington, the tax emigrants reported, on average, $32,468 in capital gains.

First, the only statistic that makes any sense to use here is the net movement of people with capital gains income (not to mention knowing the real reason these folks moved rather than inferring it is all about capital gains taxes).  Second, what evidence is there that this is hurting Oregon business? If I know a promising start up in Portland, the fact that I live in Vancouver will prevent me from investing?  This seems patently absurd.  Third, once again remember that this capital gains is taxed when the asset is cashed out and is turned into income - to be, presumably, spent.  Living in Washington is expensive in terms of consumption taxes and when that capital gains income is spent it is taxed in Vancouver at a rate of 8.4%.

What bothers me most is that anyone who is serious about making tax reform a reality should know better than to resort to bogus and inflammatory rhetoric - we get too much of that from politicians as it is.  I expect the O to be a place of sober thought and judgement - to rise above the rhetoric.

So by all means let's talk about tax reform in Oregon, but let's do it honestly and without all of the scare tactics that will derail the very process we hope to achieve.

Peak Car?

The economist has a nifty little discussion about the decline of the car in high income countries.  Here are two provocative graphs:

The first is a bit of an awkward stat: if folks are buying more cars the amount of work each has to do would presumably decline.  But the economist assures us that the trend remains if you look at total distance, distance per driver or total trips made. Also true is the fact that the youngsters are driving less: what once was a right of passage in the US is no longer - the percentage of teens with a driving license has declined dramatically since the early eighties (whew!).   On the other hand, older folks are driving in greater proportion (watch out!).  (Maybe road safety is a wash....)

All this makes me think of the criticism of the new streetcar line and the new MAX line - perhaps it is all justified, but the urban world in changing and the more we credibly commit to transit (read: fixed route transit) the more we may see such long term shifts in habits.  I am not ready to subscribe to this line of thinking but I am willing to consider it.

The Crisis in Comparison

Josh Lehner of the Oregon Office of Economic Analysis has a great post up on his blog that looks at US job losses in comparison to other financial crises (a opposed to previous US recessions).  It is a great post and has been picked up by The New York Times.  Go to Josh's post for the full story (and the NY Times for their take) but here are two provocative graphs.

The first is the now familiar job losses in this recession compared to post WWII recessions in the US courtesy of the NY Times:

Looks pretty grim, and it is, but you might be tempted to think we have done a pretty terrible job managing this crisis (and before you get partisan, both the Bush and Obama administrations, along with the non-partisan Fed chief, have managed this crisis), but if you compare our performance to other financial crises in the world you get a different picture.  Here is Josh's graph:

 Fascinating stuff Josh.