Bad Days

It has been a pretty rough last 5 or so days and it is not quite over.  Normal blogging will resume soon I hope.

Kroger to Reed College: Fascinating

Photo Credit: Jamie Francis/The Oregonian

I find the news that Reed College has hired John Kroger completely fascinating.  To say he is an unconventional choice is a massive understatement.  Outgoing Reed President Colin Diver was the one who really broke the mold, with only a B.A. and LL.B he was not a conventional scholar - the traditional choice of a college President.  His hiring was especially interesting for an institution that has more of its graduates end up with Ph.D. than almost any other place in the US.  Still, hiring another President without a Ph.D. and with few academic credentials is still very surprising.  Perhaps it speaks to the success of Diver, whom the alumni and faculty seem to love.  I would have had the opposite reaction to see Kroger end up at a public institution where political savvy is a desireable trait.

While the job of college president has become one almost entirely about 'external relations' (read: fundraising) especially for the big universities, I had the impression that small college presidents still had a reasonable sized hand in the day to day governance of the institution.  I am guessing that this is now a false impression: I think it must all be about external relations.  Witness the disastrous reign of Thomas Hochstetter at Lewis & Clark who was about as comfortable with public speaking and (one assumes) fundraising as the Pope is at an Act Up rally.  He didn't last long.

Reed, famous for its insularity, perhaps wants to become more open and engaged in Oregon.  Or perhaps the same qualities that made him a successful candidate for Attorney General were evident in the interview process - he knows how to talk a good game and get folks to open their wallets.  I, personally, hope it is at least some of the former.  I think Reed has lost some of its luster partly because of its stubborn unwillingness to evolve.  Perhaps that is still a strength, but I think less and less so in the 21st century.

Anyway, here is wishing Kroger good luck.    

On Kicker Reform

The proposed ballot measure to essentially repeal the corporate kicker has been getting lots of attention.  In essence, any time the states revenues exceed the forecast by 2% or more both personal income and corporate revenues in excess of this 2% threshold (of the forecast - including the 2% buffer) are returned to taxpayers.  The ballot measure would take the corporate tax excess and return it to the general fund for K-12 education funding (though the wording on this is unclear - would it be tied to K-12 and even if so, you could just reduce the other money going to K-12 so that as far as I can tell this just increases the general fund).

I have been a strong proponent of kicker reform but my purpose in so doing is to try promote a plan that provides fiscal stability through the creation of a permanent rainy-day fund.  This ballot measure does no such thing but only increases general fund revenues during flush times.  I not only do not see the point I think passage of this measure would harm future efforts to do wholesale kicker reform and a permanent and substantial rainy day fund.

But then perhaps I am naive, after all I would have thought that we would have had kicker reform and a permanent rainy day fund by now.  The topic of conversation at all the kids soccer games, baseball games, band recitals, etc. is how deeply upset this latest round of cuts has made folks, why politicians cannot find the political will to try and do something about it is beyond me.  We can't fix the immediate problem but we can do a lot to ensure it doesn't happen again.  We are talking about something that doesn't raise tax rates (but does cancel a tax refund) and provides stability in state services that reduces a huge amount of waste.  If you can't sell the thing now, when?

Update: correction above - thanks Josh...

Happy St. George's Day

The Saint George's Cross, Flag of England

For the Anglophiles: today is St. George's Day celebrating the patron saint of England.

We don’t know much about St George. He was soldier of noble birth, from Cappadocia, in modern Turkey. He lived in the 3rd century AD and was probably a tribune in the Roman army. He became a Christian; protested against Roman persecution of Christians; and was imprisoned, tortured and finally martyred by beheading. Much of the rest is shrouded in legend. But many of course associate him with the slaying of a dragon in Libya and saving a beautiful princess. Symbolically, the dragon may represent the Devil (or possibly the Roman Emperor).

Saint George is also the patron saint of Ethopia. So now you know.

Soccernomics: Using the Size to Your Advantage

Just a quick coda to last Friday's post.  It amused me to see the Timbers come out in a formation completely designed to use the size of the field to their advantage - just like I described Stoke City doing - by staying compact and packing in the midfield.  The provided central defensive cover with Palmer playing just in front of the two halfbacks and they stayed compact by keeping the wide midfielders in closer.    It worked and it was a bit of brilliance by a coach who knew the team needed to win against a superior opponent.   Go Potters!  It was cynical, I suppose, but the team needed a win in the worst way.

The crowing about it in the O is odd, in my opinion, as the sum total of all of the offense the Timbers created was just about zero.  An incredibly lucky own goal may have been the only shot on Sporting's goal all game - certainly the only one that the keeper even had to wake for.  So, I do hope it does not become a trend because it was pretty dismal.  But you have got to do what you can with the tools you have and at the moment, the Timbers do not have many tools that possess the creative flair in the midfield or who can reliably provide service from the wings.

Soccernomics: Timbers Practice Facility and Field Size

Photo Credit: Bruce Ely / The Oregonian

Because it is Friday and Timbers game-day is tomorrow I shall cease to worry about the economy and its many woes and instead turn to much sunnier pursuits (especially tomorrow if the weather report is to be believed) - soccer!

So the Timbers unveiled their training facility to the media yesterday and it looks great.  I hope it will be a big help in recruiting and retaining players.  I was also delighted to read last week that they hired a conditioning coach as fitness seems to be a real problem for the Timbers - lack of energy late in games has been a killer.

Anyway the facility looks great and it seems to be a nice public/private partnership - as someone who plays soccer and who has two soccer playing boys, any new turf field in the Portland area is something to celebrate.  But I thought this passage from Geoff Arnold's story on the facility was incredible:

One of the highlights of the facility are the two full size soccer fields - a grass field designated for exclusive use by the Timbers and a second artificial turf field that will be used by the public. The dimensions of each practice field is the same - 70x110 yards - as Jeld-Wen Field.

The whole idea of a grass field is to be able to better prepare for playing the entire MLS away from home (with the exception of Seattle, Vancouver and New England who play on turf) just about all of whom have much bigger fields.  Why don't you have a practice grass field that is of similar dimensions to the actual pitches you'll be playing on?  Odd.  Though any pitch between 70 and 80 yards wide and 110 and 120 yards long is within FIFA regulations, the modern standard is 75 x 115.  Almost all new stadiums built for soccer are using this standard.  Of course the Timbers have opted to make their pitch as small as is allowed by FIFA.  Doesn't sound like a lot but the difference is 12% more space to play in, which is a lot.

What is also interesting is that you hear a lot about how the Timbers want to utilize their speed to their advantage.  But this completely contrary to the size of their pitch.  With such a small area in which to work there just aren't the spaces to run on to.  Now, you can be like the Arsenal of the late 1990s and 2000s, who played on a tiny pitch at Highbury but played a quick passing game which the present day Timbers are trying to emulate.  But this is speed in a very different sense (quick passing and movement in confined spaces and quickness of thought) and requires a supremely high degree of technical ability.  Most importantly it requires exceptionally talented and creative midfielders like Pires, Fabregas and Ljungberg and a withdrawn striker of the Dennis Bergkamp type.  Just watch tomorrow how slowly the Timber switch the ball through the back or through the midfield and you'll see what I am talking about.

In fact most teams that play on a small pitch play a compact defensive style that relies on counter-attacks.  Stoke City famously shrunk their pitch to be able to compete better in the Premiership with a team of limited skill and flair so it is interesting that the Timbers are trying to emphasize skill and flair and yet maintain a tiny little pitch.  Perhaps it is possible to end up playing the Arsenal way in Portland, but I doubt the ability of an MLS team to be able to pay enough to attract a critical mass of players at that level.  I think we are already seeing how a Franck Songo'o, who possesses great technical ability, could end up at the Timbers after a trial: his play and passion are seemingly very inconsistent - at least so far.  Too early to judge, but...

I have accepted that grass is just not going to work at Jeld-Wen but I fail to understand the Timbers dogged insistence on such a small field.  But this is all an exercise in nit-picking.  The Timbers are great the stadium is great and it is great to have them in MLS.  Let's hope they can put in a great performance tomorrow and get back to winning ways.

Beeronomics: Spatial Economics and Where to Locate a New Brewpub

NOTE: A rare cross-post from the Beeronomics blog - but this one is econ-heavy.

Migration is my bell-weather:
questionable quality, but great location
and lots of punters despite a lot of local competition.  

Recently I was chatting to a fellow who is planning on opening a new brewpub in Portland.  A discussion ensued about whether it is better to find a nice untapped neighborhood or locate near other brewpubs.  There are really two aspects to this question that, to my mind at least, relate immediately to economics: location theory and externalities.

Location theory is pretty straightforward at first.  Imagine a city being one big circle with people distributed evenly within that circle.  If you are the first brewpub in Portland there is a strong incentive to locate centrally to minimize the average distance from customers.  In Portland density is not uniform and there are lots of natural barriers to travel that make it more complicated but to a first approximation, this is essentially correct.  Now what if you are the second brewpub?  Should you try and distance yourself from the first to set yourself apart?  Well if you do, you have to go nearer to an edge of the city and you potentially lose customers.  So the interesting result is that, in general, the best move is to move in next door and share the customers.

The easiest way to conceptualize this is to think of a long linear boardwalk (a la the Hotelling model) where there is a hot dog vendor right in the middle.  If you are another vendor where do you set up?  Well suppose you set up half way between the existing vendor and one end.  Assuming the hot dogs are the same and you are charging the same price then customers will simply come to the closer one (and we will assume that for those customers for whom the two vendors are equi-distant will split evenly between the two carts), you get all the customers between you and the end and, between the two carts, you get the customers that are nearer to you.

Now, is this the best you can do? No. If you move a bit closer to the one in the middle, you'll get more customers between you and the end - all of which buy from you - and the cut off point between your customers and the other stand's gets closer to the stand in the middle.  Thus you sell more hot dogs by moving closer.  This is true as long as there is some distance between you and the other stand.  The end result is that you end up right next to each other.  

There are, of course, lots of strong assumptions here (uniform distributions, same product and price, low enough prices that all customers want to buy, etc., etc.) but next time you are traveling around to smaller towns and see two supermarkets located near each other, you'll have an idea why (this was true, for example, in Ithaca, NY where I lived for 5 years).

Is this applicable to the brewpub market?  Not entirely because you would not expect to divide up customers by traveling distance alone and density of brewpub customers varies a lot.  So you probably face the trade off of finding a neighborhood with no brewpubs to locate in and capturing most of the local custom versus sharing the customers in a high brewpub goer density market.

Which brings us to the other aspect I mentioned: externalities.  Most people think of smokestacks and smog when they hear the term, but externalities can be good as well.  In the case of brewpubs, I tend to think neighboring brewpubs compete for customers but they also bring more potential customers to the neighborhood.   So the presence of one more brewpub in a small area with existing brewpubs increases the total demand for all of them (though it may well diminish the individual demand as you are dividing the customers by a bigger number).

In the end then there is no right answer but, all else equal, my instinct would be to try and stay pretty central Eastside - very high density of brewpub customers, thriving existing brewpubs.  Especially starting up, you need folks to discover you. I would be very hesitant to locate too far afield as I might capture the local market but not attract any others and it might be hard to make a reputation that would get people to come from other neighborhoods. That said, there are still many pretty close-in neighborhoods that are, as yet, untapped or barely so.  I would think that there are still some sweet spots in Portland.  Good neighborhoods with no pubs.  Or, perhaps even better, one with just one pub where a second would boost the custom for both. 

Of course, if it were me and I was a great brewer that was going to start an exceptional brewpub there is one obvious choice: Sellwood.  Yes, that's it - Sellwood.  Sellwood is the clearly the best place for a great brew-pub.  You could not do better than Sellwood.  Unless your beer is going to be mediocre then Sellwood is not for you.  Stay away.

Majors and Wages: Once Again Economics Comes Out On Top

From the Wall Street Journal reporting on a study by Joseph G. Altonji, Erica Blom and Costas Meghir of Yale University.  I sorted this table by average wage, you can go and sort as you wish.  They control for selection, so this is about value added not who chooses which major and which job.  The market values the skills and knowledge provided by an economics education.  Come get yours at OSU!

Bike-o-nomics: A Note About Finding Causality in Data

One method of dealing with a potentially endogenous variable (a right hand side regressor that doesn't meet the orthogonality condition - like bike lanes in a biking regression) is to find some other source of variation that is correlated with the potentially endogenous variable (bike lanes) but uncorrelated with the unexplained variation in the dependent variable (bike riders).  That data is then used to 'instrument' the potentially endogenous variable - basically to use this new source of 'clean' variation to identify the true causal effect.

In the bike lane example we would need something that is correlated with the amount of bike lanes but uncorrelated with the unexplained variation in biking.  I can't think of anything good but you might.  FOr example, suppose some cities have bike lobbies that successfully get more bike lanes - well the presence of, and political power of, these lobbies is probably a function of the number of bike riders so it doesn't work as an instrument.

Another method is to find a natural experiment.  These are usually not as natural as we would like but the approach is probably more promising in this case - find some exogenous change in bike lanes (a sudden expansion of lane provision due to some unexpected surplus budget in the dept. of transport, for example) and see if such a sudden increase in bike lanes leads to a sudden increase in bikers.

Anyway, my point below is that it seems pretty obvious that bike lanes will lead to more biking, but it is devilishly hard to show it convincingly in the data.

You may ask, if it is so obvious, why do we need to show it statistically?  Well, it is important because there will always be questions about how much money to devote to bike infrastructure.  The answer to this question relies critically on the biking response to bike infrastructure.  If your goal is to increase biking you need to know by how much riding increases with new bike lane miles.  In econo-speak, you need to know the bike lane mile elasticity of bike ridership.

So send your good ideas along and if any seem promising, we'll see about testing them.

Nada

Oregon's March unemployment rate was essentially unchanged at 8.6% on a seasonally adjusted loss of 300 jobs.

Blah.

Bike-o-nomics: Bike Lanes, Biking and Causality

It is not hard to imagine that building more bike lanes encourages biking.  As I was being driven through Coconut Grove and Coral Gables on Friday I was struck by both the super aggressive drivers and the complete lack of space for bikers.  Needless to say I saw very few, even in and around the campus of the University of Miami.  When I mentioned this to my host, who is an old friend and economist, and speculated that the lack of infrastructure (walking too - no sidewalks anywhere!) probably explained it she said "well, it also gets super hot for a lot of the year and if you try to walk or bike you get immediately drenched in sweat."

Which goes to show that the causality probably goes both ways, no bikes because of no infrastructure and no infrastructure because no bikes.  So it was with some interest that I found out about this paper through Joseph Rose's twitter feed. I had hoped that someone had done something clever with the data to identify causality.  Especially since Joe had tweeted: "Guess What? More Bike Lanes = More Cyclists."

Sadly though, this was not the case. After a long and detailed paper looking at controlled correlations, the authors fess up:

The cross-sectional analysis in our study aims at explaining differences in cycling rates among cities but cannot be used to predict changes over time. Moreover, as in any cross- sectional regression analysis, none of our models can prove causality, although the sig- nificant associations we measured are consistent with the hypothesis that bike paths and lanes encourage more cycling. Our analysis is also limited by its reliance on aggregate, city-level data, which mask variations within cities, among neighborhoods, and individ- uals. The results suggest a statistically significant relationship between bike paths and lanes and cycling at the city level, but results do not permit conclusions about individual travel behavior.

In addition to the inherent limitations of cross-sectional regression analysis and aggregate data, there is a problem of endogeneity among some of the variables in our models. Cycling levels and the extent of the bikeway network almost certainly affect each other, so that causation is probably in both directions. In this paper, we have focused on the role of bike paths and lanes in explaining variation among cities in cycling levels. Conversely, however, high cycling levels might help explain the provision of a large supply of bike paths and lanes. Endogeneity and simultaneous equations bias are potentially serious problems in our regression analysis because the key explanatory variables—bike paths and bike lanes—are also a function of cycling levels, the dependent variable.

I give the authors all the credit for their honesty, and I think there is utility in their paper - they uncover some interesting correlations.  But I fear it will be used by transportation advocates as proof that infrastructure creates more bikers.  I believe this to be true, but this paper not really help you out at all in this argument.  Which is the problem, by the way, with being an economist. This paper would not get published in any decent peer-reviewed economics journal because no one wants to hear that you did not do anything to deal with the causality issue.

Surely there has to be some clever instrument for the provision of bike lanes?  Can anyone think of any? Some kind of natural experiment?  Something? Let's nail this causal link people!

As an aside, the only people I saw biking in South Florida (in delightful weather mind you, high 70s, breezy, low humidity) were folks who seemed to be on bike for lack of other transport alternative not those choosing bikes over other alternatives.  Interesting - wonder if there is a stigma attached to biking in South Florida of if it is just the weather and poor biking infrastructure.

In Florida

Where it is warm, sunny and pleasant breezes are coming off the Atlantic.

Nice.

Why on earth would I waste time blogging?

Yeay for the Quitters!

An interesting little tidbit out of the Labor Department (as reported by the Wall Street Journal), more people are quitting their jobs.  Can this be good news?  Yes, as people tend to hold onto jobs dearly during downturns in the economy, while in a healthy economy there is a large amount of 'churn,' people leaving one job for another.   Churn is thought to be efficient in the sense that people with specific skills will keep moving to jobs where their specific skill set can be most productive: good for them, good for firms and good for the economy.  Churn then is a sign of a healthy economy.

Urbanization

The econ-o-sphere is all a twitter about this report from Credit Suisse on urbanization trends, I found it through The Economist but there is a long link chain that precedes thins one.

Anyway, as a development economist, I know that one of the seemingly inexorable trends is urbanization.  This makes sense, as a low-income economy develops, what starts as a largely rural agrarian society characterized by small farms for self-consumption and local market exchange becomes more advanced, more mechanized and more industrial. Industry requires scale and concentration and thus more and more people start to locate together.  What is less obvious, perhaps, is all of the ancillary benefits to this congregation: the efficient provision of goods and services, the knowledge economies or clusters (which to an economist is just positive externalities) and so on.  So prosperity and density go hand in hand.

Even within the US this trend can be seen:

The good news in all of this is that density is efficient and in many ways holds the key top the future of humans on this earth.

We move about more efficiently and we use energy more efficiently when we live more closely together.  Luckily the economics of the thing are working in our favor - the incentives associated with living densely are getting stronger and stronger.

Picture of the Day: Un-Recovery

From Greg Mankiw (whom, I suspect is making a political statement being on the payroll of the Romney campaign - I am not attempting to do anything of the sort, but the picture is revealing: lost decade anyone?):

Consumption, Then and Now

From NPRs Planet Money a fascinating graph showing percentage of income spent on consumption categories in 1949 and 2011:

Source: Bureau of Labor Statistics
Credit: Lam Thuy Vo / NPR

What struck me immediately, of course, was the decline in the percentage spent on food.  This is a function of both our increasing wealth and the massive productivity gains in agriculture.  We spend more on homes and cars and health care.

The jump in spending on housing between 1949 and 2011 is also striking. It's worth noting that people are buying (and renting) much bigger homes today. In 1950, the average new house was less than 1,000 square feet; in 2000, the average new house was over 2,000 square feet.

The rise in spending on transportation was driven by the spread of cars. In 1950, there were only three vehicles for every 10 Americans. By 2000, that had risen to eight vehicles for every 10 Americans.

But I expected a bigger jump in recreation as leisure is a big part of what we consume, but I suppose we would see that in the hours worked which is not a part of this.

Supersize Me

In an era of incredibly shrinking cereal boxes, one thing is getting bigger and bigger: clothes.  This nifty graphic from The Economist shows the trend in Britain:

A few things strike me about this:

One, why is it that women's clothes sizes are disconnected from actual metrics?  We poor men have to buy pants that have 31 32 33 inch waists and 32 inch inseams while women just get to buy a "size 6" or whatever.  Why is this so?

Two, the fact that sizes are increasing in, well, size seems completely reasonable if the goal of the women's sizing system is to be relative to an 'average' woman - who has grown in the last few decades.

Finally, having clothes sized in an objective and not relative metric provides me an incentive to try and keep fit and trim.  I absolutely hate having to buy pants in a bigger size than the ones they replace.  So in this sense it is good for me as a consumer.  But clothes manufacturers are in the business of trying to make consumers happy, so fudging on sizes seems a natural consequence.  And thus I am led to wonder, are my size 32 pants, really 32??  Oh god, I hope so!

Economist's Notebook: Bertrand Price Competition and Pizza

Photo Credit: Hiroko Masuike/The New York Times

One of the great puzzles of living in Portland is how the market sustains such high pizza prices.  When I lived in Ithaca, NY I was used to New York style pie and prices - both great.  Somehow in Portland pizza commands premium prices: a large "very veggie" pizza at Pizzicato is $24!  You have got to be kidding.

It is a puzzle to me because it is such a contestable market and a pretty standard product.  Pizza kitchens are pretty darn cheap compared to regular commercial kitchens: just get an oven and you are off.  And, sure there are quality differences, but making good pizza is pretty easy, doesn't take a lot of work or training.  In economics this market seems to be characterized most closely by the Bertrand model of price competition.

This model assumes some market power (so not perfect competition which would fail to capture the product, location and brand differentiation) and that firms compete on price.  It does assume homogeneous goods, so it is not a perfect description, but pretty close. But the conclusion of the model is that through strategic interaction, competitors will undercut each other on price because consumers are pretty indifferent about the different pizza shops so they'll just go to what is cheaper.  In the end what you get is prices that equal the marginal costs or providing it - exactly what you get from perfect competition.  

So I was heartened to see this article from The New York Times which describes the knock down drag out pizza wars of Manhattan that has lead to 75 cent slices:

It’s best to start at $1.50 a slice.

That is what pizza was selling for about a year ago at a family business that is a combination vegetarian Indian restaurant, candy store and pizza parlor on Avenue of the Americas (also known as Sixth Avenue), between 37th and 38th Streets. It is called Bombay Fast Food/6 Ave. Pizza.

Then a Joey Pepperoni’s Pizza opened near the corner of 39th and Avenue of the Americas, offering pizza for $1, a price that has in recent years been favored by a number of New York pizza establishments.

So Bombay/6 Ave. Pizza shrank its price to $1 too.

All was good until last October, when a third player entered the drama.

A 2 Bros. Pizza, part of an enlarging New York chain of 11 shops that sell slices for a dollar, opened virtually next door to Bombay/6 Ave. Pizza. The only separation is a stairwell that leads up to a barbershop and hair salon.

Price stability at a buck all around persisted until eight days ago, when both 2 Bros. and Bombay/6 Ave. Pizza began selling pizza for the eye-catching price of 75 cents a slice, tax included — three slender quarters.

This is exactly what you would expect to happen in this market from the application of the Bertrand market.  The article goes on to quote a pizza shop owner who claims that there might actually be predatory pricing: pricing below marginal cost to try and force competitors out of the market.

But the $1 slice that appears like it might be about MC is a heck of a lot cheaper than Portland prices and in a city where rents are a lot cheaper than NYC.

So, armchair economists, explain to me the high Pizza prices in Portland.  I have my own pet theories, but I'd like to hear yours first.  And while you are at it, explain to me the $10 pub cheeseburger.  

UPDATE: It appears Greg Mankiw has beat me to the punch on this.

Oregon Personal Income Growth Strong

Piggybacking on Josh's OEA post on Oregon personal income growth.  I'll give you the main table and direct you to the OEA blog for the rest.