Wow

The individual mandate part of the healthcare law was allowed to stand.  Wow.  I had become convinced by all the pundits that it was a goner.  But I am glad it stands.  The healthcare reform may well be tweaked, abolished or expanded by congress in the coming years but that should be the purview of the congress and not the courts. I don't think going back to status quo ante Obamacare is a good solution.  Whatever direction we move in it should be forward not backward. 

I am no lawyer so I have no great insight about the legal side, but as a practical economics matter I didn't see how the mandate was much different than a tax.  The government taxes and provides lots of stuff whether we want it or not - this seemed quite similar to me.  Apparently the Supreme Court thought along the same lines.  As an economist, however, I did recognize the importance of having a mandate in place as a part of the overall healthcare reform effort.

But as an aside, I am pretty glad that it appears we can have justices both conservative and liberal that are independent thinkers and are not subject to political pressure.

Graduation Rates

I just have one question about the otherwise excellent bit of reporting Betsy Hammond did for The Oregonian on PPS graduation rates.

If the point of the story is that PPS's self-reported graduation rate is artificially high because they ship out the high drop-out risk kids to alternative schools not included in their graduation rate calculus, why do you compare your calculated rate that includes those kids with other school districts self-reported rates?  Did you correct these rates for the other districts too or make sure the same problem does not exist there?  If not then this is not a good comparison.

The text of the article suggests that the similar problem does not exist to the same extent in other districts but unless this is the same carefully done analysis, I don't think this graphic is legit. Which is not to say that this diminishes the reporting's impact and findings which are important and damning.  Just that I found this graph a bit odd.

Mac Users and Price Discrimination

NB: A careful reader points out that it is only the selection of rooms and not the price of the rooms that is different.  Which is too bad: they aren't as clever as I thought...

A fascinating little tidbit from the Wall Street Journal (as reported by Briar Dudley of The Seattle Times):

If you're looking for a deal on hotel rooms, perhaps you should use a Windows PC instead of a Mac.

According to a new Wall Street Journal report, travel giant Orbitz has begun offering some Mac users more expensive hotel rooms.

That's based on past spending patterns of Mac users. After tracking and analyzing this, Orbitz decided to experiment with offering Mac users "different, and sometimes costlier, travel options," the Journal reported.

From the article:

Orbitz Worldwide Inc. has found that people who use Apple Inc.'s Mac computers spend as much as 30% more a night on hotels, so the online travel agency is starting to show them different, and sometimes costlier, travel options than Windows visitors see.

The Orbitz effort, which is in its early stages, demonstrates how tracking people's online activities can use even seemingly innocuous information—in this case, the fact that customers are visiting Orbitz.com from a Mac—to start predicting their tastes and spending habits.

Orbitz executives confirmed that the company is experimenting with showing different hotel offers to Mac and PC... (and here the paywall kicks in, but pone presumes the next word is 'users')

Students of economics will recognize this a good old fashioned price discrimination: charging different users different prices based on willingness to pay. In this case a Mac is a bit of a luxury item - Mac users pay a premium for a Mac over a PC - and thus is a sign that on average Mac users might have a higher willingness to pay for some items.

Orbitz has found that Mac ownership (or usership, really) is correlated with higher spending on hotels and so it uses this info to change them a higher price. In economics we call this information (that you are using a Mac) the 'identification' problem: being able to tell who has a higher willingness to pay. The other problem, the 'arbitrage' problem, would come about when a bunch of PC users booked hotel rooms and sold them for a discount to Man users - not likely in this case.

The thing about price discrimination is that sure it is a profit maximizing strategy for firms but it is important to note that two things happen when firms price discriminate: One, customers with higher willingnesses-to-pay end up paying more than they would under a one price regime, but customers with lower willingnesses-to-pay end up paying less than they would under a one price regime. Two, more hotel rooms get rented because by lowering the price on low willingnesses-to-pay people more and more will do so. So how you feel about price discrimination depends on whether you are a high willingnesses-to-pay person or a low willingnesses-to-pay person.

Of course, if this kind of thing takes off there is a type of arbitrage solution: use your friends PC to book, or use some kind of browser that mimics a PC. [I am no techie, but this must be a pretty easy work around, no?] But you can imagine the possibilities.  If you log into a place with your Facebook account and they can see where you live, they know the average income of your area, to give one example and can charge you a price accordingly.  This is great if you live in a low income area, not so great if you live in a wealthy neighborhood.

Picture of the Day: 2000 Years of Economic History

Via The Economist:

A Soccernomics Two-Fer

One

Don't look now but it is the battle of the Euro Zone: Germany plays Greece in the quarterfinal of the Euro 2012 soccer tournament. It would be ephemeral but imagine how a Greek upset of the heavily favored Germans would feel to the embattled Greek people.  Rightly or not, they feel that Germany is forcing an unjust austerity package on them.  A German win would only make them feel more lousy.

Two

The Daily Mirror predicts that if England make the Euro 2012 final beer consumption will increase by 70 million pints!  Wow. Of course if they lose ignominiously on Sunday it is likely that beer consumption will also rise precipitously in England.  Either way its good news for publicans! But as a matter of science, it appears the numbers in the Mirror were pulled out of thin air are are of little value to anyone but bloggers...

UPDATE: Germany pretty thoroughly dismantled Greece even though it ended 4-2.

Understanding the "Creative Class"

I have been chastised for my perceived drive-by on Richard Florida and his snake-oil policy prescriptions for cities.  See, I can't help myself....

Actually, I had only intended to highlight a passage about how what we are really talking about is human capital which, for the most part, means we are talking about education (but in general it is whatever makes us more productive: education, experience, intelligence, yes even creativity, etc).  And that the emphasis on attracting creative types to cities through catering to their preferences is a bit off.  There is no doubt that human capital is immensely important to cities and being able to attract those with high human capital is a great thing, but I tend to prefer we concentrate on how we create human capital ourselves. But of course in the quick firing off of a short blog post all context is lost and meanings become mangled (especially when I tarted up my tweet with the term "Debunking" - which again was meant to refer to the fact that we are talking fundamentally about human capital, not all of Florida's work).

So it is not so much about the substance of the argument - human capital matters and correlates of human capital, creative types, gays, patents, are therefore important as well - but the way that the story is told and the policy prescriptions that follow that we can quibble about.

An argument made forcefully to me is that it is not enough to be right and have evidence on your side, you have to know how to speak to policy makers in a way that can actually move them in the right direction.  Florida has done this - sneakily emphasizing human capital but using language and imagery that can be seized upon by policy maker and that can actually have an impact on policy.

This is fair enough, and a good point: there is no point being precise about everything when no one listens.  And those of us ensconced in the ivory tower tend to think we are doing important work that speaks for itself when the truth is it doesn't.  We have to find a way to make it digestible to, and repeatable by, policy makers.

So what do I think overall of Florida's work, well here is the best thing I have seen written about it by my go to guy on all things urban, Ed Glaeser of Harvard:

But if Florida’s novelty is not emphasizing creativity, or the rise of bohemian lifestyles, he deserves considerably more credit for putting them together. Lifestyles really do differ across occupations, and changing workplace patterns assuredly do matter for changing lifestyle preferences. This insight is correct, and I think Florida really deserves credit for emphasizing it in the popular domain.

He is also right in arguing that if cities want to succeed they need to think about providing lifestyle, or consumption, advantages to their residents. As I have argued elsewhere, declining transportation costs mean that few places have any innate advantages in production anymore. Proximity to the coal mines or the harbor may have mattered in 1900, but do not matter today. Instead, the productive advantage that one area has over another is driven mostly by the people. Urban success comes from being an attractive “consumer city” for high skill people (see e.g. Glaeser, Kolko and Saiz, 2001).

But while I agree with much of Florida’s substantive claims about the real, I end up with doubts about his prescriptions for urban planning. Florida makes the reasonable argument that as cities hinge on creative people, they need to attract creative people. So far, so good. Then he argues that this means attracting bohemian types who like funky, socially free areas with cool downtowns and lots of density. Wait a minute. Where does that come from? I know a lot of creative people. I’ve studied a lot of creative people. Most of them like what most well-off people like—big suburban lots with easy commutes by automobile and safe streets and good schools and low taxes. After all, there is plenty of evidence linking low taxes, sprawl and safety with growth. Plano, Texas was the mostsuccessful skilled city in the country in the 1990s (measured by population growth)—it’s not exactly a Bohemian paradise.

The source of Florida’s policy prescriptions seems to be his attempt to argue that there is a difference between his “creative capital” view and the mainstream urban view that human capital generates growth. As mentioned above, I have always argued that skilled cities grow because “the presence of skills in the metropolitan area may increase new idea production and the growth rate of city-specific productivity levels,” but if Florida wants to argue that there is an effective of bohemian, creative types, over and above the effect of human capital, then presumably that should show up in the data.

He then goes on to do some basic regressions with Florida's data to show that when you put a college educated variable in them it is terribly significant and all the rest of the "creative class" variables - patents, gays, 'super creatives', bohemians - become insignificant.  They do so because, presumably of the high degree of correlation between them and the college educated variable.  It is just a crude way of showing, once again, that it is really all about education.

So you can talk about creatives all you want, but be aware that in so doing what you are really focusing on is education.  Creating places where educated people are created, attracted and retained is crucially important.  I think, as does Glaeser, that the attracting part is a bit of a fools errand - what exactly do they want?  Probably good jobs, first and foremost.  No, what policy makers have more control over is the creating part, through a high quality public education system.  And what concerns me is making sure that the creative class amenities mantra does not dominate the education mantra.

The Creative Class

Just a note today to point out a nice little article on the "Creative Class" idea and how it is mostly a whole lot of hot air. Here is a nice little excerpt that I happen to agree with:

Today, Cre­ative Class doc­trine has become so deeply engrained in the cul­ture that few ques­tion it. Why, with­out any solid evi­dence, did a whole gen­er­a­tion of pol­icy mak­ers swal­low the cre­ative Kool-Aid so enthu­si­as­ti­cally? One rea­son is that when Florida’s first book came out, few experts both­ered debunk­ing it, because it didn’t seem worth debunk­ing. “In the aca­d­e­mic and urban plan­ning world,” says Peck, “peo­ple are slightly embar­rassed about the Florida stuff.” Most econ­o­mists and pub­lic pol­icy schol­ars just didn’t take it seriously.

This is partly because much of what Florida was describ­ing was already accounted for by a the­ory that had been well-known in eco­nomic cir­cles for decades, which says that the amount of college-educated peo­ple you have in an area is what dri­ves eco­nomic growth, not the num­ber of artists or immi­grants or gays, most of whom also hap­pen to be col­lege edu­cated. This is known as Human Cap­i­tal the­ory, men­tioned briefly above, and in Hoy­man and Faricy’s analy­sis, it cor­re­lated much more highly with eco­nomic growth than the num­ber of cre­ative class work­ers. “Human cap­i­tal beat the pants off cre­ative cap­i­tal,” Hoy­man said. “So it looks like growth is a human cap­i­tal phenomenon—if you’ve got a lot of edu­cated peo­ple. We’re in a knowl­edge econ­omy, where human cap­i­tal is worth a lot more than just show­ing up for work every day.” In other words, if there was any­thing to the the­ory of the Cre­ative Class, it was the pack­age it came in. Florida just told us we were cre­ative and valu­able, and we wanted to believe it. He sold us to ourselves.

Amen.

Keeping Up With the Jones: Fox Soccer MVP

Cobi Jones that is...

The Fox Soccer MVP (Mobile Viewing Party) was a hoot.  The football was a little hard to see, came and went, and was on a television screen that seemed continually on the verge of toppling over but that was hardly the point.  We got treated to a nice breakfast at Kells, drove around town in a double decker bus and hung out with Cobi Jones.  Cool.  It turns out Cobi is a pretty nice guy.

I am not sure I'd want to be on the bus when there was a match I was passionate about, but it was a fun way to spend a free day.  And a special thanks to the hosts who were exceptionally friendly and gracious (including Mr. Jones).

Breakfast of champions: eggs, bacon and ... Guiness.
But then he had run the five miles downtown so he earned it.

This bus was pretty cool.

The wee television.

Jeff has some observations about the beer that was available on the bus over on the Beervana blog. Oh and by the way this was a contest where you had to tweet why you should be on the bus, my tweet: "Because stepping on a bus is all my left foot is good for." An expression I learned from an old Mexican teammate of mine.

En-ger-land

Soccernomics: Fox Soccer MVP

Somehow I suspect the Portland bus will no be quite so...big.

Somehow I have found myself on the end of an invitation to join the good folks at Fox Soccer Channel to join the Mobile Viewing Party Monday for the Ireland v. Italy Euro 2012 game (or maybe Croatia v. Spain there are conflicting bits of info - hopefully both).  A little research on the internets reveals this little write-up in the New York Times.  Apparently you load up in a bus where the game is shown on TVs and, um, watch. Should be interesting.

Hopefully it'll be a fun time and I'll be Tweeting the proceedings for no apparent reason at all.

The Brits Call It "Taking the Piss"

Via Jack Bog I am led to this little piece of brilliance from the Willy Week:

The city of Portland's Bureau of Planning and Sustainability has released an "Economic Opportunities Analysis" that, with the help of the number-crunchers at Metro, comes to some pretty interesting conclusions about the future of the local economy.

In another 23 years, for instance, Metro and the city figure Portland will boast another 147,000 new jobs. Wow! That's a lot of economic opportunities. Lucky future people.

What's more surprising is where those jobs are projected to be…

They then go on to say its just a put on...really.

"Used Goods Arbitrage" - I am definitely going to use that in my class.  Too funny.

By the way, Jack hates me because I had the temerity to criticize him (not done apparently) but I do so love his blog.  He is a crank, but a lovable one.

Opportunity Cost

I have a blog and I have a stack of finals to grade.  Finals win. Sigh...

Comparative Advantage and Streetcars, Redux

Photo credit: Faith Cathcart, The Oregonian

The news, reported today by The Oregonian, that United Streetcar, the Clackamas based subsidiary of Oregon Iron Works, is months behind schedule on their streetcar manufacturing seems like a good opportunity to revisit an old blog post I wrote a couople of years ago when the contract was awarded.

First yesterday's news:

Officials for Clackamas-based United Streetcar acknowledged this week that work on their first five streetcars is months behind schedule. Representatives for the city's streetcar division remain hopeful that at least one of the vehicles will be ready for the line's Sept. 22 opening.

The setback is just the latest as United Streetcar, a subsidiary of Oregon Iron Works, attempts to break into a sector that's traditionally been monopolized by European companies. Design problems already prompted city leaders to delay the line's opening by five months and reduce the number of cars from six to five, while barely trimming the $19.5 million budget.

"We're not on the schedule we'd like to be," said Carter MacNichol, a consultant with Shiels Obletz Johnsen, which is managing the project for Portland. But, he added, "it's an extremely challenging effort. I just can't emphasize that enough. There's a reason there haven't been car builders in the United States for decades. It's difficult, difficult work."

Now here is what I wrote more than two years ago:

Why do we care so much about having our streetcars totally made in the US? What if we are not terribly good at it? Perhaps the Czechs are real experts and can produce a more reliable propulsion system for less money. Wouldn't it be better to focus on what we are good at - like designing iPhones, making good beer (Pilsner - pah!), making Hollywood blockbusters - and then trading them to the Czechs for streetcar propulsion systems?

Almost 200 years of economic theory suggests that we should and that if we do we will be better off.

In fact it appears that we are not very good at it - yet - and we will pay a pretty high price for insisting on USA built streetcars.

But this is not the end of the story.  As I mentioned at the time, for industries where there is a lot of learning-by-doing (and the O's article suggests that there is a lot of learning-by-doing going on at United Streetcar) there is a reasonable argument to be made for supporting them in their infancy.  But the rationale imagines a future where they have learned, become competitive, and don't need support or preferential treatment.  For this to be true in this case would mean a future where there is a large demand for streetcars. I was a little skeptical, but United Streetcar has racked up a bunch of orders - apparently streetcars are becoming something of a trend.

I am still skeptical it will last.  How many streetcar manufacturers can the world support, and why shouldn't we expect that the Czech Republic has a comparative advantage?

Only time will tell - maybe in ten years we can look back and pass judgement, but I am not ready to do so now.

Sad News: Elinor Ostrom has Died

From NPR: Economics Nobel prize winner Elinor Ostrom has passed away in Indiana.  The NPR report contains this quote from the Nobel committee:

Elinor Ostrom has challenged the conventional wisdom that common property is poorly managed and should be either regulated by central authorities or privatized. Based on numerous studies of user-managed fish stocks, pastures, woods, lakes, and groundwater basins, Ostrom concludes that the outcomes are, more often than not, better than predicted by standard theories. She observes that resource users frequently develop sophisticated mechanisms for decision-making and rule enforcement to handle conflicts of interest, and she characterizes the rules that promote successful outcomes.

Soccernomics: EURO 2012

Ah a convergence of happy events: today is the las day of classes at Oregon State and it is the fist day of the European Football Championship, better known as Euro 2012.  Me, my couch and my TV have a lot of catching up to do, this'll be a perfect opportunity to become reacquainted.

Most neutrals consider this a better tournament than the World Cup as the quality of the teams are more consistent and consistently high.  I miss the spunky minnows that make it to the World Cup and fight like heck to stay, but usually by the knock out stage the cream rises to the top so I still prefer the World Cup.  Besides the absence of Argentina and Brazil makes the whole thing a little less fun.  

For whatever reason, however, the quality of the football and the excitement of the games is generally much higher in the Euros than in the WC.  The tournament that already started today, had a thrilling opening game where Greece drew with co-host Poland.  Currently the Russians are beating the Czechs 2-1 but the Czechs are on the front foot and pressing.  Fun.  

The English will be dreary, play defensively, underperform and go home in disgrace - as usual.  Still, they are my team so support them I shall.  But I am really looking forward to seeing Spain, Holland, Germany and France duke it out.  All four can play exhilarating football and even the traditionally stoic Germans now play with style and flair.  

Should be a fun month.

Urban Renewal is About Choices

I was bemused by this tweet from Sam Adams today:

This coming on the heels of the new urban renewal district (to which I was opposed) which will divert funds to schools.  

I was similarly bemused by this little piece of propaganda from the Dean of the B-School at PSU. In which he claims that investing in a renovated building is a 'good investment.'  

The expansion and renovation of the SBA is a $50 million project, and the urban renewal portion will contribute only a fraction of that total. Leveraging that $2 million from urban renewal will enable us to nearly triple our footprint, add 11 classrooms and 25 team study rooms, enhance space for student services and add space for our centers in real estate, sustainability, retail, and innovation and entrepreneurship. The innovation and entrepreneurship center -- a collaboration with PSU's Maseeh College of Engineering and Computer Science -- will spin off new technology and businesses across the region.

The return on investment is obvious. Attracting more top students and providing them with a better experience will produce better leaders. That means more alumni like Greg Ness, CEO of The Standard; Rick Miller, CEO of Avamere; Becky Gratsinger, CEO of R.V. Kuhns; and Bill Stoller, CEO of Express Employment Professionals. These business leaders make decisions weekly that create jobs and drive our economy.

Which is, of course, entirely beside the point.  The fact that it is a good investment is neither here nor there because the cost of the project is not $2 million but the forgone opportunities that $2 million represents.  There a thousands of good investments in the Portland area that public money could be used to fund, the challenge is figuring out which ones we should invest in - we don't lack for good investments.

Like, for example, art education in schools.  Which one is a better investment, art education or a renovated B-School building?  I don't know but before I rushed headlong into a new URD I would have figured it out.  Economists understand that costs include opportunity costs, the cost of opportunities forgone by undertaking a specific action.  That is the discussion policy makers should be having to evaluate the worthiness of a new URD.  That fact that Adams would push a new URD and then, a couple of weeks later lament the lack of art instruction in Portland schools suggests a disturbing disconnect.   The new URD is expected to divert about $60 million from PPS over its 30 year life.

I am a supporter of both urban renewal districts and funding public higher education.  But URD are a powerful and seductive tool for city governments who only have to think about the tax hit to themselves and not to the county or special taxing districts (like fire districts) and are at risk of being overused.  It is all about the trade offs...

Picture of the Day: Oregon Growth

From Josh at the OEA - go and read the rest.

Here is another version from the BEA:

Your Daily Moment of Zen

From PRIs "The World" - the sad news that Eduard Khil, aka Mr. Trololo, has passed away.

Picture of the Day: Euro Bond Spreads

A new look at an old graph:

HT: Planet Money

Ugh: US Employment Sputters

There is no sugarcoating it, this is absolutely horrible: the US added only 69,000 jobs (not enough to keep up with the normal growth in the labor force) and the unemployment rate climbed back up to 8.2%.

What is going on?  Well, Europe is as big one, uncertainty about the Euro Zone economies is creating a huge drag on the US.  The forced austerity that is happening at the state level is another, and is combined with the final wind-down of federal stimulus spending.  And gas prices are a third.

But no matter the reason, this stinks.