Tuesday, January 31, 2012

Oregon's Budget Shortfall, Part...what...26?

OPB has the story this morning of the Oregon Legislature first officially mandated annual session where the first order of business will likely be yet another round of cuts coming from revenues that have not kept up with last years projections.

Which got me to thinking, two years ago voters in Oregon approved a measure that included a temporary tax increase to 10.8 on individual income above $125,000 and 11% on income above $250,000.  Those increases were to both roll back to a new permanent 9.9% bracket on anything above $125,000 in 2012.  This means that the part of the state's revenue shortfall is coming from the tax roll-back.

Michelle Cole of The Oregonian had this story last month (which I missed at the time):

The drop in the tax rates for an estimated 35,000 high-income households is part of a controversial policy passed by the Legislature and approved by voters in the 2010 election. At the time, everyone agreed that the 10.8 and 11 percent income tax rates contained in Measure 66 would only be a temporary solution to help balance the state budget.

On Jan. 1, the tax rate drops to 9.9 percent for individuals who earn more than $125,000 or joint filers with incomes in excess of $250,000. That top rate is still higher than the 9 percent it was before Measure 66. But the change means state government is projected to receive about $118 million less during the current, two-year budget period.

So there is the answer I was looking for: the tax roll-back will cost the state about $118 million in revenue. Which, in a sense, is neither here nor there - the budget projections last year included this as it was anticipated and still lawmakers are anticipating a $50 to $80 million dollar shortfall.

But perhaps this will provide I little stimulus? Sadly I suspect that it will provide almost none, for the difference between this and, say, a payroll tax cut is the fact that the marginal propensity to consume from this income is very low. We would not expect this extra money to be spend, but rather saved or invested - neither of which is a big help at a time when capital is not being used for investment because of the lack of aggregate demand not because there is no cash around.

Monday, January 30, 2012

Picture of the Day: Growth Private and Public

Via The New York Times' Economix blog, this graph comparing private sector growth and public sector growth:

Quarterly change at seasonally adjusted annual rate.
Source: NYTimes. Data source: Bureau of Economic Analysis

You can have your own correlation and causation debate here: shrinking government  returned the private sector to growth or held overall growth down hurting the private sector.  I am in the latter camp: in a time of recession the severe austerity imposed at the state and local levels have had a big role in suppressing growth.

Update: Here is Krugman posting on the same thing.

Friday, January 27, 2012


Yet another sign today that the US may be on the road to recovery: the US grew at an annualized rate of 2.8% last quarter.  This is good news considering where we have been these last few years, but not good enough to may anyone feel good about the staying power of such a trend.  And the trend itself isn't good enough: at a 2.8% rate we'll be lucky to keep up with jab market growth - so we won't be making any real progress on unemployment.  But if this presages a more robust recovery, and if Europe doesn't slide into serious recession and drag us down with it, then it is good news.

As you can tell, all of the qualifiers are the problem.  But it is much better to be fretting over whether this positive momentum can be maintained and accelerated than wondering when the economy will hit bottom. Unlike recovery of years past, this does not look like one that will have a sharp and rapid recovery.  Just about everyone, myself included, think it is going to take a very long time.

One interesting aspect of the current growth is that businesses have become a little more bullish on the future, building up inventories, but consumers are not keeping pace.  There is a concern that unless consumers jump back into the market, the whole thing will sputter.  From The New York Times:

Growth in the fourth quarter ... was driven mostly by companies rebuilding their stockroom inventories, and not by consumers who were shopping more or foreign businesses buying more American-made products. And companies are likely to have only so much appetite for refilling their backroom shelves if consumers are still unwilling to buy those products.

Consumer spending rose at an annual pace of 2 percent, slightly better than the 1.7 percent in the previous quarter, Friday’s report showed. But based on early data, it looks as if consumer spending deteriorated toward the end of the year. This may be because of unseasonably warm December weather, which probably lowered families’ household electricity and gas bills, said Jay Feldman, an economist at Credit Suisse.

But the investment in inventories should help incomes and employment which, in turn, should help spur more consumption - so there is reason for some optimism there. And there is evidence that both orders for durable goods are up, and that credit for small business is easing, as the general level of confidence in the recovery grows. But then there is the old bugaboo of sharp cuts in government spending:

One of the biggest drags on growth in the last quarter was government spending cuts at the federal, state and local levels, according to the Commerce Department report. National defense spending fell a whopping 12.5 percent, for example, an unusually large dip that economists do not expect to see repeated in the beginning of 2012. Strapped state and local governments are likely to continue cutting back in 2012, as they have done nearly every quarter for the last several years.

So as long as state and local governments are still cutting and Europe is still dealing with a potentially debilitating crisis, we are unlikely to see really strong growth. I guess we'll have to be satisfied with what we can get in the interim.

Thursday, January 26, 2012

Oregon's Timber Economy

Over at the Oregon Office of Economic Analysis, Josh Lehner has done yet another fascinating post, this time on Oregon's wood product industry.  Go there and read the entire thing, its worth your time, but I'll whet your appetite with two graphs.

The first is a look at the historical employment in the wood products industry in Oregon:

And the second is wood products as a percentage of oregon GDP:

As you can clearly see from these graphs, Oregon just isn't a timber driven state anymore.  What is remarkable to me is how relatively steady was the timber-based employment in the state until about 1990.  It falls off a bit earlier in terms of state GDP but that includes both the fall off of timber-based income and the growth of a more diverse economy.

There is much more in Josh's post, including timber payments to rural counties and the overall timber harvest, but these two graphs would be in chapter 1 of the book on the economic history of Oregon.

Wednesday, January 25, 2012

Oregon Ranked #13th Best in Business Tax Climate

The Tax Foundation has released its latest Business Tax Climate rankings and once again, Oregon comes out looking pretty good.  The Tax Foundation considers Oregon to be the 13th best in the country, an improvement of two spots from its 2011 ranking.

According to their metrics, Oregon does particularly well in sales tax and property tax, but a little worse in in corporate, individual and unemployment insurance taxes.

Tuesday, January 24, 2012

Going Worldwide: The OEB in 64 Languages!

I have, for all of my international groupies, added the Google Translate widget to my blogs.  Now you can read me in Portuguese, Mandarin, Swahili and the ever-popular Welsh!  Welsh really is the coolest - although if you like different scripts, check out Hindi and Arabic.  Now my fame shall know no bounds!


Nawr bydd fy enwogrwydd yn gwybod dim ffiniau!

IMF Predicts Recession in Europe This Year Will Slow Global Recovery

Trouble for the world economy. The IMF has lowered its global growth prediction to account for continuing weakness in Europe. They now predict that Europe will return to recession this year and that this contraction will put the brakes on world economic growth:

The IMF chopped its 2012 forecast for global growth to 3.3 percent from 4 percent just three months ago, saying the outlook had deteriorated in most regions. It projected world growth would strengthen to 3.9 percent in 2013.

The Washington-based lender said economic activity was decelerating but not collapsing. However, it warned that global growth would come in about 2 percentage points below its already soft forecast if European leaders allowed the crisis to fester.

For the first time since the debt turmoil erupted two years ago, the IMF said the 17-nation euro zone would likely slip into a mild recession in 2012, with output contracting by about 0.5 percent.

I am now guardedly optimistic about the US recovery - I have no illusions of robust growth but I think we have started the long slow climb out of the humongous hole we have dug - but the persistent headwinds blowing across the Atlantic will slow us down further and headway will be hard to make.

Interestingly, the IMF also cautions countries that are pursuing austerity measures to do so with moderation:

[The IMF] also called on governments to avoid imposing drastic spending cuts on already sickly economies. Fiscal tightening is necessary to correct the hefty debt burden left from the boom years, the IMF said, but it, "should ideally occur at a pace that supports adequate growth in output and employment".

"Countries with enough fiscal space, including some in the euro area, should reconsider the pace of near-term adjustment," it added, in a suggestion that will be widely viewed as aimed at Germany, which is pressing ahead with austerity measures despite its healthy budget position.

Monday, January 23, 2012

Child Well-Being in Oregon

The Foundation for Child Development and the Annie E. Casey Foundation have compiled a host of measures of child well-being and use them to rank states.  They have produced a report about these metrics, but here is their map showing the relative position of states according to their metrics.  Nancy Folbre has an interesting discussion of these at The New York Times' Economix blog as well which centers on the willingness of states' residents to pay taxes for services for children.

Oregon ranks 31st in this - slightly below the average of the 50 states.  Interestingly, from this report using much of the same data we find that Oregon does well in health measures: infant mortality, birth weight and child and teen death rates.  Where we start to fall are in the areas of education, employment and poverty.

The metrics are shown below so you can decide how meaningful they are.

Friday, January 20, 2012

Your Friday Afternoon Moment of Zen

Austerity and Growth

Recently we have seen too very different approached to the recession: big government stimulus efforts versus sharp austerity measures.  Rober Shiller weighs in on the evidence for austerity:

Jaime Guajardo, Daniel Leigh, and Andrea Pescatori of the International Monetary Fund recently studied austerity plans implemented by governments in 17 countries in the last 30 years. But their approach differed from that of previous researchers. They focused on the government’s intent, and looked at what officials actually said, not just at the pattern of public debt. They read budget speeches, reviewed stability programs, and even watched news interviews with government figures. They identified as austerity plans only those cases in which governments imposed tax hikes or spending cuts because they viewed it as a prudent policy with potential long-term benefits, not because they were responding to the short-term economic outlook and sought to reduce the risk of overheating.

Their analysis found a clear tendency for austerity programs to reduce consumption expenditure and weaken the economy. That conclusion, if valid, stands as a stern warning to policymakers today.

But critics, such as Valerie Ramey of the University of California at San Diego, think that Guajardo, Leigh, and Pescatori have not completely proven their case. It is possible, Ramey argues, that their results could reflect a different sort of reverse causality if governments are more likely to respond to high public-debt levels with austerity programs when they have reason to believe that economic conditions could make the debt burden especially worrisome.

That may seem unlikely – one would think that a bad economic outlook would incline governments to postpone, rather than accelerate, austerity measures. And, in response to her comments, the authors did try to account for the severity of the government’s debt problem as perceived by the markets at the time that the plans were implemented, finding very similar results. But Ramey could be right. One would then find that government spending cuts or tax hikes tend to be followed by bad economic times, even if the causality runs the other way.
Another potential problem for such analysis is controlling for market perceptions of the governance and reliability of countries - if they can be trusted to meet their debt obligations.  In other words is it more important for Greece to show that it has its fiscal house in order than it is for the UK?  In my opinion, yes it is.  I worry about skimping on investments in education, for example, catching up with countries 10 to 20 years down the road.  The causal link will never be completely evident, but could be very important.

Thursday, January 19, 2012

Picture of the Day: De-leveraging

From the Economist:

As the Economist notes, a significant part of US household de-leveraging is due to mortgage default:

These transatlantic differences stem from the trajectory of private debt. Government borrowing soared everywhere after 2008 as government deficits ballooned. But in America the swelling of the public balance-sheet has mirrored a shrinking of private ones. Every category of private debt—financial, corporate and household—has fallen as a share of GDP since 2008. The financial sector’s debt is now at its 2000 level. Corporate indebtedness, never very high, has shrunk. So, more importantly, has household debt. America’s ratio of household debt to income is down by 15 percentage points from its peak in 2008, after rising by over 30 percentage points in the eight preceding years. McKinsey reckons America’s households are between a third and halfway through their debt-reduction process. They think the household-debt hangover could end by mid-2013.

Ah good, mid 2013. Remember all that crazy-talk of a lost decade? Welcome.

Wednesday, January 18, 2012

Oregon Unemployment Drops to 8.9% in December

Oregon added 2400 jobs and the unemployment rate dropped to 8.9% in December.  Good news, but clouds loom on the horizon...

Off to class, more thoughts later.

Wanna be a Part of the 1%? Study Economics

Catherine Rampell of the New York Times has a nice little post on what the 1% majored in.  A little surprising to me is how big a percentage are economics majors.  But this is undergraduate degrees and lots of econ majors go into business, finance, law, etc.  Still the market has spoken about the utility and value of economics training (let the snark fest begin)!  Here is Rampell's table.:

Undergraduate DegreeTotal% Who Are 1 PercentersShare of All 1 Percenters
Health and Medical Preparatory Programs142,34511.8%0.9%
Biochemical Sciences193,7697.2%0.7%
International Relations146,7816.7%0.5%
Political Science and Government1,427,2246.2%4.7%
Art History and Criticism137,3575.9%0.4%
Molecular Biology64,9515.6%0.2%
Area, Ethnic and Civilization Studies184,9065.2%0.5%
Business Economics108,1464.6%0.3%
Miscellaneous Psychology61,2574.3%0.1%
Philosophy and Religious Studies448,0954.3%1.0%
Chemical Engineering347,9594.1%0.8%
Pharmacy, Pharmaceutical Sciences and Administration334,0163.9%0.7%
English Language and Literature1,938,9883.8%3.8%
Miscellaneous Biology52,8953.7%0.1%

Tuesday, January 17, 2012

Krueger on Income Inequality and Mobility

Alan Krueger, the current Chairman of the President's Council of Economic Advisors gave a speech at the Center for American Progress recently entitled "The Rise and Consequences of Inequality in the United States."  Krueger, the Princeton economics professor knows a lot about what he speaks having himself done a lot of seminal work in labor economics.  Here is the text of the speechHere are the charts that go along with the speech.

There are a number of interesting charts - familiar to those who keep tabs on this stuff, but of interest to those who don't - here are two that I thought were particularly instructive.

The first examines the correlation between income inequality and intergenerational earnings mobility and finds that the US is high in terms of inequality and low in terms of mobility (a high elasticity means that incomes are closely related across generations).

The second is the relative inequality (high) and how the US tax code addresses the inequality (less progressive) than a number of other comparison countries.  Germany, for example, has higher pre-tax inequality (blue) than the US, but much lower post-tax inequality (red) than the US.  

Germany's economy, by the way, has been the real superstar of this current economic downturn.

Thursday, January 12, 2012

Just When I Try to be an Optimist...

...more bad news.

The number of Americans applying for first-time jobless benefits rose last week, the Labor Department reported on Thursday, reversing a recent decline and suggesting the labor market remained brittle.

Separately, the Commerce Department said retail sales rose at the weakest pace in seven months in December, as consumers pulled back toward the end of the holiday shopping season, cutting purchases at department stores and spending less on electronics.

Both of which suggest that we are still bumping along the bottom of the deep hole we have dug - a little up then a little down.

Closer to home this is disturbing:

The UO Index of Economic Indicators, which tracks state and national data, declined more than 2.75 percent in November, the fourth consecutive month it’s fallen that much.

Oregon temp hiring fell that month, as did trucking activity in the state – as well as national manufacturing orders, consumer confidence and the interest-rate spread.

But in two positive signs, Oregon residential building permits increased in November and initial unemployment claims fell. Yet the declining claims haven’t translated into hiring gains. So while the national economy has added jobs recently, Oregon payrolls have moved sideways since February.


Wednesday, January 11, 2012

The Supreme Court's Brilliant Stimulus Program

Photo Credit: John Adkisson for The New York Times

The Supreme Court, in its Citizens United ruling, seems to have created the most important economic stimulus package of them all: unlimited political ad spending! From the New York Times:

[South Carolina] will be awash in campaign commercials, direct-mail fliers and automated phone calls in the days leading up to the Jan. 21 primary, all part of a full effort by the campaigns and their “super PACs” to break through in what could be the kind of climactic contest that the New Hampshire primary was not.

Five candidates — Newt Gingrich, Ron Paul, Rick Perry, Mitt Romney and Rick Santorum — are now running ads on local television. Four super PACs have also been on the air in recent days, and other outside issue groups are lining up behind them.

One major factor that will differentiate this contest from the New Hampshire primary is the sheer amount of money expected to go into television advertising. In just the last few days, campaigns and super PACs have committed more than $5 million. And that amount will only grow.

And the good news is that it also gets the super rich to spend all that money they have been hoarding, so its not just a stimulus package but one that addresses income inequality as well. From the Wall Street Journal:

Today, we see the effects of the Citizens United decision in action: Billionaire casino owner Sheldon Adelson has given $5 million to a Super PAC that supports Newt Gingrich in the Republican presidential primary race, the New York Times reported.

The group, called “Winning Our Future” — similar to the title of a book that Gingrich authored, Winning The Future — has reserved more than $3.4 million in advertising time in South Carolina, a state where Gingrich must remain competitive in the primary.

Say what you will about all of the money sloshing around politics, it sure is good for the economy right now!

Wage Premium for College Degrees Still Increasing

From the Federal Reserve Bank of Cleveland (via the New York Times' Economix Blog) here is the increase in the wage premium for college degrees vs. high school diplomas over time:

Here is Economix's Catherine Rampell's break down of this net effect into bachelors, masters and doctorate degrees:

The story is the same, the payoff to a college degree of all sorts is still growing.

Tuesday, January 10, 2012

Business and Bureaucracy

Paul Krugman in his blog makes a point about presidential candidates who claim business experience as a major qualification for president:

...running a business is nothing at all like making macro policy. The key point about macroeconomics is the pervasiveness of feedback loops due to the fact that workers are also consumers. No business sells a large fraction of its output to its own workers; even very small countries sell around two-thirds of their output to themselves, because that much is non-tradable services.

This makes a huge difference. A businessman can slash his workforce in half, produce about the same as before, and be considered a big success; an economy that does the same plunges into depression, and ends up not being able to sell its goods. Nothing in business experience prepares one for the paradox of thrift, or even the inflationary impact of increases in the money supply (which is real when the economy isn’t in a liquidity trap.)

And I haven’t even mentioned the fact that presidents need to work with Congress, and face far more limits on their authority than CEOs.

I have made a similar but different claim about local candidates like Eileen Brady for Portland mayor, that being a business person may give you lots of private market experience but does not tell you a lot about market failures (public goods, externalities, asymmetric information) that is the raison d'etre for most government agencies.  This is not to say that Brady would not make an excellent mayor or that she doesn't have other experience that speaks more directly to the market failures I mention (in fact, she does).

My point is only that experience running a business is usually given a prima facie evidence of qualification for the job and I fail to see the obvious connection other than the keen eye on cost control.  To me business experience should be mentioned after more direct qualifications for the job that can answer the important questions: Can you work well to build coalitions and consensus in an environment where your authority is limited? Are you good at understanding complicated public policy issues and finding the most efficient solution? Are you an effective public speaker and communicator who can clearly express a vision and rationale for your actions?

Less important to me is the answer to the question: are you a good sales person and profit maximizer?

And this is not to pick on Brady: the other two major candidates have had a chance to answer the more important questions and have not been very convincing in my humble opinion.

I have no agenda here by the way, I honestly have absolutely no idea for whom I will vote.

Monday, January 9, 2012

He's Back

<a href='http://foxsports.com?vid=cd28e29c-0f75-42a1-a360-30aa409899ce&mkt=en-us&from=sp^foxsports_en-us_videocentral&src=FLPl:embed::uuids' target='_new' title='Thierry Henry makes his mark' >Video: Thierry Henry makes his mark</a>

Picture of the Day: State and Local Government Jobs

From the Wall Street Journal:  State and local governments are still cutting jobs but the pace of these cuts has slowed.  This will likely continue to be a drag on the national economic recovery for 2012 as state and local governments are dealing with continued revenue shortfalls, but with private sector job growth getting stronger and consumer spending increasing, there is some hope that 2012 will be the last year of big cuts for a while.

Friday, January 6, 2012

Yes, the Employment Report is Very Good

The report out today from the Bureau of Labor Statistics is excellent.  200,000 net new jobs is not just a good number but a great number.  As a rule of thumb, you need at least 100,000 new jobs a month to keep up with population growth, so double that is great given the economy we are in.  Why do I say great?  Remember that state and local governments are still in crisis mode: severely cutting services, to the tune of 280,000 job losses in 2011.  Thus 200,000 with government on the sidelines is very healthy private sector job growth.

The unemployment rate is less important fundamentally, but important psychologically, and it fell to 8.5%.  In this day and age that qualifies as good news (anyone even remember the days of 4% unemployment?). [That was 2000, by the way, when we last had a annual average unemployment rate of 4% but 2006 and 2007 had 4.6% annual rates]

It is good to keep in mind that this is an ocean liner we need to turn around and start building up speed.  First come private sector employment and consumption, fueled in part by folks starting to make the purchases they have been putting off on things like cars that wear out and where we have seen a strong sales bump recently.  Then with tax revenues increasing governments can stop the bloodletting and even start to restore services.  Investment starts to pick up as the economy gains steam and so forth.  In other words we are still in the early days of a process that will take a few years, but this is how it begins.

The big storm cloud continues to be Europe and the Euro zone.  Let's hope they can prevent crisis there.

Wednesday, January 4, 2012

Bike-o-nomics: Gender and Bike Commuting


I'll jump on this info-graphic which has become a wee bit viral [HT: Atlantic Cities]. This from the League of American Bicyclists which, by the way, most blogs have been calling the Bike League without checking the source itself - come on people!  And if you dig a bit further you'll find that it was created by one Kory Northrop who is a grad student at the University of Oregon and was the winning entry in the Data Visualization Student Challenge.  Anyway, it focuses on the overall preponderance of males who commute by bike (but the project itself is about trends in general).  Portland does pretty well on the gender balance front. But what I think would be especially informative and interesting is the percentage of total commuters who bike by gender.  In other words do these bike commuting patters mimic overall commuting patterns (by all forms of transport) or are they on some way exceptional. If they are, then the fascinating question is, why?

Anyway, go poke around at Kory's work, its pretty fun.

Monday, January 2, 2012