Friday, December 21, 2012

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.

Friday, December 14, 2012

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.

Thursday, December 13, 2012

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.

Friday, December 7, 2012

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...

Thursday, December 6, 2012

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.  

Wednesday, December 5, 2012

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.

Tuesday, December 4, 2012

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.