Tuesday, April 23, 2013

Game Theory and Public Policy: SoloPower, United Streetcar & Nike

Molly Young has an excellent article in The Oregonian explaining the downfall of SoloPower and the various incentives bestowed upon them by the feds, the state and the City of Portland and related agencies.  It wasn't long ago at all that the state was still doubling down on its investment in SoloPower.

This investment appears to be a complete bust.

Over the weekend The Oregonian's Brad Schmidt had a similarly excellent article about the troubles at United Streetcar, another beneficiary of public largess.

This investment appears troubled and its success seems entirely dependant on other municipalities being forced to source streetcars domestically.

These two stories along with the ultimately failed efforts to lure Nike to build on the South Waterfront point out a particularly risky aspect of public policy: proactive interventions in the local economy.

I have been weary of investments in specific industries and especially for ones in which it seems dubious that the region has a comparative advantage.  I do not like all the investment in manufacturing of solar cells as it seems highly unlikely that without government subsidy there would be any economic reason for manufacturing to stay here.  The counter-argument is, I suppose, that after initial manufacturing here, the operation could morph into more local R&D and engineering while the bulk of manufacturing got shipped overseas.

I never liked the streetcar for this same reason especially because the counterargument is not really credible in this case.  The logic of the streetcar investment rests on the creation of a self-sustaining industry in the future.  It could happen - but I suspect that the streetcar demand domestically is not going to be enough to see it mature and scale up to something viable.

What we end up doing is overpaying in both time and money for streetcars whose quality is probably not as good as the Slovakian ones currently in operation.  But local jobs!, cry the critics - what about all the great jobs.  To which the rejoinder is familiar: pay a whole lot less in public money for the streetcar and invest the extra in education, infrastructure, etc. that will lead to overall economic improvement.

Finally there is Nike, which shared a little of the same policy question: should you bet public money on this risky venture.  To which I argued yes (from the perspective of the City of Portland).  With Nike you were on as safe territory as you can get company-wise, the bet was on how other private investments in the surrounding areas would evolve. I thought it a pretty good gamble.

Which all leads back to the modern reality that policy makers are increasingly involved in game-theoretic decisions - how much public investment to make in trying to lure companies, sustain companies, and create companies.   The reality is the world now works this way and taking the high road and not offering anything will probably mean communities lose out on investment.  

But it will always be a game and a risky one at that.  And in the press we will hear disproportionately about the failures, because they are easy to notice. But policy makers don't want to get caught chasing their tail, always offering greater and greater incentives because in game theory reputation matters and if you get a reputation as an easy mark, the other players will start holding out for more.

Wednesday, April 17, 2013

Left on Red

I find this little article from Joe Rose on left turns on red very funny.  I remember when I returned to Oregon after a long absence (they still had me in the system and so the re-issued my ODL with my old number - I liked that, I still remembered it) I had to take the written driver's test to get my ODL.  Well, in fact it was the computer test, but anyway I remember reading through the manual and reading the same law that allows a vehicle in Oregon to take a left turn from a two-way street onto a one-way street on a red light (arrow or not).  I was amazed.  I always knew you could do a left on red from a one-way to a one-way but not this.  In Corvallis, I often found myself at the intersection of Western and 3rd, facing east (or west on Western at 4th - same deal).  I still do.  Here is the picture of the intersection:

Now, you can, legally turn on red here.  But I have NEVER seen anyone do it.  And I have never had the courage to do it myself - it just feels too wrong.

So why do I mention this.  Well, I think its funny, but I also think this is an example of how social norms can effect our decisions in a way that is not often talked about by economists.  Clearly, turning left on red is better for me than waiting for the light to turn (assuming I can do it safely).  But my conditioning and the fact that I am sure folks will think I am recklessly braking the law keeps me from doing it.  So in the end my optimal decision is to wait.

Which is really neither here nor there in terms of the law, but it does seem that if the norm is so strong that no one turns anyway, perhaps the law should follow the norm.

[NB: There is also the fact that, as the article suggests, I have no confidence that I would not get a ticket anyway from a police officer who thought I had made an illegal turn]

Tuesday, April 16, 2013

Oregon Unemployment Falls to 8.2% on 1,900 New Jobs

So says the Oregon Employment Department:
On a seasonally adjusted basis, preliminary estimates from the federal Bureau of Labor Statistics (BLS) indicate nonfarm payroll employment in Oregon rose by 1,900 jobs in March. The private sector added 2,700 jobs over the month, while the public sector cut 800.
Another month another confirmation of a tepid recovery.  But it is a recovery and given the severe headwind of 800 public sector jobs lost, it is nothing to sniff at.  Okay maybe you can sniff a little.

Futebol no Brasil

Watching Football in Brasil 

The New York Times over the weekend published an article by their travel writer Seth Kugel about watching football in Brazil.  Though I would not call it irresponsible, I would call it a bit reckless.  In it, Kugel urges readers to forgo the guided tours that will take you to a football match and instead dive right in with the torcidas, the supporters groups, and especially try to go for a classico, a match between main rivals.

There are two things wrong with this: one, this is may not be stupid to do, but you should know that you are taking on some risk - much more than he would have you know - especially for those that have no Portuguese.  And I am not sure his three matches are a big enough sample to really give this advice.  Two, there is a middle way: you don't need a guided tour, but if you spend a little more you can sit in good seats in an area that is calm and safe for women and children.  You will still get the full effect of the torcidas, believe me, especially for a rivalry match. This is my suggestion at least.

Why? Well the torcidas are predominately young, male, passionate and drunk.  Need I say more?  Without knowing properly what is going on, what to expect from them and so on you run the risk of getting into a situation that you would rather not be in.  If you do decide to sit with the torcidas, leave that iPhone,wallet, fancy clothes, etc. behind.  Remember that electronics in Brasil go for about twice what they do in the US so that iPhone 5 is worth R$2,400 (about $1,200). You should not take a child. DO carry some money.  The Brasilians I know all make a point of carrying R$25-R$50 in cash in case of a mugger.  No money makes them mad and you risk assault.  This is not to scare anyone, but you should know the risks and I think Kugel does no one any favors downplaying them so much.  He went to matches recently during the less intense state championships, things heat up when the national championships start.

But choose the more expensive seats and everything is generally fine, but as with all crowded places the world over, watch for pickpockets and, again, leave the iPhone behind.  Oh and things might be different in the new stadiums (and probably will be for the World Cup), but in my experience no one pays any attention to their seat assignment.  The more expensive seats are thus physically seperated so just find a free one when you arrive.

All that said, do not come to Brasil and fail to go to a game!  However you go, it will be a fun experience and police have become very good about crowd control before and after the matches.

World Cup in Brasil

The new Macaranã is starting to look close to completion

The World Cup preparations are continuing predictably here in Brasil:  Stadiums are woefully behind schedule and other promised infrastruture projects have long been laid aside.  In fact, São Paulo will not host a confederations cup game, the warm up tournament for the WC.  The biggest city in South America and the one with the most transportation challenges does not get any practice thanks to the Itaquerão stadium being so far behind schedule.  Corruption in the CBF, the Brasilian football authority, is rampant and lots of graft is happening in the name of expediency.

And there are now even quesitons about the stadiums that they are building.  A brand new stadium, built in 2007 in Rio for the Pan-American Games, the Engenhão, has been shut down indefinitely due to fears that the roof will collapse in a strong breeze.

And it is not just the World Cup stadiums that are being built, Gremio has just opened a new stadium (where the grass was not playable initially and a barrier collapsed during a match), and Palmeiras in São Paulo is in the process of building a brand new stadium out of the skeleton of their old one (and just yesterday a worker was killed when a huge concrete section of the old stadium fell).

All this makes me wonder whether in a country lacking in human capital (read: engineers, etc.) can so many stadiums really be built at one time.  Early indications say no.

Still, it will all come off fine in the end, and no one should hesitate to come to Brasil for the World Cup.  I certainly plan to - though perhaps not to São Paulo.   You just need to understand that things here operate a little differently and to allocate much more time than you think to do...just about anything.

Finally here is an amusing aside from the Fonte Nova in Salvador, Bahia where the translations did not quite come off: 'saída' means 'exit.'

Friday, April 12, 2013

Economist's Notebook: How Far Should Portland Go to Land Nike?

Rough concept drawing for the Zidell's proposed mixed-use development
Pretty far.

There is no clear answer to this question, but that is my personal off-the-cuff opinion. The Oregonian is reporting that Portland is pondering about $80 in incentives that could rise to $140 if Mult. Co. kicks in tax incentives.  Whatever is invested in Nike is a gamble, there is no guarantee that related development will occur ex-post, but it has got to be about the safest bet around.  It is also a gamble with a huge potential social return: given the investment in the South Waterfront, the light rail, streetcar and so on, having Nike provide a workforce anchor would be a huge boon to the development of the entire downtown.  It accentuates the focus on density and transit and backs one of the few Portland area companies whose future is totally secure.

Critics will point out that you may end up overspending for Nike, that they would come for less or that the value of their presence is too little.  It is entirely possible.  But even if so, it is probably a good bet to take.  Remember that Nike is Oregon's only Fortune 500 company, that its presence in Oregon, along with good old Columbia, has led to a cluster of sportswear and apparel firms in Portland, and that, all things considered, it is a pretty nice industry to have.  Such a huge business employs a huge range of people from management, to design, to engineering and sales there is a lot of demand for a wide array of local graduates.  They are a forward-thinking company that is not belching out lots of waste.  In may ways, they are an ideal company to lure to the south waterfront.

It may not be the über-cool biotech firm that was dreamed about long ago when the south waterfront district was conceived, but it is a pretty good alternative.

Now there are some caveats: Nike's fortress mentality expressed so effectively in Beaverton would have to change.  I would hope that any potential Nike presence would be an open, accessible area welcoming to outsiders.  It would have to be given the light rail and streetcar links, I should think.

So is $80 to $140 million in incentives and tax breaks the right amount? Who knows, but it does not seem extreme given the potential benefits.  

Anyway, these are my initial reactions from afar, but I'd love to hear from others - what do you think?

Tuesday, April 9, 2013

On Blogs and Public Service

There are many motivations for writing a blog.  Part of it is that it is just plain fun and a bit thrilling to expose a bit of yourself to the outside world and yet still retain some anonymity.

I started this blog for three reasons: One, just for a fun hobby and to give my joy of writing some kind of outlet that felt more productive than a notebook stashed in my desk drawer. Two, I was trying to connect with students at OSU and share some of the fun I have being an economist engaged in the real world.  Three, I wanted to provide a small public service by trying my best to explain what economics has to say about policy matters that are pertinent to Oregonians.  [And yes, I know that this service is worth just about as much as it costs to read this blog]

To accomplish this third objective I have tried my best to provide sober, unbiased (or, failing that, being completely honest about my own biases) analysis.  I try not to be too dry or technical so that reading this blog does not become a chore. I try my best not to question personal motives unless it has to do with preferences, payoffs and decision making.  Most of all I try to be decent.

And I do all of this to make sure that I don't get in the way of the very service I am trying to provide.  I don't do blog ads and no one has ever once donated to this blog using the handy widget you'll see on there on the right (which confirms that, indeed, economists have you all figured out) so I have no need to drive page views with videos of kittens falling off chairs and such.  What I have found is that this tone had a wonderful byproduct: the readers of this blog and, almost to a person, the commentators on this blog are serious thoughtful people genuinely interested in the issues raised herein.  I don't have to block any comments save for the commercial trolls.

Which is all to say that my point about Jack Bog's blog in the previous post is that so much, if not all, of the potential public service of Jack's blog is undone by the tone and tenor of his writing.  Which is a shame because there is so much of value there - potentially more than all of the other blogs like mine combined.  His blog became a privileged outlet for inside baseball-type info of Portland bureaucracy and politics and, to my mind, he essentially squandered most of the valuable capital he created.  So I can imagine a parallel reality in which I would be devastated at the suspension of his blogging, while in this reality I am in fact grateful as it was getting too vitriolic and relentlessly negative - and yet I was completely and helplessly hooked, so now I have to kick my addiction.  [It is kind of like the worst of reality TV]

Now I suppose the counter-argument is that his crankiness is what drove the page views that made his blog powerful, thus his is a persona he affected and cultivated (I hope so because I can't imagine being so pissed off at everything all of the time).  But while I think and hope his on-line persona is in large part fiction, I don't buy that he needs it - what are page views if your are not being taken seriously?  If he was reporting with real restraint I think his blog would be ten times more powerful with half the page views (but perhaps not as profitable).

Finally, I complete the circle of thought with a link to this Frank Rich piece about the decline of mainstream media news organizations.  It is a terribly sad piece and makes me wonder (yet again) what will fill the gaps in the public watchdog role they once occupied?  It is precisely for this reason that I hope a new Jack or someone like him will rise from the ashes of the old and provide more service and less snark.

An Obituary for the Bog

Jack Bog's Blog is something of a Portland institution.  Jack Bogdanski was an early adopter of the blog format and over time, by taking a skeptical view of government, his blog quickly became an unofficial conduit of inside information, shady deals and general malfeasance.  To that end it was a valuable resource and an almost daily stop of mine.

Last Friday, Jack put his blog into indefinite hiatus as he embarks on a book writing gig. But as much as I will miss my daily visit to the blog, I do not lament its suspension/end.  His entires have become increasingly abusive and vitriolic over the years and his penchant for ad-hominum attacks makes you wonder about his mental well-being.  He seems very much like the virtual version of the world's worst neighbor: taking umbrage at every perceived offense with little or no reason and reacting viloently.  His wild accusations are generally without any real analysis and his forays into economics and economic development often showed an alarming lack of basic understanding.  It is one thing to raise questions, it is quite another to make endless accusations. And yet it cannot be denied that this was part of the draw of his blog - you always wanted to see what ridiculous thing he'd say next.

The biggest shame of it all (and why I am bothering with this post) is that in the age of the dying newspaper and journalism in general, it is quite likely that blogs like Jack's will become indispensable.  An informed electorate needs transparency and bureaucracies are not naturally transparent. And yet, in my mind he squandered that role long ago by becoming a crank and indiscriminately slinging mud and insults.  In the end then his blog was mostly unhelpful and occasionally harmful.  He did nothing to raise the level of public debate and did everything in his power to debase it.

And the biggest irony of all is it turns out he is as thin-skinned as it comes.  Perhaps this is entirely unsurprising after all - there is a name for such behavior:
Narcissistic personality disorder is a mental disorder in which people have an inflated sense of their own importance and a deep need for admiration. Those with narcissistic personality disorder believe that they're superior to others and have little regard for other people's feelings. But behind this mask of ultra-confidence lies a fragile self-esteem, vulnerable to the slightest criticism.
[Update: I was chastised in the comments for engaging in the same ad homonym attacks that I complained about earlier.  This is a fair point.  I was trying to be clear that I am commenting only on his blog persona and think that the above description fits that to a T (perhaps quite intentionally - who knows?).  How much this related to Jack himself is unknown to me and I suspect that he is quite different in person, for on a blog you can be whomever you want to be - you can even use the royal 'we' (snark).  I am sorry if this was not clear and I probably went to far, but I shan't scrub the record of my error, I think it better to recognize and apologize]

So goodbye Jack Bog, you will be missed but that is probably for the better. I hope that should you decide to return you'll take the high road - and if you do I shall celebrate your return.

Now to a more important problem: where the heck am I going to steal get blog post ideas??

Wednesday, April 3, 2013

The Disability Monster: A More Sober Analysis

I have a bit of a love-hate relationship with "Planet Money," the This American Life way that NPR has chosen to cover economics issues.  Taking the mannered, long-form story-telling approach to economics issues can be wildly successful: I think the 'Giant Pool of Money' on TAL (which I think launched Planet Money as a separate entity) was one of the very best pieces on the real estate melt down.  But the quirky, annecdote-y thing can get old and go way too far - at the far end of the spectrum you get things like this which are just embarrassing in their attempt to be cute (though this is a podcast so more forgivable).

Recently, TAL and Planet Money did another long form bit on the rise of disability insurance liabilities, 'Unfit for Work.'  I thought it was well done, of course, and good radio, but that it was quite sensationalist and lacked a lot of nuance and context - despite its long form.

Luckily others are on the case.  Over at Wonkblog, Ezra Klein and associates are digging deeper and the resulting story is not nearly as dramatic as you might think.  Why are the disability rolls skyrocketing?

It appears the answer is pretty simple:

1. An aging population

2. A giant recession and growing population of impoverished families, especially kids.

Here is the best bit: a long interview with a disability policy expert: Harold Pollack.  I like the bit about the link between health care reform (better medical care for lower income folks) and disability payments. With the former you get less of the latter.

Monday, April 1, 2013

Investigative Journalism as a Public Good: The ProPublica Model

Here is a video from an interesting report on ProPublica the not-for-profit investigative journalism outfit that is funded mostly by donations.  This quote by the Editor in Chief is essentially correct, but I would use the analogy of police officers and firefighters rather than symphonies and ballets:

"We look at this as what you might call a public good – much like the symphony or the ballet," said ProPublica Editor-in-Chief Stephen Engelberg. "The free market will not produce an optimum amount of investigative reporting."

There is a big difference in how society would look without the former and much less wouthout the latter. I put a free and functional press in the former category.  I love ProPublica but I worry that this is still a poor substitute for a lively press.

Here in São Paulo there are two competing dailies still and two more big ones in Rio that all have national breadth.   Plus a bunch more in many other cities like A Tarde in Bahia.  When the weekday paper arrives at my door, usually with 5 or more sections and a lot thicker than The Oregonian I am reminded of how much we have lost in the US.

In fact, I often compare today's São Paulo with the US of 15 years ago in term of thriving newspapers, magazines and bookstores.  Those were the days...I give Brazil about 10 years.