The latest Case-Shiller numbers are out and, after a long hiatus, I thought I'd pour through the numbers. The beat place to start is at the Wall Street Journal's Real Time Economics blog where you can find a sortable chart as well as a link to some great interactive graphics.
What is immediately striking about the numbers is how much the US housing market has rebounded from the recession and housing bubble. It appears to be mostly back and in good shape, thanks in no small part to a long run of historically low long-run interest rates. Portland's housing market has tracked the national average closely but we are above average lately. In fact in the last year, the increase in values of Portland homes has been fifth best of the 20 cities in the Case-Shiller index. Denver continues as number one and what is amazing about Denver is how much it avoided the whole housing bubble almost completely.
The question for the future is as the Fed starts to reign in cheap credit to ward off inflation will wages start to improve. So far wages have been stubbornly unyielding and thus inflation has not really heated up and allowed the Fed to pursue it accommodative policies. But it won't last and the housing market will rise or fall on the ability of wages to begin to rise.
Monday, March 30, 2015
Editor's Note: I welcome another contributor to the blog this week as I try and keep the blog going during this particularly busy period. Tim Johnson is an Assistant Professor at the Atkinson Graduate School of Management, Willamette University.
Earlier this month, President Obama claimed that mandatory voting “may end up being a better strategy” than campaign finance reform for those who want to remove money from politics. Like clockwork, a partisan divide emerged on the topic, with conservatives arguing that mandatory voting violated the First Amendment and the Huffington Post running the unambiguous headline “President Obama Is Right: It’s Time for Mandatory Voting.” This predictable partisan split, like President Obama’s idea, raises ire without offering any new thoughts about how to spur turnout. So, here’s an idea I don’t think any party has ever considered: election officials should adopt an open-source, publicly-verifiable computer program that randomly-assigns votes to uncast ballots.
Yes, you read that right, the ballots of non-voters should be filled out for them.
Now, needless to say, this proposal has no hopes of ever being implemented, but I think it would increase turnout. By randomly assigning votes, the computer program would not affect election outcomes. It would simply create noise around the popular will signaled by citizens who actually registered their votes. Yet, that noise would create an incentive for individuals to actually cast a ballot.
Not making sense? Let me explain further.
First, remember that randomization assigns an equal probability to each of a given set of outcomes. Thus, if our outcomes represent, say, candidates running for a political office, then randomly-assigning the votes of those who don’t cast ballots would simply mean that every candidate would get an equal uptick in their final vote tally. Thus, if 10,000 voters failed to turnout in a two-candidate contest, then each candidate would get, on average, 5,000 additional, randomly-assigned votes. Those random votes, however, would be added to the votes of folks who actually cast ballots. As a result, the random votes would effectively cancel out and the voters who cast ballots would continue to determine the election outcome.
And I bet the latter group of voters would grow if this system were implemented. Think about it. If you are an anti-deficit, Duck-Dynasty watching, faith-based Tea Partier, could you sleep at night knowing that your ballot has some probability of adding to the electoral count of a big-spending, latte-drinking, politically-correct Democrat? Not a chance. Same goes for the latte drinkers thinking about the John Birchers getting their votes. The revulsion of supporting a personally-objectionable political cause would encourage folks to take the active step of casting a ballot.
Therein rests the beauty of this system. Whereas mandatory voting takes away the right to abstain from an election and coerces participation through the threat of sanction, a system of randomly-assigning votes coerces participation by highlighting the link between casting a ballot and advancing a political cause that one supports. That is to say, mandatory voting scolds the citizen, whereas a system that randomly allocates votes reminds the citizen that ballots carry political consequences.
Of course, to realize such a system, a variety of potentially insurmountable technical hurdles would need to be overcome. Somehow the randomization algorithm would need to be rigorously verified and insulated from hackers. Also, there might need to be an escape clause for close elections in which randomization might very well tip the scales arbitrarily for one candidate. Such problems would be vexing and should probably doom this proposal; indeed, I’m not even sure I would support it. Still, I would rather have our national political discussion focus on a system that convinces individuals about the political consequences of their votes, instead of a system that reprimands citizens for not casting them.
at 11:20 AM
Wednesday, March 18, 2015
|Photo Credit: Daniel Rosenbaum for The New York Times|
Two interesting articles caught my eye this morning.
In the first, The New York Times reports that the streetcar fad appears to be waning:
Just a few years ago, the streetcar revival was all the rage in cities across the country. Portland, Ore., seemingly set the trend with its 11.5-mile system, which opened in 2001 and was said to spur economic development while carrying 16,000 passengers on weekdays.In the second, the Oregonian has a post-mortem of sorts on United Streetcar, the troubled nascent streetcar builder in Clackamas that finally called it quits.
Elsewhere, New Orleans is extending its streetcar lines, while Atlanta, Tucson and Salt Lake City have also moved ahead with similar systems, almost always pegged to the promise of transit-related economic growth.
Yet as several cities inaugurate new systems or expand older ones, the streetcar revolution, facing fiscal and operational challenges, has stalled elsewhere. Last July, San Antonio abandoned its planned streetcar system after changing mayors, reallocating the $92 million it had set aside.
United Streetcar, the Clackamas company expected to put hundreds of Oregonians to work manufacturing a new generation of streetcars, has all but closed up shop without meeting job projections.While it is true that the market for streetcars has slowed I think United Streetcar's problems were more fundamental. It was trying to learn streetcar manufacturing from scratch in an industry that has high fixed costs. There was a big learning curve to surmount and it is quite clear that they did not do so with nearly enough speed. There are many instances of infant industries that, spurred on by initial government support, ended up becoming globally competitive. Take Airbus as example number one.
In the years since, United Streetcar landed contracts and built 18 vehicles for Portland, Washington, D.C., and Tucson, Arizona. But the company shut down manufacturing in late 2014 when orders dried up.
But streetcars to me seemed to be a losing proposition from the start. And without emergence into a viable ongoing concern without government support there was little to recommend spending taxpayer dollars on streetcars from the USA rather than more reliable, timely and cheaper streetcars from the Czech Republic.
I am sad to report that I was right.
Oh and as a coda to this whole thing, the idea of streetcars (without the ability to engage in avoidance manouvers) commingling with regular car traffic easily appears to be wishful thinking.
at 10:53 AM
Tuesday, March 17, 2015
The February Oregon jobs report is out and it looks pretty fantastic. It has been a long, hard slog but it appears about time to declare the Oregon economy back. Why? Well unemployment is back below 6% at a very healthy 5.8%, and almost the same as the US unemployment rate (Oregon typically is slightly above). As the Oregon Employment Department notes, the number of long-term unemployed is way down to 35,000 from a peak of 100,000. And the U-6 number (the measure of underemployed - those working but not as much as they would like) is down to 12.1%.
It is good to know the worst of the recession is behind us but there is still one stubborn metric that has not moved much - wage rates. Wages in Oregon have risen only 0.8% in the last year. We should see this increase as the slack in the labor market disappears.
at 12:29 PM
Friday, March 13, 2015
Another dispatch from Fred Thompson:
A friend wrote: “For the sake of the planet's future, we must find a way to restrain our impulse to breed. A target population number needs to be objectively determined and a finger kept on the scale so that attrition finally reaches that number. Let's assume that the planet can comfortably sustain 3 billion people (I think that number is too high). That means we must lose 4 billion people in a relatively short time. If we get to a fertility rate of 2.1 or replacement, the population still rises for a time. The fertility rate has to be greatly curtailed until we reach the target population before we allow it to return to the replacement rate. But attrition would be sufficient to reduce the population; all we have to do is breed less.”
If that were that simple, China's population would have stabilized after 1960 and dropped significantly after 1980. Indeed, world population growth would now be a historical curiosity.
Population growth is not just about fertility. It depends upon the difference between the birth rate and the death rate. The problem, from my friend’s perspective, is that, for the past 200 years, death rates have consistently fallen faster than birth rates. As long as infant mortality continues to fall and life expectancy continues to increase, so too will population.
Worldwide, you have to get the fertility rate to less than 1.4 to stabilize population (given current trends in the death rate) and below 1.2 for it to fall any time soon. As the world’s population-bulge ages, in about 30 years or so, the death rate will rise and the fall in population will accelerate. That is where Japan is now; its population has been stable for 15 years. After 25 years of birthrates below 1.5 (dropping as low as 1.1) and already low infant mortality rates and high life expectancy, its population is beginning to fall. I think that’s where we are going – many rich countries with egalitarian income distributions are there already.
Nevertheless, in recent times, the only countries that have actually lost population are those like the Russian Republic, where, for some reason, both fertility and life expectancy declined and infant mortality increased (I say for some reason in this case because in Russia these trends started in the late 70s and continued through the 90s and, evidently, the oughts’), or where there was a ton of outmigration (like Ireland in the mid-19th Century).
What are the economic effects of a falling population? Any answer I could give to this question would be mostly guesswork. Historically, war, famine, and disease have been the drivers of population collapse. Their effects have not been good for productivity /income growth/consumption /investment, with the possible exception of the Black Death in the 14th Century.
The best model for the effects of a dramatic reduction in the birthrate is, perhaps, Alvin Hansen's notion of secular stagnation. I remain enough of a hydraulic Keynesian to believe that we know how to mitigate the shortfalls in aggregate demand this would induce, but I have two big concerns. The recent evidence in Europe and, to a lesser extent, here suggests that there might be insufficient effective political demand for such policies. More seriously, I am concerned that an aging population will become increasingly unwilling to support or even actively oppose technological change and the replacement and expansion of plant, equipment, and infrastructure needed to exploit technological change sufficiently to allow high levels of productivity growth (in part simply because of the social cost of supporting increasing numbers of unproductive old people).
Of course, productivity growth is the sine qua non of income/consumption growth. Which takes me to the environment. The evidence is that environmental amenities are normal or superior goods; our demand for them increases with increases in income and tends to fall with reduced income growth. As is generally the case, richer is better, safer, healthier, and cleaner. Supply is a little harder, but, generally speaking, the less costly things, like environmental quality, are, the more of them people will want/supply, which also depends upon productivity/income growth (and in a democracy, where the preferences of the median voter are more or less decisive, the degree to which income growth is shared).
Another acquaintance said: “I think humanity could live sustainably on the earth, if our collective behavior and choices changed. I believe we could change if we decided to, however right now most of us accept the status quo. Basically, we seem OK with a model that promotes exploitation, of each other and our natural world, in order to provide a few people with great wealth—the basic change would be to an ‘all in this together’ model that creates wealth as well as general prosperity.”
“What are the choices we should make:
—Transfer most wealth and resources currently devoted to war into peacetime works, such as nutrition, education, housing, health care and transportation.
—Collect taxes fairly, eliminate offshore havens, improve collections, raise taxes on wealthy, tax negatives like carbon.
—End corruption in business and government.
—Set wages, benefits and social security at a minimum that ensures working families can live decently.
—Replace ‘you are what you own’ consumerism with tolerance, self-worth, community, inclusiveness.
—Have manufacturers accept cradle-to-grave product life cycles.
—Stop exploiting natural resources for short-term gains (for example, industrial hemp could replace most wood fiber uses and take pressure off forests).
—Redirect energy development into low-carbon options.
—Plan ahead and invest for impacts of climate change.”
“While I appreciate the barriers to making such changes, I also believe our situation demands comprehensive change. I vacillate between pessimism and optimism. Portland makes me believe big changes in a relatively short period are feasible—the progressive city of today did not exist 50 years ago, yet here it is now, and changes are gathering pace.”
OK. While I am skeptical of the claim that rich were the main beneficiaries of the industrial revolution, these are not unreasonable proposals. Take #1, transfer resources devoted to war and the preparation for war into peacetime works. We are doing that; worldwide, military expenditures are at their lowest level as a share of total output in over 100 years. Even, in the US, one must go back 75 years to see a lower share devoted to the military.
#2. Americans invented confiscatory income and inheritance taxes. Indeed, we still have one of the more progressive tax structures in the developed world (transfers are another matter). Tax havens could be largely eliminated by getting rid of income taxes on C corps, making them pass-through entities. And, carbon taxes are a fine idea. It is altogether better to tax bad things than good things like working and saving.
#6. Most countries in N Europe already require manufacturers to accept cradle-to-grave product life cycles.
Would these proposals, the practical ones anyway (end corruption, really? How, exactly?), insure environmental/economic sustainability? No Way!
Playing with a few differential equations makes it pretty clear that there is only one thing that will permit sustained consumption going forward: endogenous technological development/deployment fast enough to offset resource depletion and to avoid or mitigate environmental degradation; otherwise no matter what you do, it all collapses eventually.
Of course, if endogenous technological development/deployment is fast enough, sustained growth is also feasible.
at 8:56 AM
Tuesday, March 3, 2015
The jobs picture continues to brighten in Oregon with January's numbers showing a robust increase of 7,600 new jobs on a seasonally adjusted basis. The unemployment rate fell to 6.3% due to a combination of the new jobs as well as a slight dip in the work force (job seekers).
From the state report:
Putting Oregon’s employment growth into perspective, the rate of growth has steadily accelerated over the past few years: jobs grew 1.4 percent in 2012, 2.4 percent in 2013, and 3.3 percent in the past 12 months. This most recent over‐the‐year growth of 3.3 percent is the fastest pace since June 2006. Other than brief periods during 2004 through 2006, the last time Oregon jobs grew faster was the four‐year period ending in July 1997 when Oregon averaged 4.0 percent growth.It is finally feeling like we are well and truly out from the woods so to speak but there are still plenty of storm clouds - Europe is struggling, China growth is slowing, Brazil is tanking and climate change is real and starting to create real economic impacts. Still, the fact that the U.S. economy is rebounding strongly despite all of these external factors is a real confirmation of the aggressive and innovative response to the economic crisis by the Fed and the Government in my view.
at 11:12 AM