The Oregon Economics Blog

Recovery?

2012-01-27T09:47:00.000-08:00

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.

Oregon's Timber Economy

2012-01-26T08:36:00.000-08:00

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.

Oregon Ranked #13th Best in Business Tax Climate

2012-01-25T08:27:00.000-08:00

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.

Going Worldwide: The OEB in 64 Languages!

2012-01-24T13:12:00.000-08:00

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!

-or-

Nawr bydd fy enwogrwydd yn gwybod dim ffiniau!

IMF Predicts Recession in Europe This Year Will Slow Global Recovery

2012-01-24T08:50:00.000-08:00

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.

Child Well-Being in Oregon

2012-01-23T08:53:00.000-08:00

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.

Your Friday Afternoon Moment of Zen

2012-01-20T13:55:00.001-08:00

Austerity and Growth

2012-01-20T10:04:00.000-08:00

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.

Picture of the Day: De-leveraging

2012-01-19T12:28:00.000-08:00

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.

Oregon Unemployment Drops to 8.9% in December

2012-01-18T11:53:00.000-08:00

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

2012-01-18T11:30:00.000-08:00

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 Degree	Total	% Who Are 1 Percenters	Share of All 1 Percenters
Health and Medical Preparatory Programs	142,345	11.8%	0.9%
Economics	1,237,863	8.2%	5.4%
Biochemical Sciences	193,769	7.2%	0.7%
Zoology	159,935	6.9%	0.6%
Biology	1,864,666	6.7%	6.6%
International Relations	146,781	6.7%	0.5%
Political Science and Government	1,427,224	6.2%	4.7%
Physiology	98,181	6.0%	0.3%
Art History and Criticism	137,357	5.9%	0.4%
Chemistry	780,783	5.7%	2.4%
Molecular Biology	64,951	5.6%	0.2%
Area, Ethnic and Civilization Studies	184,906	5.2%	0.5%
Finance	1,071,812	4.8%	2.7%
History	1,351,368	4.7%	3.3%
Business Economics	108,146	4.6%	0.3%
Miscellaneous Psychology	61,257	4.3%	0.1%
Philosophy and Religious Studies	448,095	4.3%	1.0%
Microbiology	147,954	4.2%	0.3%
Chemical Engineering	347,959	4.1%	0.8%
Physics	346,455	4.1%	0.7%
Pharmacy, Pharmaceutical Sciences and Administration	334,016	3.9%	0.7%
Accounting	2,296,601	3.9%	4.7%
Mathematics	840,137	3.9%	1.7%
English Language and Literature	1,938,988	3.8%	3.8%
Miscellaneous Biology	52,895	3.7%	0.1%

Krueger on Income Inequality and Mobility

2012-01-17T09:40:00.000-08:00

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 speech. Here 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.

Why All the Mixed Signals?

2012-01-13T14:02:00.000-08:00

Probably partly due to Europe:

Sigh.

Just When I Try to be an Optimist...

2012-01-12T09:11:00.000-08:00

...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.

Sigh.

The Supreme Court's Brilliant Stimulus Program

2012-01-11T10:23:00.000-08:00

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

2012-01-11T08:41:00.000-08:00

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.

Business and Bureaucracy

2012-01-10T10:00:00.000-08:00

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.

He's Back

2012-01-09T16:29:00.001-08:00

<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

2012-01-09T08:26:00.000-08:00

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.

Yes, the Employment Report is Very Good

2012-01-06T13:09:00.000-08:00

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.

Bike-o-nomics: Gender and Bike Commuting

2012-01-04T09:32:00.000-08:00

via

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.

Congrats

2012-01-02T19:43:00.001-08:00

Congratulations to the Ducks. The better team won.

Happy Holidays

2011-12-19T12:16:00.000-08:00

I am taking a break from regular blogging for the next two weeks. I will post occasionally when the mood strikes but otherwise I will be back to regular blogging after the new year.

Have a great holiday.

My Op-Ed

2011-12-16T09:55:00.000-08:00

UPDATE: Here is the link to the OP-Ed in The Oregonian.

Well since The Oregonian never got it on the web page, I suppose it is safe for me to do so now. Here is my original text (its all I have in a digital version) with my addition of the word 'substantial.' As far as I can tell it is the same as was published.

I have written a number of Op-Ed pieces that have been published in the Oregonian over the last few years, but never had nearly the response as I have had on this one, nor even close to the level of passion people have surrounding the movement, both for and against. What this tells me is that the movement is really striking a chord that resonates with a lot of people. The point of the editorial is that the movement can't just vent the frustration and anger symptomatic of the deep unrest with the outcomes of our political and economic system over the last few decades and be successful. It has to become a focused agent of change or it will all come to nothing; they now have to pivot from protest to advocacy.

I have been attacked by both those for and against the movement for in my words they managed to paint me as either opposed to the movement or a fellow traveler. The truth is I am neither, I can't tell you if I support the movement because I am not entirely sure what it is they are advocating for. And by the way, you can be critical of something and still support it - one would hope self-analysis and criticism is a key part of the occupiers themselves. If they can't take my mild criticism, I have little hope for the movement.

Anyway, here you go:

The Occupy Portland movement managed to close down terminals as the Port of Portland Monday in an act of protest, putting a number of their fellow 99% out of work for the day. The reasons for targeting the Port were vague: apparently they were trying to hurt companies that do business at the port which are responsible for some rich people getting even richer. I fear the Occupy movement has lost the plot.

There is nothing unique about these businesses. It is hard to find a business that is not in some way connected to the global economy and that supports, however indirectly, a very wealthy person’s income. Imagine a small local business that gets a small business loan from a local bank. This seems safe enough, right? But that small local bank probably does business with a larger bank whose bosses are the very villains the Occupy movement is targeting. And the local business may ship goods to customers in foreign countries, enriching shipping magnates and importers, and so on. In other words, in trying to identify and protest a particular part of the economy they are chasing their tails and muddling their own message.

Thus the problem with the Occupy movement is not the general sense of a growing disenfranchisement of the middle and lower classes – this trend is real and identifiable – but what they suggest to do about it. What policies do they oppose exactly? What do they propose as alternatives?

I understand the general sense that the modern economy, ever more global and huge, is responsible for the growing inequality in the United States and how this inequality translates to a lack of political power. But it is not the global capitalist system itself that is causing these outcomes, but how we as a country restrain the system through our policies and our laws. And therein lies the genesis of a real and well-articulated message.

For example, it is now well known that our financial regulations were inadequate to restrain firms that were involved in a returns arms race – forever trying to best each other by producing impossibly high returns on loose credit without regard to the sustainability of such actions. We have made very little progress in improving such regulations.

It is also well known that the modern and global economy is creating ever more dramatic differences in returns to education. High school graduates have hardly made any advance in earnings for decades, while those with four-year university degrees and higher are continuing to advance. But instead of redressing one of the real root causes of inequality, we are dramatically disinvesting in public education in the United States.

Given the ever increasing inequality, the collapse of the financial sector and the worst economic downturn since the great depression, it is remarkable how little is being done in Washington to improve financial regulation and invest in the education of American children. Which leads to another policy lacuna: the inability to balance the needs and rights of corporate America with that of the vast majority of its citizens that have not seen their standard of living [substantially] improve in two generations.

So here is a suggested start for the Occupy movement. Do not put port workers out of work for a day: port workers are impacted dramatically by such economic disruptions while the fat-cats hardly notice. Use the collective energy of the movement to call for real financial reform, for a reinvestment in public education and to restrain the influence of money on government. It is a just a start, but an articulate one.

Finally, I realize I should get the Oregonian to mention my blog because it provides a forum for those who would like to debate the issue. [Perhaps this is why they never posted my Op-Ed: to save me the inevitable abuse that would have come from the generally caustic comments that appear on the O's web page] Anyway, I will not answer any more e-mails about this. You want to discuss, do it in the comments here, but keep it respectful.

Karma

2011-12-15T08:44:00.000-08:00

I got a little blowback from Occupy folks from yesterday's Op-Ed. Undeserved methinks, I don't think I am alone in not understanding the message behind the port protest and worrying that they are losing the plot, but I'm glad folks are paying attention.

But, since then I have had to have a root canal and my son told me he supports Tottenham Hotspur. So if you are upset with me, don't worry the fates have punished me sufficiently.

Today I take a break from blogging to convalesce.

Update: A reader admonished me for my statement that "...the vast majority of American citizens, who have not seen their standard of living improve in two generations."

I agree, I had intended to write "substantially improve" but failed. My bad. But the motivation of the Occupy movement and it's supporters was not the point.

I have also been taken to task for both criticizing and supporting the Occupy movement. I was doing neither - I understand from whence the passion comes, but don't know if I agree with the remedies proposed, because I have not heard much about their remedies. Which was the part pf the point of the Op-Ed.

Occupy Portland: In Need of Focus and a Message

2011-12-14T09:19:00.000-08:00

Credit: The Oregonian

My Op-Ed in todays Oregonian. [Not yet on-line - I will link when it is] Here is a tease:

The Occupy Portland movement managed to close down terminals as the Port of Portland Monday in an act of protest, putting a number of their fellow 99% out of work for the day. The reasons for targeting the Port were vague: apparently they were trying to hurt companies that do business at the port which are responsible for some rich people getting even richer. I fear the Occupy movement has lost the plot.

Who needs on-line? Go spend a buck and read the rest, I am so worth it!

I will add that it is absolutely okay to protest the outcomes of a system without understanding the fixes. Economics is complex and full of connections that are not always readily apparent. But by the time you have decided to shut down ports, you should have a good idea why you are doing it. There are plenty of knowledgeable folks to call upon to start to formulate a real message and to focus on the real problems. Acting without such preliminary groundwork is what makes me fear for the future of the movement.

And today is an Emerson two-fer as Rich Read and I chatted about unemployment and I sounded the Grinch note: focus on jobs, not the rate, and job creation sucks right now.

Oregon Unemployment Drops to 9.1% in November

2011-12-13T10:12:00.000-08:00

Oregon's November unemployment rate dropped to 9.1% in November, but the number of employed dropped by 1,600 on a seasonally adjusted basis. Similar to the national data the drop in the rate of unemployment is due to the number of people who exited the labor force by no longer looking for work. That number declined by almost 7,000 people. So there is not a lot to cheer. Especially noteworthy was the 2,300 decline in manufacturing jobs.

The Portland Economy: Incomes are Better than Average After All

2011-12-13T09:17:00.000-08:00

Last week the Portland Business Alliance released a report produced by ECONorthwest which was reported on by The Oregonian. In it the big news was how much worse off were Portland metro workers relative to the US average:

A telling graph in the report, “A Checkup on the Portland Region’s Economic Health,” shows that as personal incomes wobble, tax revenues bounce wildly wreaking havoc in budgets for state services.

“If we want to improve revenue available to support these services, we need to start with good-quality jobs that generate the wages and incomes that can be taxed,” said Sandi McDonough, chief executive of the Portland Business Alliance, greater Portland’s chamber of commerce.

This is the same report that, last year, I criticized quite strongly for being sloppy and misleading and took ECONorthwest to task for the low quality of the work. So you'd like to think that they paid particular attention to year's report and made sure it was excellent. Nope. Today, The Oregonian reports that the headline data from the report was all wrong, and the conclusion is exactly the opposite:

Portland-area incomes didn't fall faster and farther during the recession than national per capita income, as a study issued last week by local business groups reported.

In fact, per capita incomes in metro Portland declined slightly more slowly than national incomes -- and rebounded somewhat faster.

***

The mistakes occurred in final editing conducted by the Portland Business Alliance and ECONorthwest, a consulting firm that provided the data. Josh Lehner, an economist at the Oregon Office of Economic Analysis, spotted the errors.

Good old Josh Lehner, you all know him as the author of the OEA blog and Twitter feed, but I know him as the go-to guy on state economy data. As for ECONorthwest, what can you say? "Mistakes in final editing?!?" Final editing? That is total horsepucky: they mucked up the most basic data comparison, they should at least own their mistake. These are people who charge a premium because they are supposed to be good at this stuff - you'd hope they would be a bit more careful, especially on such a high profile project. And if you go to the report, you'll find no mention that it was revised, which is totally inexcusable.

I wondered about this, by the way, when I blogged about the report that said state personal income tax collections were rising much faster than the national average. Yes the change and the level are not the same thing, but the erroneous graph suggests that the rate of change is lower as well.

So spare a thought for the beleaguered corps of exceptionally talented bureaucrats like Josh who toil in relative anonymity and yet day after day provide excellent service to Oregonians. They are under-appreciated.

Bike-o-nomics: If You Build It, They Will Ride, Redux

2011-12-12T09:02:00.000-08:00

From Felix Salmon a graph made from data from the NYC Commuting Cycling Indicator showing the rise in bike commuting in NYC. Felix makes a point that the big rise in bike commuting corresponds with the arrival of Janette Sadik-Khan, the controversial transportation commissioner for NYC who is a big biking advocate.

I blogged about the relation between bike infrastructure and bike riding before, suggesting that the correlation is suggestive of it having a big impact on riding. Here is more suggestive evidence. Not that this is terribly surprising: you lower the cost of an activity and people tent to choose more of it.

Now a good research question is whether expenditures on bike infrastructure are a good investment. I suspect that they are one of the best in terms of cost savings down the road in health care, environment, and so on, but I'd like to see some good research that connects the dots convincingly. If you know of some, do let me know.

State Tax Revenues on the Rise

2011-12-09T08:50:00.000-08:00

Or so says the Rockefeller Institute who tracks state tax revenue from 48 states:

Preliminary tax collection data for the July-September quarter of 2011 show growth in overall state tax collections, as well as for personal income tax and sales tax revenue, for the seventh consecutive quarter. While still strong, revenue growth was more moderate than in the previous three quarters. We will provide a full report on the July-September period after Census Bureau data for the quarter are available.

The Rockefeller Institute's compilation of data from 48 early reporting states shows collections from major tax sources increased by 7.3 percent in nominal terms in the third quarter of 2011 compared to the same quarter of 2010. This is a noticeable slowdown from the 10.8 percent year-over-year growth reported in the second quarter of 2011. Tax collections now have been rising for seven straight quarters, following the five quarters of declines that were brought on by the Great Recession.

Here are the data for Oregon and Washington (PIT=Personal Income Tax; CIT=Corp. Inc. Tax; Sales=Sales Tax):

Percent Change in State Tax Revenue, July-September 2010 to 2011

Fortunately for Oregon personal income taxes in general are recovering faster than are sales taxes as people are probably using new income to pay down debt and build up savings (though the saving rate has begun to dip again, so sales taxes will probably pick up soon). Overall a 10.4% increase is a nice healthy rebound for Oregon and from what I understand, above both of the two most recent forecasts for Oregon. This from the OEA blog:

Let's hope the trend continues. If the Euro mess can get sorted (and today there is good news on that front), this fledgling US recovery might just start to gain some momentum.

Reinhardt and Krugman on the World Economy

2011-12-08T09:04:00.000-08:00

Watch live streaming video from nytimesopinion at livestream.com

Gingrich and Child Labor

2011-12-07T11:55:00.000-08:00

My friend and colleague, Eric Edmonds of Dartmouth, takes up the bizarre promotion of child labor by Newt Gingrich in Reuters. Here is an excerpt:

Republican Presidential frontrunner Newt Gingrich continues to insist that child labor laws in the U.S. are “truly stupid,” that the poor lack good work habits, and that the former would solve the latter. He hasn’t mentioned any specific policy changes, yet it’s clear that he doesn’t like the way things are done now, and that that he thinks America would be better off if kids worked more. If only the economics agreed.
***
The biggest hole in Gingrich’s plan is a simple one: adding more workers does not create new jobs. With 1,373,000 youths 16 to 19 currently looking for work, according to the Bureau of Labor Statistics, adding even younger children to this pile would likely serve to increase unemployment or reduce unskilled wages further.
***
The issue is that workers that start unskilled stay unskilled. Especially if their education is suffering as a result. Working children do not learn skills that are going to help them to succeed in today’s technologically advanced global economy. How is learning to be an unskilled laborer at an early age going to help families in the long-run?
It is not. Implicit in Mr. Gingrich’s argument is that the act of working itself teaches some transferable skill that then makes the child laborer a better worker overall. We’ve seen what happens when successive generations of families need their children to work. They are unable to escape poverty. Some of the best evidence on this comes from Brazil, where, according to two economists’ research, former child laborers are three times more likely to need their own children to work.

The research from Brazil he is referring to is my own conducted with André Portela Souza. We also have research that shows that participants in child labor end up with lower earnings as adults, all else equal. Research that we are working on now is focused on understanding the effect of working while continuing to go to school. Results are preliminary but suggest a significant decline in the how much and how well child laborers learn relative to their peers who do not, even when controlling for other socio-economic disparity.

Economist's Notebook: On Economics

2011-12-06T09:16:00.000-08:00

I had never encountered this quote before I read it in Greg Mankiw's New York Times Op-Ed this past sunday. It is from Keynes:

“The theory of economics does not furnish a body of settled conclusions immediately applicable to policy. It is a method rather than a doctrine, an apparatus of the mind, a technique for thinking, which helps the possessor to draw correct conclusions.”

I think this is about as perfect a statement on economics as there can be. I often describe economics as simply a system of logic - a precise way to think about how the world is organized. In another article in the same Times, Nobelist Tom Sargent referred to a former TA who called economics 'organized common sense,' which is also a good description as long as the emphasis is on the 'organized.'

I like economics because it allows me to see connections clearly, understand society better and be able to be precise and clear when I think about economic challenges and potential solutions. In fact it was the frustration of living and studying in India as a junior in college that really cemented this in my mind: all around were examples of exceptional poverty and economic malaise and all of the discussions about the cause of the problems were notional and poorly focused. I wanted answers, or lacking that, a precise way to think about the problems. Economics gave me just that, and I now spend my life trying to find answers.

But the discipline of economics does not promote capitalism, nor any particular political philosophy. You can be as liberal as Krugman or as conservative as Friedman and still understand that economics allows us to understand markets clearly - both the benefits and the drawbacks - and reasonable people can draw very different conclusions about the way society should be organized around them. This is a strength, not a weakness of the discipline: we are looking for facts, not considered opinion.

What you shouldn't be is an advocate for any economic structure without understanding neo-classical economics. Which is why, frankly, I think the bulk of the heterodox folks, who have established a separate and parallel discipline, have it wrong. You have to base your advocacy for non-market based economic systems on a reasonable critique of market outcomes based on neo-classical economics. By dismissing the core of economic thought and attacking straw men caricatures of the same you are not even competing in the marketplace of ideas, but relegating yourself to the fringe.

I say this because if the Occupy movement wants to argue that the current system is flawed and needs fundamental reform, they should study hard in principles of economics rather than walk out and dismiss it out of hand. There is plenty there to serve as the foundation of a progressive critique of the current system. And there is plenty there to serve as a conservative rebuke as well. Such is the beauty and utility of economics.

Uh-oh

2011-12-05T09:01:00.000-08:00

I can see I am not going to be very popular in the state for a while. Go Badgers.

Eco-nomics: Biofuels Might Not be the Answer

2011-12-02T10:47:00.000-08:00

Photo Credit: Tiffany Woods

A new study by Bill Jaeger and others at OSU questions whether biofuels would do much to displace fossil fuels and would likely lead to increased, not decreased, greenhouse gas emissions.

Here is an excerpt from the press release:

"Our results suggest that existing biofuel policies have been very costly, produce negligible reductions in fossil fuel use and increase, rather than decrease, greenhouse gas emissions," said Jaeger, a professor in the agricultural and resource economics department at OSU.

Biofuels were initially seen as a solution to energy and environmental problems, Jaeger said, because the carbon dioxide that's emitted when they're burned is equivalent to what they had absorbed from the atmosphere when the crops were growing. Thus, biofuels were assumed to add little or no carbon dioxide to the atmosphere.

But the bigger picture is more complex, Jaeger said, in part because biofuels are produced and transported using fossil fuels. For example, nitrogen fertilizer, which is made using natural gas, is used to grow corn for ethanol. Additionally, growing biofuel feedstocks can push food production onto previously unfarmed land, according to well-documented research, Jaeger said. When this new acreage is cleared and tilled, it can release carbon that accumulated over long periods in soil and vegetation, thus increasing greenhouse gas emissions, he said.

The costs of these side effects tend to be overlooked by policies that focus only on gallon-for-gallon substitutions, he added.

You can see the original paper here.

And Now For Something Completely Different

2011-12-01T12:21:00.000-08:00

If You Build It, They Will Drive

2011-12-01T09:41:00.000-08:00

A reader and transportation advocate in Salem alerted me to a paper that had escaped my attention by Duranton and Turner, two economists from the University of Toronto. It was published in the October 2011 American Economic Review - one of, if not the, pre-eminent journals in economics - and is entitled "The Fundamental Law of Road Congestion: Evidence from US Cities. In it, the authors try and estimate the capacity elasticity of vehicle kilometers travelled (VKT). In other words, by how much will vehicle travel increase in response to increases road capacity. This paper seeks to answer the question: will new road construction ease overall congestion?

[As an aside, how is a paper about driving in the US and published in a US journal allowed to get away with using kilometers instead of miles?? It is an abomination!]

This question is a lot harder to answer than it may appear initially. You can't just look at road construction and subsequent changes in miles driven (yes, I said miles) because you don't know if the road was built in response to the increase in miles driven, if the increase in miles driven was in response to the new road capacity, or if miles driven would have increased just the same regardless of road construction. Empirically, this presents a very tricky problem. I won't get into the minutiae of how they addressed this save to say they used historical data on transportation planning to instrument for the road capacity in order to identify the true effect of capacity on VKT. [Econ students should now be thinking hard about local average treatment effects: the identification comes from things like the original planning document for the interstate highway network in 1947 - how does the variation in planned highways in 1947 affect VKT today?] The methods are pretty convincing and the results, to my mind, are pretty startling. Here is the abstract:

We investigate the effect of lane kilometers of roads on vehicle-kilometers traveled (VKT) in US cities. VKT increases proportionately to roadway lane kilometers for interstate highways and probably slightly less rapidly for other types of roads. The sources for this extra VKT are increases in driving by current residents, increases in commercial traffic, and migration. Increasing lane kilometers for one type of road diverts little traffic from other types of road. We find no evidence that the provision of public transportation affects VKT. We conclude that increased provision of roads or public transit is unlikely to relieve congestion.

What this says is that the capacity of elasticity of VKT is one: that for every new lane kilometer of road you build you will get a corresponding increase in traffic - yielding no net benefit to congestion. Wow. So opponents of the CRC, for example, might be pleased to note that claims of quicker travel times are probably completely bogus.

But there is more. They find exactly the same effect for public transportation (and by extrapolation we can pretty safely say the same is true for bike travel) that every car taken off the road by, say, a new MAX route, will be replaced by a new car yielding no net benefit to congestion.

There are a number of pretty serious caveats here though. They find that was fills in these new roads is a pretty robust increase in commercial truck transport and in the change in individual driving behavior. This makes sense to this economist - if road congestion is an equilibrium result of the market for driving, if you lower the marginal cost curve, you expect more driving to get back to the point of marginal cost equals marginal benefit (since the benefit hasn't changed). So if you are a CRC advocate, you can point to the potential increase in commercial truck activity that will result as evidence of increased economic activity in the region in response to the better transportation network.

Interestingly, the increase in highway usage does not appear to come from those switching from city roads to highways - so such new highway construction should not be expected to ease congestion on surface roads.

There is also the fact that this elasticity works both ways. So it may be that by getting a person to take a bus or ride a bike only convinces someone else to start driving, removing road capacity in order to provide more bike or transportation infrastructure should result in a proportional decrease in overall VKT.

Finally, these results are for highways, but they do have some, arguably less robust results for major roads in urban areas where the elasticity estimates range from 0.67 to 0.89, so high but not 1. Which means that building out major roads in urban areas should be expected to decrease congestion, but by relatively small amounts. For example if we use 0.75 as a intermediate number than increasing urban road capacity by 10% should yield only a 7.5% increase in VKT.

So there is lots here for advocates on both sides to wrangle over. I, being the Scholar, have a duty only to report and interpret. Go forth and wrangle away...

Why Would the Death of the Euro be Such a Bad Thing?

2011-11-30T09:51:00.000-08:00

This was a question, posed to me by a well-known beer writer when I met up with him recently in the UK (which is feeling pretty darn smug right now for not joining the Euro). It is a good question (surprisingly, given its provenance), and I have been thinking a lot about the answer to this.

To be clear, we all understand that leaving the Euro by a small and heavily indebted country like Greece would be a disaster for them: they would adopt their own currency again, and heavily devalue. Capital would flee astonishingly fast as folks got their Euro deposits and investments out as quickly as they could. This would both incapacitate the government by essentially cutting off all credit and would lead to a complete collapse of the banking sector. Bad times.

But why doesn't Germany, which is not at all happy about having to rescue the hopelessly mismanaged Greek economy, just cut and run? They have a robust economy, could re-launch the Deutche Mark credibly and off they would sail into the sunset...

The first and obvious answer is that cutting and running might lead to Greece, Portugal, Spain and even Italy falling into crisis and Germany would not be immune to the sickness that would spread - they would be seriously hurt by this and the resulting recession would likely be pan-European.

But the less obvious answer is that if Germany exited, the Euro would immediately lose a lot of its value and German banks have a lot of Euro denominated assets that would suddenly be worth a whole lot less. This would necessitate a bailout of German banks and a subsequent very tight credit environment as banks had to shore up their balance sheets.

In fact, UBS released a study which claims that that it would be much cheaper for Germany to bail out Greece than to exit the Euro. From the report:

Were a stronger country such as Germany to leave the Euro, the consequences would include corporate default, recapitalisation of the banking system and collapse of international trade. If Germany were to leave, we believe the cost to be around EUR6,000 to EUR8,000 for every German adult and child in the first year, and a range of EUR3,500 to EUR4,500 per person per year thereafter. That is the equivalent of 20% to 25% of GDP in the first year. In comparison, the cost of bailing out Greece, Ireland and Portugal entirely in the wake of the default of those countries would be a little over EUR1,000 per person, in a single hit.

The moral is that it is pretty easy to create a monetary union, but a whole lot harder to break it up.

Economist's Notebook: Lake O Streetcar and Accounting v. Opportunity Costs

2011-11-29T11:26:00.000-08:00

An article in The Oregonian discusses the new and improved cost figures for the proposed Lake Oswego Streetcar extension. In it, there is a discussion about whether the cost of the land that was purchased years ago should be included. This is a classic lesson in accounting versus opportunity costs in economics:

The new figure also does not include land owned by the government that originally had been included with capital costs. That alone reduced the price tag now being promoted by $80.3 million.

"I don't think it's disingenuous at all," said Obletz, who argued that the land is "not a cost to the project."

It may be correct to say the land is not an accounting cost for the project going forward, but it is entirely incorrect to say it is not a cost of the project. The reason economics makes the distinction is that the opportunity cost includes the next best alternative usage for the land and thus deciding to use the land for this project makes it unavailable for other uses.

In other words, if the land can be sold say for $100 million than utilizing it for this project denies that $100 million for any other use. So, if you are doing a cost-benefit analysis of a project you have to include this cost as well, it is just as important as any real accounting cost going forward.

I kinda hope the streetcar guts built, it'd be pretty cool, but let's be real about the cost.

Oh No Canada!

2011-11-28T09:05:00.000-08:00

The Economist wonders whether Canada is headed for a US-style housing collapse noting that the degree to which houses are overvalued there is above what US house prices were at the peak of the bubble:

Based on the average of the two measures, home prices are overvalued by about 25% or more in Australia, Belgium, Canada, France, New Zealand, Britain, the Netherlands, Spain and Sweden (see table). Indeed, in the first four of those countries housing looks more overvalued than it was in America at the peak of its bubble. Despite their collapse, Irish home prices are still slightly above “fair” value—partly because they were incredibly overvalued at their peak, and partly because incomes and rents have fallen sharply. In contrast, homes in America, Japan and Germany are all significantly undervalued. In the late 1990s the average house price in Germany was twice that in France; now it is 20% cheaper.

What is it about the German economy that makes it so robust? Well, puzzle not, here comes the Wall Street Journal to tell us that Germany and France are not immune to debt problems either:

Soccernomics: Soccer on Television

2011-11-25T09:04:00.000-08:00

Photo Credit: Reuters

An interesting little tidbit from last weekend: a tape-delayed broadcast of the Liverpool-Chelsea English Premier League match on the Fox network drew almost double the viewership of the MLS Cup final.

This illustrates both the good and the bad of American soccer. The proliferation of European sooccer available on American TV over the last decade has completely changed the landscape. Americans are increasingly tuning in to see top flight soccer from the world's best leagues. At least in my neighborhood in Portland I see more grade school aged kids sporting European club and country jerseys than MLB, NBA, and NFL combined.

All of this seems like an incredibly positive thing for the sport in the US. Kids no longer think of it as a kids only sport that is a good pastime until you can play the real sports. And they get to see the world's best players, learning the moves and strategies that will help them progress the game in the states. It also raises the legitimacy of the sport in the eyes of the adults - it is not just a great game to play but a great spectator sport as well.

But there is a significant negative as well: such broadcasts expose the significant gulf between the level of play in the top European leagues and the state of play in the MLS. The MLS has made huge progress in terms of the experience in the stadiums - starting next season all but three teams will be playing in soccer specific stadiums (if we count the special shrinking magic of BC Place in Vancouver). Average attendance this year has grown significantly: up seven percent from the year before - helped by Portland and Vancouver.

For all of the in-stadium progress, the fact remains that MLS still struggles to attract TV audiences: the MLS Cup final drew a underwhelming 0.8 share. And now that top flight European soccer is easily available on US TV there is serious competition for eyeballs. Who would choose to watch a Dallas v. Philadelphia match when Barcelona is playing, or Kansas City v. Chivas USA when the Arsenal is playing Manchester United. The fact is that the product on the screen coming from Europe is far superior. So while the energy, excitement and fun at a Timbers game is second to none, the TV product is pretty lame (and don't get me started again about turf - it is even worse on TV than live).

And this is the economic conundrum: the real money in professional sports is from television. To the extent that European league broadcasts cannibalize the MLS TV market, the development of the MLS will be stunted by the lack of revenues to spend on quality players.

The hope is in those little kids with the Man United jerseys. As they progress and get better so will the US. There is no reason there can't be 20 or even 200 Landon Donovans in the US, and as we develop more players the play in the MLS will improve with them.

Trade and Oregon

2011-11-23T10:44:00.000-08:00

From the Office of the US Trade Representative:

Oregon

Exports Support Jobs for Oregon Workers

Export-supported jobs linked to manufacturing account for an estimated 5.2 percent of Oregon's total private-sector employment. Nearly one-quarter (23.5 percent) of all manufacturing workers in Oregon depend on exports for their jobs (2009 data latest available).

Exports Sustain Thousands of Oregon Businesses

A total of 4,918 companies exported goods from Oregon locations in 2008. Of those, 4,384 companies, or 89 percent, were small and medium-sized enterprises (SMEs), with fewer than 500 employees.

SMEs generated close to one-third (32 percent) of Oregon's total exports of merchandise in 2008.

Foreign Investment Creates Jobs in Oregon

In 2008, foreign-controlled companies employed 46,900 Oregon workers. Major sources of foreign investment in Oregon in 2008 included Germany, the United Kingdom, Japan, and Canada.

Foreign investment in Oregon was responsible for 3.2 percent of the state's total private-industry employment in 2008.

Oregon Depends on World Markets

Oregon's export shipments of merchandise in 2010 totaled $17.7 billion.

The state's largest market was China. Oregon posted merchandise exports of $4.0 billion to China in 2010, 23 percent of the state’s total merchandise exports. China was followed by Malaysia ($2.7 billion), Canada ($2.4 billion), Japan ($1.4 billion), and Korea ($937 million).

The state's largest merchandise export category is computers and electronic products, which accounted for $7.8 billion of Oregon's total merchandise exports in 2010. Other top merchandise exports are agricultural products ($2.3 billion), machinery manufactures ($1.5 billion), chemicals manufactures ($1.4 billion), and transportation equipment ($827 million).

Oregon's Metropolitan Exports

In 2009, the metropolitan area of Salem exported $325 million in merchandise. Other major metropolitan areas in Oregon that exported in 2009 included Eugene-Springfield ($314 million) and Corvallis ($241 million). A major metropolitan area exporter that included some counties of Oregon was Portland-Vancouver-Beaverton (including some counties in Washington as well) which exported $15.5 billion in merchandise in 2009.

*Data updated June 2011, by the Office of Trade and Industry Information, International Trade Administration, U.S. Department of Commerce.

Now, keep in mind this is from a source that is charged with promoting trade, but most of the facts are straightforward. Now you know.

Picture of the Day: Budget Deals

2011-11-22T11:11:00.000-08:00

Via The New York Times' Economix blog:

Growth Doesn't Buy Happiness

2011-11-21T11:19:00.000-08:00

Changes in life satisfaction, education and growth performance in the 2000s
Annual changes, in percent

Source: Perspectives on Global Development 2012

Statlink: http://dx.doi.org/10.1787/888932517610

This was sent to me by the OECD and illustrates the struggles emerging economies are having translating economic growth to advances in human capital and life satisfaction.

Food Stamps: Oregon Leads the Nation in Food Assistance

2011-11-18T14:19:00.000-08:00

From The New York Times' Economix blog:

In Oregon, 17.8 percent of families received food stamps, officially known as Supplemental Nutrition Assistance Program (SNAP) benefits, the highest rate in the nation. Oregon was followed by Tennessee (17 percent) and Michigan (16.9 percent).

Yet Another Picture of the Day: Comparative Oregon Unemployment

2011-11-17T09:22:00.000-08:00

Still trying to catch up after conference travel, so I'll guide you to the Oregon Office of Economic Analysis with this tease:

Picture of the Day: Manufacturing Up

2011-11-16T14:01:00.000-08:00

Via the WSJ.

Picture of the Day: Which States are Most Exposed to Europe

2011-11-14T14:36:00.000-08:00

Don't make too much of this, the US is so integrated that all states will suffer if Europe goes into recession, but there would likely be some differential effects based on how much trade states do with Europe. So how much do states trade with Europe?

Data from the Commerce Department and Wells Fargo, and the graph is from the Wall Street Journal.

A Mileage Tax or a Gas Tax?

2011-11-11T08:39:00.000-08:00

Our fair Governor has proposed a mileage tax on top of a gas tax hike to address the lacuna in transportation funding. This raises the question of which is better and what do they accomplish.

If you are proposing Pigovian taxes, then both make sense but address very different things. Driving a car imposes external costs through the impact on the environment, through the wear and tear on the roads and through the time cost of congestion.

A mileage tax addresses the wear and tear issue. People who drive will be assessed a tax that is equivalent to the cost of the road wear they are responsible for. This has the benefit of being fair and providing a direct source of funds to maintain the roads and is a disincentive to drive once the external cost is made internal through the tax (and also taking into account the cars weight, etc. - of course how will they deal with studded tires and chains?). The implementation is costly however, having a GPS in each car has got to be expensive as well as the cost of reading them and imposing a tax. Perhaps we could just do a mileage charge - not as accurate but simple.

The mileage tax does not address the congestion issue, but with the GPS it could, one assumes. If you drive on certain congested roads at certain rush-hour times, you could be charged more. This would provide the same Pigovian incentives to avoid driving during rush-hour or in congested areas. The GPS could also determine how much tax should go to municipalities, counties, and the state depending on which roads you drove on. But doing these things would seem to be an enormous computing challenge and one that would be enormously expensive. It is an interesting idea, however.

The gas tax is Pigovian in addressing the environmental impact of the amount of carbon emitted which is exactly related to the gas used. If the primary goal is to address this than this is the appropriate tax.

It is clear that each tax is also a poor way to address the other issue, to wit: a gas tax is not a good way to address wear and tear because a Prius could do a lot of wear and tear with little gas and a Mustang could do little wear and tear with a lot of gas; and a mileage tax doesn't work, for the very same reason, as a way to address environmental impact.

Both taxes could be implemented, but since the gas tax is good for the environmental impact side and, though imperfectly, does address the wear and tear side as well, and is basically zero extra administrative cost, it seems like the clear winner. However, if the GPS system could be done very cheaply and has the added congestion and differential tax components, it might be worth pursuing. Perhaps it is politics but I don't see what's wrong with a healthy increase in the gas tax - besides the GPS monitors will just serve as a constant reminder of the government's taxation which will fuel the anti-tax sentiment latent in almost everyone.

Note: One thing I failed to mention is that the milage tax is imperfect in that non-Oregon registered cars that drive in Oregon (for example, Vancouver commuters) would get off scott-free. At least a simple gas tax would catch some of them and would work both ways (Oregon drivers in Washington would pay for Washington's roads only when they buy gas in Washington).

Econ 101: Dynamic Comparative Advantage

2011-11-10T09:03:00.000-08:00

This past weekend, the Oregonian reported on something that has been fueling the rumor mill in Corvallis for a few months: HP is most likely scaling down its Corvallis operations. A few weeks ago they also reported on the shuttering of the Hynix plant in Eugene. What gives in the Willamette valley?

Well, as a friend who works for HP in Corvallis explained to me, HPs printer business is not growing and in modern business you have to grow revenues. So without growth in sales, you need to cut costs and a big cost savings is to employ engineers in Asia rather than in the US.

When I teach comparative advantage, the relative productivity advantage that leads to gains from trade, I try to stress that though in the classical Ricardian example there exist static differences in productivity, such productivity differences evolve through time. Countries like India and China for a long time had a major comparative advantage relative to the US in light manufacturing and other labor intensive activities that came from an abundance of unskilled labor and a relative paucity of skilled labor. But over the last ten to twenty years, this has begun to change quite dramatically. India and China have begun to produce more and more skilled engineers, to use but one example. Thus the relative productivity advantage that the US used to enjoy in engineering is disappearing fast.

Why has the US lost this advantage? One need only look at the sorry state of the US higher education system to figure this out. Federal funding for basic research is almost non-existant, states support for public higher education is drying up and the K-12 system is sending (and not sending) kids to college without proper preparation. From my vantage point it is not hard to feel pretty pessimistic about the future. Our best hope is to try and hold on to all of the incredibly talented foreigners that come to get advanced degrees (for the time being at least) in the US. But with stricter immigration policies and ever improving opportunities at home, many foreign students are choosing to return, leaving the US talent-poor and loosing more and more industry.

So back to Oregon. What can a state do to combat these job losses? Produce skilled individuals who have the ability to be high productivity participants in the 21st century. This takes time and resources for the entire educational system. Failure to do so will leave us in the unfortunate position of having a comparative advantage in low value-added activities.

Econ 101: Myth-Busting Self-Service Gas

2011-11-09T09:24:00.000-08:00

MYTH 1: Eliminating Gas Station Attendants Will Just Lead to More Profits for the Owners and No Lower Prices for Consumers.

In the comments section of the previous post on the self-service gas poll, Kari Chisholm, an enormously intelligent guy for whom I have lots of respect, gets one terribly wrong. He argues that if gas station attendants were to disappear, gas station owners would just pocket the excess profits. I am sorry Kari but this is just bad economics - and wrong.

Excess profits, or 'rents' in the economics parlance, come from market conditions. Usually rents come from some sort of market concentration (monopoly or oligopoly) that can either be 'natural' (high fixed costs prohibit potential competitors from entering), or 'created' (regulation, patents, strategic entry deterrence, etc.). Now it may be true that gas stations do capture some rents because of special regulations covering the storage of potentially toxic fuel, among other things, but I doubt it is much. You see, it doesn't take very may gas stations to make a competitive market. The reason for this is that gas is, for the most part, a completely generic product and price information is posted very visibly, so consumers are extremely price sensitive and thus to attract them you have to compete fiercely on price. [For you economics students, this is a pretty good example of Bertrand price competition, in which only a few firms will drive the price to marginal cost] Most studies have found the market for retail gas to highly competitive.

Regardless of how competitive they are, however, the real key to why Kari's suggestion is in the fact that the market conditions do not change if you eliminate attendants, so any rents that exist after the elimination of attendants would be there before as well. The only thing that will change is the marginal cost of providing gas to consumers, and this cost savings will be passed on to consumers by force of competition. [And, by the way, when John Corzine proposed the change for New Jersey, the only other state that forbids self-service, it was the gas station industry group itself that was most instrumental in killing it - which should tell you that they did not expect to make higher profits with the switch]

MYTH 2: National Average Gas Prices are a Good Counter-Factual.

No. Local gas prices are determined by, among other things, state taxes, state regulations and especially, distance to pipelines and refineries. Just saying that Oregon's gas prices are consistent with other states prices where self-service gas is allowed tells us nothing. (But, by the way, Oregon is 4th highest in the continental US for regular gas prices according to the latest data from AAA) The true counter-factual is what would happen to prices at your local gas station if the labor costs were reduced - it doesn't take an economist to figure it out. But seeing as I am an economist, here is the basic econ 101 graph of supply and demand in retail gas with two supply curves, one that includes the extra cost of attendants and the other that does not. Note that when you include attendant cost, price goes up.

MYTH 3: Full-Service is a Good Way to Boost Employment and Reduce Driving, both Noble Goals.

If you buy my argument about gas prices, you may say, but wait, don't we want higher gas prices to discourage people to drive and and thus limit the carbon that is released into the atmosphere? To which I would answer, if that is true then you can increase the tax on gas and achieve the same thing, but the difference is government captures the revenue and can then spend it on things like: lower state college tuition for the types of people that would work as a gas station attendant, investments in public transportation, etc.

Also, full-service gas, as mentioned in previous posts has ambiguous effects on overall employment. There will likely be fewer gas stations with full service and high gas prices affect other industries by raising their costs which will also raise supply curves and lower output and employment. It is quite likely that this will actually lower overall state employment, not raise it, which is why we don't mandate employment in general.

But, by the way, none of this really matters, you can keep everything they way it currently is and still give me the right to pump my own gas (while the attendant watches). Surely you can't argue against that? What I would propose, however, is that each gas station must be able to provide the service upon request, but otherwise people would be allowed to pump their own.

Local Currency

2011-11-08T08:37:00.000-08:00

A story in The Oregonian last Sunday discussed the efforts of a group of people to bring local currency to Portland. The idea is pretty straightforward: with local-only currency (i.e. accepted nowhere else) it can never leave the community, so through the use of such currency you ensure that money you spend remains in the community. This, in turn, helps the local community through increased investment, fostering local connections, enhancing local businesses, etc. The system works on an advanced form of barter where a group of individuals and businesses agree to accept the local currency for goods and services provided. However, you can only use the currency within that group - so only if the group has a good or service you need will an exchange be made.

I want to like the idea, I really do, in fact I lived in Ithaca, New York for five years while in graduate school where perhaps the most successful example of local currency exists: Ithaca Hours. But the economist in me just won't let me get excited about the idea. I certainly don't think there is anything wrong with having a local currency, but I think that claims about the benefits are just not very credible - I don't think it really makes a difference.

The first idea, that this keeps money circulating locally seems to me to be countered by the much lower velocity in the circulation of this money. Even though dollars may quickly leave the Portland market, chances are they will have changed hands locally many times first (on average). The problem with local currency is that it does not solve the barter problem very well unless there are a huge number of participants. If the velocity is quite low, then it may even cause a drag on the economy - slowing down the rate of transactions.

I also don't think that local is the way to think about economic vitality. Most Portland artisans, I imagine, are very happy to fill orders from across the US and the world and would be much worse off if they tried to satisfy only local demand. On the other hand if I take a dollar I earn from my job and spend it at the Corvallis farmers market, I hope that that dollar is spent by the farmer in a way that yields the most benefit to him or her. Maybe it is buying seeds from a wholesaler in another county, or perhaps in a new piece of equipment from Japan, or a cool iPod for the kid that cannot be bought with local currency. I am not clear on how a purchase with the local currency (and apparently there is one in Corvallis but I had never heard of it prior to its mention in the article) helps the local economy if it prevents these purchases by the local farmer.

Finally, the hypothetical extreme is a completely closed off economy. What would I expect from such a place? Lower variety, less efficiency (including higher energy usage) and poorer quality. So why should we want such a world, even in part? I like the idea of lots of goods a services both flowing out of Portland and flowing in - I don't see it as a leakage but as a virtuous cycle of exchange.

As a coda: two of my classmates in graduate school actually wrote and published an economics paper which argued that local currencies could serve as a signal of demand for local goods and thus spur investment in local productive activities. With all due respect to my esteemed colleagues, I think in reality local currencies are so minor a part of the economy (even in a hugely successful system in a tiny upstate NY town), that though theoretically correct, the real effect is negligible.

Introduction to the Mind of an Economist

2011-11-07T08:36:00.000-08:00

When I think about public policy as an economist, my first instinct is (of course) that a market-based solution is usually the first-best alternative. Unfortunately, this is where many poorly-trained economists (or worse, well-trained economists who should know better) stop. I next think about the potential for market failures: un-realized goals or inefficiencies due to aspects of the market that don't match the textbook version. Market failures always exist - the job of a good economist is to identify them and figure out, one, how important they are, and two if the additional inefficiencies that will arise from government intervention are outweighed by the potential gains from such an intervention.

It is from such a lens that I am often either bemused or delighted by public policy in Oregon (and sometimes both). One of the most visible policies that I find bemusing is the ban on self-service gas in the state. First let us dispense with a number of obvious canards about self-service gas: it is not 'dangerous,' it does not lead to increased environmental damage from sloppy customers pouring gas all over the place, it does not reduce automobile insurance in Oregon, it is not less-efficient. So why do we have this policy? Let me try offer some reasonable arguments for and against. For: the elderly and disabled self-service gas can difficult; it creates jobs for a segment of the population that often has trouble finding employment. Against: it is slow and inefficient; it raises the price of gas; employees (who are often teenagers) are exposed to potentially harmful vapors. Are there any others I have not thought about?

Each of these arguments has an element of truth, so how important are they? Well, I think that they are all fairly unimportant save for the first argument about the elderly and disabled - I'll come back to that in a minute. I have seen a figure of about 7,600 persons who are employed as gas pumpers in Oregon. My guess is that this includes a large-portion who are part-time and for whom the income from their job is not what they live on (i.e. teenagers living at home) , so I think that the real impact on the well-being of Oregonians is minimal - these are simply lousy jobs. Besides if this is good public policy, why don't we mandate employment for many other business (no self-service car washes!, no self-service Laundromats!, etc.)? We don't do this because it dissuades investment in new business. As for the arguments on the other side, I believe it is slower and that gas prices are slightly higher. I don't think either is that important. Perhaps this helps achieve another policy goal of reducing slightly the miles driven, but there are much cleaner ways to do that (to wit, a gas tax). I do not know if there is credible evidence to suggest that teenagers are being harmed by fumes, until there is I shall assume the libertarian stance. So in the end, I think this policy fails the pointless test. I cannot see any good reason for government involvement and, therefore as an economist that believes in limiting government intervention in areas in which it is unnecessary, I think this policy stinks.

Now let me return to the one cogent point I put off. I do think that the elderly and disabled argument has merit, because if you have been to our neighbor states recently, I defy you to find anything other than self-service gas. So I can imagine a case for mandating at least the option of having gas pumped for you. However, again, since this does not seem to be an issue in the other 48 states the do not prohibit self-service gas, I would not be in favor of this amended policy solution until I were convinced that it was necessary.

Other policies I hope to comment on soon: bottle bill, payday loans, sales tax.

Note to Self...

2011-11-04T15:29:00.000-07:00

...just changing the dates on old posts to dates in the future does not cause them to repost at a later date, just moves the up to the top of the blog.

Ah well, I really don't have time to deal with this so please pretend that you can see the posts until the date listed while I fire the entire editorial staff.

Programming Note: OEB on Hiatus - Bring out the Greatest Hits!

2011-11-04T09:18:00.000-07:00

A combination of midterm busy-ness, conference travel and overall 'things-are-starting-to-pile-up-so-high-I-think-my-desk-is-going-to-crumble' will keep blogging light to nonexistent over the next two weeks. I will get a chance to see UK austerity up close as I travel to a conference in London and then have a little Beeronomics fun making my way up to Edinburgh for a talk. Actually, I am hoping it is more than just fun but research for a future book as I will be tagging along with a pro beer writer and getting to be in on some conversations about the UK beer industry. I'll pop in here or on Beeronomics if there is anything particularly interesting to make note of.

But don't despair! I am going to repost some oldies but goodies to entertain and enthrall you in my absence.

Cheerio!

Higher Education: So Suddenly You Don't Believe in Markets?

2011-11-03T09:36:00.000-07:00

I came across this piece in Investor's Business Daily by Alex Tabarrok (of Marginal Revolution fame) in which he argues that there are too many arts and humanities graduates and too few science, technology, engineering and math graduates (STEM). [See also this blog post]

Here is a taste:

If students aren't studying science, technology, engineering and math, what are they studying? In 2009 the U.S. graduated 89,140 students in the visual and performing arts, more than in computer science, math and chemical engineering combined and more than double the number of visual and performing arts graduates in 1985.

The story is the same in psychology, which graduates about 95,000 students a year, more than double the number of 25 years ago and far in excess of the number of available jobs.

***

There is nothing wrong with the arts, psychology and journalism, but graduates in these fields have lower wages and are less likely to find work in their fields than graduates in science and math.

As a result, more than half of all humanities graduates end up in jobs that don't require college degrees. Baggage porters and bellhops don't need college degrees, but in 2008 17.4% of them had at least a bachelor's degree and 45% had some college education. Mail carriers don't need a college education, but in 2008 14% had at least a bachelor's degree and 61% had some college education.

Not surprisingly, these graduates don't get much of a financial "bonus" from college. A college graduate in the humanities who finds a job requiring a college degree had median annual earnings in 2009 of $21,000. For those who ended up in jobs not requiring a college degree, the median was just $14,000.

So the obvious question here - especially since the author is a conservative economist pre-disposed to believe in the efficiency of markets - is: what is the market failure here? The incentives to go into STEM are clear, the disincentives to go into these other fields are also clear and yet student freely choose them. Clearly, there is more to a college degree than just how it pays off in the labor market in terms of salary. The fact that many people choose them suggests that there are sizeable non-pecuniary benefits to these degrees. If you believe in markets, then, you should see these stats as equilibrium and evidence of the efficient distribution of degrees across the population. And if a letter carrier's life is enriched by a college degree, then it is not the economist's place to judge - preferences are personal.

But Tabarrok next makes a different and more compelling argument: if the social returns to education are much higher in STEM than in other fields, why don't we subsidize them more?

Moreover, arts, psychology and journalism graduates are less likely to create the kinds of innovations that drive economic growth.

Economic growth is not a magic totem to which all else must bow, but it is one of the main reasons we subsidize higher education.

The potential wage gains for college graduates go to the graduates — that's reason enough for students to pursue a college education. We add subsidies to the mix, however, because we believe education has positive spillover benefits that flow to society. One of the biggest of these benefits is the increase in innovation that highly educated workers bring to the economy.

As a result, an argument can be made for subsidizing students in fields with potentially large spillovers, such as microbiology, chemical engineering, nuclear physics and computer science. There is little justification for subsidizing majors in the visual arts, psychology and journalism.

I am not sure there is good evidence to support the conclusion that the social returns to education are that much higher in STEM than in other fields. Obviously the private returns are higher, one needs only to look at the salaries quoted in the article, but the social returns are another matter. One could make quite a strong argument (and I do) that fields like journalism provide a social return per dollar that is much higher than STEM through the watchdog role they play that limits corruption and other social inefficiencies. Similar arguments for psychologists, artists, librarians and the like are easy to make: in fact it is quite easy to imagine that society reaps huge benefits from those that are willing to accept relative low wages to take these roles.

Finally, I don't think it is at all correct to say we subsidize these fields equally. There are huge government investments in STEM through research support that don't exist to remotely the same degree in arts, humanities and social sciences. This support filters down to fund graduate and even some undergraduate students as well as create capacity for more undergraduates. It takes a lot more infrastructure to train a STEM student (well, perhaps not math) as well, so the costs are higher but tuitions are the same in general no matter your field - which is the same as an extra subsidy.

Which is all to say that I buy none of it. Students should know the facts about the job market post-college (and my experience is that they do), and then make the individual choice about major that makes them the most satisfied given that knowledge.

Picture of the Day: GDP Density

2011-11-02T09:24:00.000-07:00

This graph, from a paper by Gallup, Sachs and Mellinger, is taken from an Econbrowser blog post by James Hamilton. Go there and read it. Interesting stuff. I will add, however, that it does read a bit like the rediscovery of the wheel: economic geographers and development economists have been studying all this stuff (the role of geography versus institutions, resources and the like) for decades.

Population, Poverty and Inequality

2011-11-01T11:11:00.000-07:00

Impossibly busy today with sick kid and meetings, etc. So for your edification I recommend Felix Salmon's piece on population growth. Here is a teaser graph:

For more fun here is his cutesy video:

Picture of the Day: Drivers Becoming More Sensitive to Gas Prices

2011-10-31T08:28:00.000-07:00

Source: The Wall Street Journal

Eco-nomics: Climate Change will Hit World's Most Vulnerable Hardest

2011-10-28T09:00:00.000-07:00

From The Guardian:

Is is the contention that while rich, industrialised nations caused climate change through past carbon emissions, it is the developing world that is bearing the brunt. It follows from that, developing nations say, that the rich nations must therefore pay to enable the developing nations to both develop cleanly and adapt to the impacts of global warming.

The point is starkly illustrated in a new map of climate vulnerability (above): the rich global north has low vulnerability, the poor global south has high vulnerability. The map is produced by risk analysts Maplecroft by combining measures of the risk of climate change impacts, such as storms, floods, and droughts, with the social and financial ability of both communities and governments to cope. The top three most vulnerable nations reflect all these factors: Haiti, Bangladesh, Zimbabwe.

Click here to go to the Maplecroft report.

Picture of the Day: Investing in a College Education Pays

2011-10-27T16:28:00.000-07:00

From the Federal Reserve Bank of Cleveland via The New York Times' Economix blog

The Eurozone Bailout in One Picture

2011-10-27T10:05:00.000-07:00

This is an actual document that came out of the negotiations, reports Felix Salmon:

So now you know.

Picture of the Day: Consumer Spending

2011-10-26T09:05:00.000-07:00

From The Economist. One interesting aspect of this is the decline in spending on consumer durables: cars, furniture, appliances, housing, etc. Eventually this spending will have to pick up as stuff wears out.

Portland Home Values: Case-Shiller August Numbers

2011-10-25T11:27:00.000-07:00

Portland home values were flat in August (up 0.1%) and down 7.6% since August of last year. Except for a couple of outliers, most of the 20 metro areas Case-Shiller tracks did not budge much.

One interesting tidbit, home values are so low in Detroit that it actually had the biggest annual gain, increasing 2.7%. In fact, only Detroit and Washington, DC (0.3%) were in positive territory.

The Wall Street Journal has their sortable table ready for your manipulation.

Businesses Big and Small

2011-10-24T09:57:00.000-07:00

James Surowiecki in the latest New Yorker takes a look at the championing of small businesses - particularly timely now that the presidential primary is hotting up.

Given that the overwhelming number of American businesses are small, and that, as we’ve all heard, small businesses create most new jobs, this seems reasonable enough. But the truth is that, from the perspective of the economy as a whole, small companies are not the real drivers of growth. One can see this by looking at the track record of the world’s economies. The developed countries with the highest percentage of workers employed by small businesses include Greece, Portugal, Spain, and Italy—that is, the four countries whose economic woes are wreaking such havoc on financial markets. Meanwhile, the countries with the lowest percentage of workers employed by small businesses are Germany, Sweden, Denmark, and the U.S.—some of the strongest economies in the world.

This correlation is not a coincidence. It reflects a simple reality: small businesses are, on the whole, less productive than big businesses, and though they do create most jobs, they also destroy most jobs, since, while starting a business is easy, keeping it going is hard. This is true around the world. A recent study by the World Bank that looked at ninety-nine developing countries found that large firms had significantly higher productivity growth. And in the U.S. the connection between size and productivity is, as a 2009 study showed, especially close. In part, this is because big businesses are able to enjoy economies of scale and scope. Big businesses are also better able to make investments in productivity-enhancing technologies and systems; in the U.S., for instance, big companies account for the vast majority of R. & D. spending.

I think another way of thinking about this is that very successful small businesses tend to grow. So when you observe a cross-section the smaller ones are the ones that either are not good enough to grow (and here I am not talking about the little grocery store on the corner which serves a local market but ones where scale economies exist) or are on the path but haven't gotten there yet. So I think the emphasis should not be on small versus large but on start-ups: a healthy economy produces many start-ups, most of whom will fail but a few will become the Googles of the future. Here is a very interesting academic paper that I think makes essentially the same point (judging only from its abstract- it has been added to the pile of paper in my "to read" stack).

Picture of the Day: A Forecast of Job Growth by State

2011-10-21T10:36:00.000-07:00

The Wall Street Journal today reports on a state-by-state job growth forecast by the firm IHS Global Insight. Click here for the full interactive map. Oregon is forecast to have 1.8% growth over the 2011-2017 period.

Soccernomics: News and Notes

2011-10-20T09:19:00.000-07:00

Aaron Ramsey scores the winer for Arsenal, but will the Welshman play for the Great Britain Olympic team?

Timbers Success:

The Timbers have had a great first season in terms of success in the stands. [I would argue that they have had a great first season on the field as well: an entirely new team that had never played together before, primarily made up of modestly paid youngsters still have an outside shot at the playoffs coming into their last game] But this is not that surprising - Portland is a pretty big city with just one major sports franchise that plays in the winter, the novelty of a new franchise with a revamped stadium was almost bound to draw people in for the first season. But now something truly remarkable has happened, the Timbers have announced that 97% of season ticket holders have renewed for next year.

This is a testament to three things in my mind: One, the team itself has struggled at times but the players and coach have connected with fans in a way that most modern sports stars don't. They are modestly paid, approachable and passionate. Two, the Timbers Army has created the most unique atmosphere in all of sports. I used to think nothing could top big time college football for atmosphere in the US, but the Timbers, while different, are just as exhilarating. Three, the Timbers front office has done everything right. This is remarkable considering Civic Stadium is a very difficult venue from a customer service standpoint - inadequate bathrooms, crowded concourses and cramped seats - but the Timbers have had very good attention to detail and have been good at addressing problems.

In addition these three things, and perhaps most importantly, the economics of renewal are right. The Timbers themselves have shown that the ticket price is good value for money: a great night's worth of entertainment, camaraderie and fun. And with complete sell-outs and a 5,000 person waiting list, the secondary market for tickets is very strong - thus renewal carries almost no risk.

What is 'British?':

The Great Britain Olympic football team is not going well. Recall that the countries of the United Kingdom are not that united at all. In fact, the Guardian newspaper recently ran a series, along with conducting a poll, on what it means to be British in the UK and found that notions of Britishness are fading (I suspect that this is a consequence of the collective memory of the WWII generation fading). Because of its unique historical place in football, England, Scotland Wales and Northern Ireland are all recognized as separate footballing nations by FIFA - allowed to compete internationally independently as well as have their own national football leagues. But FIFA and the Olympic movement are not the same thing and the Olympics only recognizes Great Britain as a single country. So what to do in football? The answer, since 1972, has been to not compete at all.

But now with the 2012 Olympics coming to London the push is on to create a Great Britain team. The England FA is all for it, but unfortunately this doesn't sit well with the other national federations. One fear is that this will eventually lead to FIFA no longer allowing separate national teams despite assurances to the contrary. But more than that is the fierce nationalism felt in the other countries, most notably in Scotland where an England loss in football is second only to a Scotland win.

On the Pitch:

The Timbers produced a gutty display last night in DC that wasn't pretty and at times relied on luck but got the road point. Now we are all Philadelphia Union fans! The Timbers showed once again that when they get to the final third of the field, they run out of creativity and attacking prowess. Dwyane DeRosario showed just how much difference a quality striker can make when he is on form. DC could have easily scored three goals all because of DeRo's quality.

Arsenal gutted out an got a quality win in Marseilles in the UEFA champions league last night as well. They are playing a pale imitation of the possession and quick passing game Arsenal is known for under Wenger right now, but perhaps this will teach them how to win ugly when the beautiful game is not on. Defensively they were better, and Koscielny was in great form, but there were one or two heart stopping blunders. And never, ever leave Merteasacker uncovered when he is one-on-one with a winger. Still, things are improving slowly.

So What Percent Are You?

2011-10-19T09:41:00.000-07:00

Leave it to the Wall Street Journal to help you find out:

If you are high enough you could follow Scott Adams' advice and move to the sea - where you will be free of taxation but also of any meaningful law and order. Good luck.

I base my prediction on the fact that the country is out of money, poor people don't have any, rich people do, and the middle class has almost figured out how voting works.

In the old days, every member of the middle class thought he or she had a chance of becoming rich. In that sort of optimistic environment, you don't want to urinate in the pool that you hope to someday swim in. But lately there's more fatalism in the air, thanks to our crushing debt and the hobo militias that I assume are forming all over the country. The middle class will soon trade their unrealistic dreams of wealth for the opportunity to transfer money from total strangers to themselves—a process often referred to as fairness. That's when the rich will get serious about an escape plan, just like the brave little sea creatures billions of years ago.

But where can the rich go? Their choices include nations that have swarms of malaria-infested mosquitoes, bad TV, deadly climates, decapitation issues, French people, bland food and other signs of inhospitableness. When you consider these factors plus wars, pollution, terrorism, floods, droughts, earthquakes and tornadoes, I think you'll agree that most of the surveyed land on Earth is unfit for fancy people.

But wait is this really that fanciful?

Fine 99%-ers, you can have America - I'm going on my own...suckers! Oh wait, I am one of the 99%. S%#t. And it looked so nice too - I could have started my own international crime ring and called it SPECTRE. That would have been cool...

On Inequality and Its Discontents

2011-10-18T09:28:00.000-07:00

Greg Wahl Stevens / Associated Press

Nouriel Roubini has written an essay on a subject that I have wanted to write on for some time now: the impact of inequality on society. Recall the Elizabeth Warren post I wrote asking about the appeal of the populism in her stump speech. What I was interested in, and remain interested in, is how much the increasing inequality is really starting to capture the attention of the average middle-class members of society. Obviously economic crises bring problems like inequality to the fore and to me the Occupy Wall Street movement is about a general sense of deep unease with a system that has such unequal outcomes and seems to reward not the noble and true but the devious and cunning.

Here is Roubini:

This year has witnessed a global wave of social and political turmoil and instability, with masses of people pouring into the real and virtual streets: the Arab Spring; riots in London; Israel’s middle-class protests against high housing prices and an inflationary squeeze on living standards; protesting Chilean students; the destruction in Germany of the expensive cars of “fat cats”; India’s movement against corruption; mounting unhappiness with corruption and inequality in China; and now the “Occupy Wall Street” movement in New York and across the United States.

While these protests have no unified theme, they express in different ways the serious concerns of the world’s working and middle classes about their prospects in the face of the growing concentration of power among economic, financial, and political elites. The causes of their concern are clear enough: high unemployment and underemployment in advanced and emerging economies; inadequate skills and education for young people and workers to compete in a globalized world; resentment against corruption, including legalized forms like lobbying; and a sharp rise in income and wealth inequality in advanced and fast-growing emerging-market economies.

The question is whether this is just an artifact of the economic crisis or is this really a theme that will start to change our view of government and markets? Has history really ended or are will still living history?

Roubini points out the European approach that was more balanced perhaps between the market and the society:

Even before the Great Depression, Europe’s enlightened “bourgeois” classes recognized that, to avoid revolution, workers’ rights needed to be protected, wage and labor conditions improved, and a welfare state created to redistribute wealth and finance public goods – education, health care, and a social safety net. The push towards a modern welfare state accelerated after the Great Depression, when the state took on the responsibility for macroeconomic stabilization – a role that required the maintenance of a large middle class by widening the provision of public goods through progressive taxation of incomes and wealth and fostering economic opportunity for all.

Thus, the rise of the social-welfare state was a response (often of market-oriented liberal democracies) to the threat of popular revolutions, socialism, and communism as the frequency and severity of economic and financial crises increased. Three decades of relative social and economic stability then ensued, from the late 1940’s until the mid-1970’s, a period when inequality fell sharply and median incomes grew rapidly.

But we all know of the malaise of the 1970s and 80s and the ensuing Thatcher revolution in the UK which dramatically scaled back the roll of the state in the economy, which did usher in a period of growth and prosperity in the UK that had been largely absent since the industrial revolution. This experience is something, no doubt, that the Cameron government has been very successful in using to justify the recent austerity measures.

But Roubini has reservations about the dismantling of the welfare state in Europe:

Any economic model that does not properly address inequality will eventually face a crisis of legitimacy. Unless the relative economic roles of the market and the state are rebalanced, the protests of 2011 will become more severe, with social and political instability eventually harming long-term economic growth and welfare.

This is precisely what I am unsure of. Are these protests really going to last and grow until there is fundamental change? And if so, will it be for the better or worse? What exactly is the causal link between our very free-market approach and the amazingly innovative, creative, transformative economy we have developed?

I don't know the answers, but I have this sense that tectonic shifts are taking place that is going to rearrange the landscape if for no other reason but that we cannot sustain the entitlements we have and change is inevitable - the question is in which direction will we move?

Wonkiest Signs at the OWS Protests

2011-10-17T11:35:00.000-07:00

Doesn't really fit on a bumper sticker, but it is pretty smart... See all at Ezra Klein's Wonkblog.

Why Can't We Be More Like Canada?

2011-10-14T10:50:00.000-07:00

I tried hard to come up with some humorous Bob and Doug McKenzie reference that only us 40+ folks would get, but unfortunately I have a 40+ mind, and I'll I can remember is "hoser" and "take off!"

Alas.

Anyway, I am desperately trying to get some stuff done before the weekend so I'll farm this post off to Josh at the Oregon Office of Economic Analysis who has an excellent post about Canada's economy outperforming the US. The point is beautifully illustrated here:

Beauty, eh?

Does the NBA Lockout Hurt the Portland Economy?

2011-10-13T09:05:00.000-07:00

Recently, The Oregonian ran an article about the potential economic damage to the area economy if the NBA season were delayed or cancelled. Since they have already cancelled the first part of the season it is worth thinking carefully about how big an impact it will have.

From Joe Freeman's article in The Oregonian:

"The value of the Blazers team to this community is measured in the millions," said Drew Mahalic, CEO of the Oregon Sports Authority. "Their absence will, quite frankly, be devastating to the Portland regional community in that it impacts so many different businesses when they play."

A lot of the revenue generated from Blazers games -- gate receipts, parking dollars, food and concession funds -- pads the wallet of billionaire owner Paul Allen and helps pay for the multimillion-dollar operation of running the team.

But Blazers home games also funnel money throughout the community. TriMet ridership increases on game nights. Business booms at local restaurants and bars. Hotels house visiting NBA teams.

Also, to help host a Blazers game, the Rose Garden contracts with up to four vendors, including Ovations Food Services, which oversees the food and beverage operations for the Rose Quarter and employs 900 people every game night.

The specific examples are all relevant but let's think through the overall claim that the impact will be huge. The key to thinking about this is to do a little off-the-cuff aggregate demand (AD) analysis - will the absence of the Blazers be a big hit to the area economy's AD? It is here that we have to think about where AD comes from: the total income in the economy which is, of course, governed by the value of the total output. Yes the Blazers do produce something of real economic value - a game's worth of entertainment has value just as a hamburger does or some other tangible consumption good - but is it really a significant part of the local economy?

The evidence suggests that it is not. Here is a nice synopsis from Neil deMause at Slate:

...Robert Baade, Robert Baumann, and Victor Matheson tried a different tack. That trio of economists zeroed in on the state of Florida, looking at how sales tax receipts changed during every MLB, NFL, NBA, and NHL labor stoppage since 1982. Baade, a Lake Forest College professor who's spent the better part of three decades studying the impact of pro sports teams, explains that they picked Florida because it reports sales tax data on a monthly basis. "You're really looking for a needle in a haystack," he says of trying to divine economic effects on a whole city from a single sports team's absence. "But if you're looking at something like tax revenues, you're reducing the size of the haystack."

The new study delivered the same results as [an] earlier one: When leagues shut down, sales tax receipts keep chugging along. In Miami, the disappearance of the Heat during the 1998-99 NBA lockout showed an extremely weak 0.00987 correlation with sales tax figures; the 2004-05 lockout of the Florida Panthers has an even slighter effect, at 0.00739. And almost as often, the direction of the signs ran the opposite way: The 1994-95 NHL lockout had a negative correlation of 0.00353 with sales taxes—if anything, people in Miami appeared to be spending more as a result of the Panthers being on the shelf.

"If professional sports have a positive impact on a region’s economy, then one should expect a consistent pattern of increasing taxable sales following franchise expansions and the construction of new stadiums and a pattern of decreasing taxable sales ratios during periods of labor disruptions," the three economists reasoned. Instead, "no statistically significant effect on taxable sales is found from the sudden absence of professional sports due to strikes and lockouts."

Why is there such a negligible effect? The key is to imagine what people do in the absence of a Blazers game - do they stuff their money in their mattresses or do they find other things to spend their money on? And, if they don't spend on the Blazers - where a not insignificant portion of their money goes out of the local economy (into the coffers of Vulcan and the paychecks of visiting team players and coaches, etc.) - do they spend it on things that represent fewer of these leakages (like local restaurants, for example)? The research suggests that to a large degree people shift their spending to other things and that to the extent that they don't the counter-leakage effect compensates.

Now, of course, there are specific businesses that are pretty dependent on the Blazers, sports bars and restaurants within a short walk of the Rose Garden, that will take a significant hit, but the overall effect to the Portland metro economy is likely to be minimal.

Still, the whole thing sucks and I want the Blazers back! And, while we are on the Blazers, am I missing something or has there not been a peep about Greg Oden? I'd like to know how his rehab is going. If the season started on time, would he have been ready to go?

Why Should Oregonians Care About Greece?

2011-10-11T11:15:00.000-07:00

I received an e-mail from a reader about the Greek and EU situation and, in particular what it will mean for Oregon. I can only give some general thoughts, but let me first start with a bit of a primer (the letter writer clearly understands the situation well so this is for those that don't). This is all a bit of an over-simplified synopsis and please feel free to add/subtract/comment.

When the Euro was created there were a lot of observers (like myself) that wondered how you could possibly make a system work where monetary policy was aggregated to the European Central Bank (ECB) but fiscal policy was left to the member countries. Having your own currency is an important constraint on fiscal mismanagement for if you become overly indebted, investors start to flee and dump your currency thus devaluing it. The devaluation of the currency has the effect of making imports more expensive, but making exports more competitive, but it also have the effect of easing debt burdens because it tends to spark inflation (along with the high interest rates that arise as a result of how much the government has to offer to borrow money). There is also an incentive problem: when Greece adopted the Euro, they suddenly could borrow money much more cheaply than they had previously been able to, and so they borrowed.

The solution to the fiscal v. monetary policy problem in the Euro zone was strict guidelines on fiscal management. Which is fine as long as everyone plays fair. Greece did not. In essence the Greeks cooked the books and hid massive government debts for years. When the extent of the malfeasance came to light, suddenly Greek bonds (government debt) were a much more risky assets than was thought to have been the case. Unfortunately the exposure to Greek debt among European banks, already rocked by the banking crisis of 2006, is very high. Already Greek bonds have been downgraded, meaning they do not count the same against banks' reserve requirements, and the moment the Greek government starts to default on its debt they become essentially worthless. So teetering European banks already struggling to re-capitalize will be at risk and it will be 2006 all over again. Not to mention that a default in the Euro zone would do damage to the Euro itself and that there are other EU countries that are in pretty bad shape that could get walloped if Greece defaulted and spooked investors.

So this is why this is a true global crisis, not just a problem for the Greeks.

Now, what does this mean for Oregon? Nothing directly but a lot indirectly. A massive European crisis with failing banks and defaulting countries would once again send the global economy into a tailspin just as the US centered banking crisis of 2006 did. Though we largely bailed out banks and kept the system from collapsing and whether there is enough collective will in the EU to do the same is the $24,000 question of the day. I think, in the end, the answer is yes as German banks are pretty badly exposed as well to Greek debt and Germany is the linchpin in all of this.

Anyway, such a collapse would hurt the US economy and thus Oregon. Trouble for a major trading partner and market for our goods would hurt the US and Oregon. Even though a lot of our trade is with Asia, much of it ends up in consumer goods that ship globally. Asian trade is a buffer for Oregon, certainly, but I don't think it would be enough for Oregon to escape the effects of a European crisis. In addition, an already difficult credit situation would be made worse by the European banks plight. So that will affect the US economy and thus the Oregon economy.

My e-mailer also asks about the muni bond market. Here I think it is hard to know what will happen. US muni bonds are under duress right now due to the recession's impact on state and local budgets and the massive pension obligations that are locking up big slices of muni budgets all over the US. I don't think Greece will affect this market directly, but will indirectly if it causes another US recession. Capital, however, has been flowing in to the US as a safe harbor so this might have a countervailing force.

So there you have it, my off-the-cuff observations on why even Oregonians should care about what happens to Greece.

Picture of the Day: Declining Household Income

2011-10-10T11:01:00.000-07:00

From the NY Times:

The Economics Nobel

2011-10-10T09:19:00.000-07:00

Goes to Chris Simms and Tom Sargent. From the Nobel announcement:

The art of distinguishing between cause and effect in the macroeconomy

How are GDP and inflation affected by a temporary increase in the interest rate or a tax cut? What happens if a central bank makes a permanent change in its inflation target or a government modifies its objective for budgetary balance? This year’s Laureates in economic sciences, Thomas J. Sargent and Christopher A. Sims, have developed methods for answering these and many other questions regarding the causal relationship between economic policy and different macroeconomic variables such as GDP, inflation, employment and investments.

The economy is constantly affected by unanticipated events. The price of oil rises unexpectedly, the cen- tral bank sets an interest rate unforeseen by borrowers and lenders, or household consumption suddenly declines. Such unexpected occurrences are usually called shocks. The economy is also affected by more long- run changes, such as a shift in monetary policy towards stricter disinflationary measures or fiscal policy with more stringent budget rules. One of the main tasks of macroeconomic research is to comprehend how both shocks and systematic policy shifts affect macroeconomic variables in the short and long run. Sargent’s and Sims’s awarded research contributions have been indispensable to this work. Sargent has pri- marily helped us understand the effects of systematic policy shifts, while Sims has focused on how shocks spread throughout the economy.

Being primarily a microeconomist I don't regularly interact with their work. However, I learned the technique of overlapping generations in dynamic models (which I still use all the time) from Sargent's book, and in my limited time-series econometrics training, Sims' vector autoregression was probably the most important and useful tool.

And there is already a lot of fighting about whether this is a freshwater (rational expectations - Chicago and Minnesota) or a saltwater (new Keynesian - Cambridge and Berkeley) prize. I think it is explicitly neither. Neither of the economists was wedded to a particular camp and what might distinguish them is a search for truth without philosophy. Perhaps this is the message the Nobel committee is sending.

Picture of the Day: Computing Costs and Apple

2011-10-07T09:00:00.000-07:00

From Felix Salmon:

Just another example of the remarkable increase in productivity in consumer electronics. And it is industries like this that, when comparing them to industries like symphony orchestras, gives us the concept of cost disease.

Are Agglomeration Externalities Antithetical to Conservative Ideology?

2011-10-06T12:24:00.000-07:00

A fascinating blog post by Felix Salmon yesterday got me thinking about the intersection of economics and politics in a new way.

[T]wo of the biggest and most daunting long-term problems facing the US economy are (1) the fact that Americans aren’t as well educated as their counterparts elsewhere in the world; and (2) the fast-growing obesity epidemic.

Both of these problems are caused, in large part, by America’s very high levels of child poverty.

So if you fix the child-poverty problem, you’ve made a serious dent in both the education problem and the obesity problem.

What’s more, the child-poverty problem really is one of those problems which can be fixed quite easily just by throwing money at it. Give enough money to children in poverty, and they’re not poor any more. Problem solved — at least to a first approximation.

***

Is there a conservative way of addressing such issues? I don’t think there is — I think that conservatives will simply say that questions of education and nutrition are a matter of individual choice, and that the government should not concern itself with such things. But if we continue down that road, I fear that the unemployable underclass will only continue to grow. And that anger at the powers that be — whether it comes from the Tea Party or from Occupy Wall Street — will only continue to grow along with it.

What Felix is talking about here is essentially an externality problem, what we in economics call agglomeration externalities. The easiest way to explain is to talk about what is perhaps the most common one: education. The idea is that the more educated people there are in a society the more society benefits as a whole. So an individual's education not only benefits themselves but also has an added benefit to the society as a whole. We call this social returns to education.

Health problems are another potential example: sick people create a drag on both productivity as well as on the health care system which, in turn, creates a drag on the economy.

Assuming these types of externalities exist, they create a role for government to help promote the activities with positive externalities and restrict the activities with negative externalities. And indeed governments do: we build bike lanes and tax cigarettes for example.

Whether such agglomeration externalities exist is a question that becomes political for these very reasons. I recently had a editor of a top journal reject a paper for assuming social returns to education. I had defended the assumption with what I thought was a pretty convincing set of empirical studies, but his conclusion was that the verdict had been decided the other way. I am not sure his judgement was a political one, but perhaps - he was from a certain school that has become synonymous with conservative economics.

But what Salmon makes me wonder is if the very idea of agglomeration externalities is somehow incongruous with the whole individualist philosophy of some conservatives.

I don't really have an answer here, just a question: suppose that for some activity agglomeration externalities are real, positive and large for economic growth - does this mean necessarily that government should be involved with actively promoting the activity? And if so, does this undermine the idea of individual self-determination in favor of collective action?

Bike-o-nomics: Okay Portland, the Bar has Been Raised

2011-10-05T09:31:00.000-07:00

Nobels: Young and Old

2011-10-05T09:07:00.000-07:00

I realized my view of the Nobel prizes has been biased by the Economics Nobel (yes, I know, not really a Nobel) which is generally given to an economist well into his or her august years. Perhaps it is a function of our quasi-science (pseudo-science?; quackery?) that it takes a long time to develop a body of research that means anything truly useful. So when I saw the face of physics Nobel laureate Adam Reiss my immediate thought was of how young he looked and, in fact is: he is 41.

So it got me thinking about how young the youngest Nobel laureate of all time was and what are the average ages for the prizes. And wouldn't you know but the Nobel organization themselves has a handy se of tables for such things.

Here are the youngest ever:

Here are the oldest ever:

It looks like physicists are well represented among the youngest, while the geezers are from all over. But my impression of economics is basically correct, the youngest ever is 51 and it also has the oldest laureate (which I guess means that economists lead long lives):

Two things come to mind in looking at this: one is the old adage in math that mathematicians are essentially washed up by 35; and the other is that as the economics prize is relatively young, it has been playing catch-up - trying to award the big contributors before they croak and become ineligible. The really youngest on the list are the physicists from the golden age of physics - what a great time it must have been! Notice how among the oldest are physicists who won the prize in the 21st century. The truly big discoveries in physics are bloody hard now and take a lifetime perhaps.

Why you should find this interesting is beyond me but I am tired of writing about how bad the world economy is tanking....

Score one for Brady: The Mayoral Candidates and the Leaf Fee

2011-10-04T09:07:00.000-07:00

Roger Jensen/The Oregonian

I have been underwhelmed by the current crop of candidates for the Mayor of Portland: Hales has come across as a crass opportunist; Smith seems far to eager to be a politician and thus do stuff to make a name for himself regardless of whether stuff needs to be done; and Brady has played the businessperson card which always makes me suspicious that they don't get the difference between markets and market failures.

What I mean by that last statement is that running a business that operates in a private goods markets is all about understanding how free markets work, appreciating the discipline of the market and so on. And, indeed, early on Brady made a statement about understanding the hard realities of the market as an attribute that would make her a good Mayor. But government is all about what economics calls market failures: instances in which the free market does not reach an efficient outcome because of things like public goods, asymmetric information and externalities. In these situations government has a role to play so that efficiency can be achieved, think providing police for example.

So it is not at all clear to me why having been a businessperson is such a positive trait for a Mayoral candidate in my view. It also seems there are as many examples of businesspeople-turned-politicians failing as succeeding. Though I will say that Portland's crazy system of government with the stove-piped bureaus causes residents and businesses fits and any reform would probably be a positive thing. And it may be that a former businessperson would be more likely to push for reform. Though the other crazy thing about the governance of Portland is that the Mayor has almost no power to achieve meaningful reform. Still I would rather a Mayor pined for reform than embraced the current system.

When asked recently by The Oregonian about Portland's new leaf removal fee, however, Brady nailed it and in so doing revealed an understanding of market failures and incentives that trumped the other candidates:

"Leaf collection is a basic city service that should be funded through existing revenue streams," Brady wrote in an email. "And frankly, I want citizens to have incentives - not disincentives - for planting trees. As mayor, I will put an end to the leaf collection fee."

Wow, I couldn't have said it much better myself. In fact, I did. City streets are a public good and the maintenance of them is, rightly, a public problem. Once you start to carve out private responsibility you distort incentives and cause new problems.

Disappointingly, Hales responded thusly:

"The goal is to have storm drains free from clogs, not filling the city's coffers from homeowners who already pay a lot in property taxes. That being said, I think that the city has done a good job in trying to work the kinks out as they gear up for this year's collections. A streamlined opt-out system and the new addition of being able to rake all your leaves into the street seem like a good thing to try. Again, the goal is a public safety one, not a revenue-production one -- if this new system doesn't work then we need to explore other options."

Yes the goal is to have safe and navigable city streets: a public good. But no, the proper response is not to make the provision of such streets a private responsibility. Economics 101.

The worst response is Smith's non-response. This gives the impression at least that he wanted to know what the best political answer was before responding. Boo.

And good call by the O, by the way, for getting a response to this specific policy. It is in the details that we begin to really learn about candidates. Just reporting on their campaign rhetoric does no one any good.

Wonder Why the Recovery is not Taking Off? It's the States Stupid

2011-10-03T10:01:00.000-07:00

Michael Lewis has another nice piece in Vanity Fair magazine about state and, particularly, local finances focusing on California.

It is Michael Lewis so it is, of course, good reading. But delves a lot into personality at the expense of the basic message: state and local governments are on the rocks and the deep cuts are going to get worse before they get better. All this is incredibly damaging to a national economic recovery that is struggling to gain any traction at all. Wonder why the recover is faltering? It's the states stupid.

Because of course these budget problems are not isolated to California. For example, Chris Gregoire in Washington state has asked all state agencies to prepare for a significant all-cuts budget reduction. Kitzhaber has done something similar in Oregon. Lewis writes a lot about the pension obligations that municipalities face and have not adequately prepared for and Oregon's municipalities are no different. Portland, for example, has a pension bubble a-coming that it has only partially addressed.

The point of all of this is that any hope of a quick recovery is pretty much dashed when you start to contemplate the collective force of almost all states slashing budgets.

Depressing.

NB: Oh and in a little fact-checking exercise, Felix Salmon debunks a Lewis claim that obesity and indebtedness are highly correlated across states. It is a wonderfully evocative literary device: the lack of self control in both debt and diet... But alas, it is also exactly wrong - they are negatively correlated.

Picture of the Day: US Research Universities Still Dominate

2011-09-30T09:59:00.001-07:00

Credit: New York Times. Source: O.E.C.D. and SCImago Research Group (CSIC) (forthcoming), Report on Scientific Production, based on Scopus Custom Data, Elsevier, June 2011. Statlink http://dx.doi.org/10.1787/888932485310

Cosmic Order is Restored

2011-09-29T08:49:00.000-07:00

Credit: Boston Globe

Growing up with a Bostonian as a father - and one who grew up a short walk from Fenway Park no less - I was always taught that there is only one thing you can count on in life: that the Red Sox will blow it in the end. Recently this has not been true, they won two World Series in 2004 and 2007. And while this delighted my long-suffering dad, it was clear that it was also slightly unsettling, as if the sun suddenly started rising in the west.

So it is with great relief that I note that the Red Sox have finally restored order to the universe with a late-season collapse to eclipse all others. It is as if that are atoning for the sins of '04 and '07.

And this morning I noted with some satisfaction that the sun again rose in the east. Phew...that was close.

Picture of the Day: Effective Tax Rates

2011-09-29T08:34:00.000-07:00

From The Economist a nice chart compiled from a KPMG report on relative tax rates for those earning $100,000:

Picture of the Day: A Three-fer!

2011-09-28T09:47:00.000-07:00

Courtesy of the Wall Street Journal's Economics Blog and the Oregonian.

The first is some good news in housing:

Quoth the Journal:

Because of a drop in housing starts and fewer existing homes put on the market, the inventory of homes for sale has been whittled down.

Taken together, the months’ supply of new and existing homes for sale stood at 8.4 months at August’s selling rates, down from a large supply of about 11 months a year ago.

Equally important, fewer homes are waiting to go on the market. This so-called “shadow inventory” consists of homes in foreclosures, those already repossessed by the lender or homes with a mortgage delinquent for 90 days or more.

While we are talking about housing, here is the Oregonian on the latest Case-Shiller numbers showing that Portland home vales remained flat - which is an improvement:

Lastly here is a little snapshot of where consumer spending goes from the BLS's 2010 Consumer Expenditure report.

You can see a cool interactive version at the WSJ.

Tuesday Catch-All

2011-09-27T08:48:00.000-07:00

A mashup of randomness from the internets:

I must be very superficial, because I attended two of the top ten most beautiful colleges in the nation (according to Travel + Leisure): Lewis & Clark College and Cornell. And it is probably true about me - I visited both campuses while in the process of choosing schools to apply to and was stuck by the beauty of both. But I also attended the University of Wisconsin and am surprised it didn't make the cut. True, the campus careens from beautiful to ugly in a heartbeat, but the setting on the shore of Lake Mendota is spectacular.
Portlanders are cheapskates! Apparently the Hollywood district pay-what-you-choose Panera Bread Co. is doing much worse than similar stores in St. Louis and Detroit. Detroit! Surely we can do better than the economic catastrophe that is Detroit people. Or maybe Portlanders are just better educated in economics...
Pity the poor cocaine dealer. Apparently Cocaine is a normal or even a luxury good - usage appears to be way down since the beginning of the crisis.

Opening Day

2011-09-26T08:50:00.000-07:00

Classes at OSU begin today and so I am quite busy. So this is a note to say welcome to new students and welcome back to returning ones.

Class Warfare?

2011-09-23T09:06:00.000-07:00

Here is Elizabeth Warren doing a pretty good job at a populist description of the social contract (as she sees it):

I wonder how this will resonate? What do you think, do you buy it? [HT: The Washington Post]

Inequality and Growth: Do We Need the Rich to Prosper?

2011-09-22T12:59:00.000-07:00

One of the general themes of the recent debates about budgets is that if we burden the wealthy with a too progressive tax system it will create a disincentive for them to make the kinds of investments that are vital to grow the economy. It is a powerful argument and one with a long historical tradition in economics popularized by Arthur Okun (of 'Okun's Law') who called it the equity/efficiency trade off. It is powerful, but it also appears to be wrong.

From the IMF:

Do societies inevitably face an invidious choice between efficient production and equitable wealth and income distribution? Are social justice and social product at war with one another?

In a word, no.

In recent work (Berg, Ostry, and Zettelmeyer, 2011; and Berg and Ostry, 2011), we discovered that when growth is looked at over the long term, the trade-off between efficiency and equality may not exist. In fact equality appears to be an important ingredient in promoting and sustaining growth. The difference between countries that can sustain rapid growth for many years or even decades and the many others that see growth spurts fade quickly may be the level of inequality. Countries may find that improving equality may also improve efficiency, understood as more sustainable long-run growth.

Actually, I think the verdict is far from in on this one, I am not convinced we have the data we need to settle this question. But the bulk of the evidence points to inequality being more of a drag on growth then a boost. Certainly there is no good modern evidence to support the equality v. equity tradeoff.

R.E.M.

2011-09-21T11:10:00.000-07:00

R.E.M. have called it quits:

"To our Fans and Friends: As R.E.M., and as lifelong friends and co-conspirators, we have decided to call it a day as a band. We walk away with a great sense of gratitude, of finality, and of astonishment at all we have accomplished. To anyone who ever felt touched by our music, our deepest thanks for listening." R.E.M.

A sad day. My wife and I had our first date at an R.E.M. concert in 1989 at Memorial Coliseum. It was a great night and a great concert and the rest - 22 years, a dog and two kids later - is history. Which, of course, means two things:

1. A seminal part of my youth and young adulthood is now gone.

2. I am OLD.

Truth be told the time was probably right - their music of recent vintage has lost that certain edge (e.g. Rolling Stones), still great but no longer transcendent. They will be missed.

My first ever R.E.M. concert was at the Civic Auditorium - back in the day when Portland was more civically minded (Civic Auditorium, Civic Stadium, etc.) - for their Life's Rich Pageant tour. Over the years I have caught their shows in many places, the best venue perhaps being Red Rocks in Denver which is incredibly cool. But I had managed to score fifth row center seats for the concert with my future wife (apparently this was impressive enough that she agreed to a second date) and it remains my favorite concert for obvious reasons. Besides it was the Green tour and the band were, by that time, incredibly tight and had learned all about arena showmanship. Big fun.

Comparative Crises

2011-09-20T09:19:00.000-07:00

Absolutely essential reading over at the Oregon Office of Economic Analysis blog where Josh updates the Reinhardt and Rogoff data on comparative crises.

He shows this graph which I have also been showing from time to time to give some perspective on the seriousness of the current recession relative to US recessions past. Ouch:

But how does the current US crisis compare to other serious crises around the world? Here is a comparative graph:

As you can see, our crisis is not at all exceptional. And look how long it took the other crises to resolve themselves. Lost decade, anyone? Go check out the full post.

Soccernomics: To Be or not To Be

2011-09-19T09:56:00.000-07:00

Jere Longman and Sarah Lyall have a very nice piece in the New York Times today about one of the more curious quirks of international sport. The International Olympic Committee, along with the United Nations, recognizes the United Kingdom as a country for their participation in the Olympics. Thus, athletes complete for Great Britain under the Union Jack for the purposes of the Olympics. The United Kingdom, however, is an entity for external purposes only, inside the UK are four fiercely independent counties. And in soccer, the four countries that make up the UK, England, Scotland, Wales and Northern Ireland play independently under FIFA rules. As soccer is a major sport of all four countries, the national teams are closely related to each country's national identity and pride.

Those familiar with the UK will know that there is a very strong sense of parochialism in Great Britain, where virtually no one considers themselves British in the larger sense, but English, Irish, Scots and Welsh. The separate identity of their soccer teams is thus vitally important to all the four nations and most fans of Scotland, for example, will actively root against England and vice-versa. There is also the considerable concern that if Great Britain fields a team at the Olympics, FIFA (despite assurances to the contrary) will stop recognizing the independent national teams of the four UK countries and force them to merge. So, for the last half decade there has been no Great Britain soccer team at the Olympics.

Which has been pretty much fine and well with all parties involved. The Olympics is not a major event in the soccer world which has its own international championship: the World Cup. In fact, to make the Olympics relevant, it has become an under 23 tournament in which professionals are allowed to participate. But now the Olympics are coming to Great Britain and the prospect of hosting a soccer tournament on British soil without the participation of the British themselves - the inventors of the game - is causing some consternation. There is a movement afoot to field a Great British team for this Olympics and FIFA have assured the national authorities that their independence as separate footballing nations would not be put in jeopardy if it came to pass. But few believe it - and anyone who follows FIFA in the slightest will know how corrupt, arbitrary and unpredictable is the governance of the body.

And then comes the players for whom their national identity is sacrosanct, but for whom the Olympics may be their only chance to compete in a meaningful national tournament. This is a tension not easily resolved. Here is a nice excerpt from the NYT piece:

It has also divided players. Some, like Julie Fleeting, Scotland’s career-leading female scorer, have said they will not risk their futures by competing on Team GB. “I am Scottish through and through,” she told reporters in June.

But other high-profile players — including Aaron Ramsey, the captain of Wales’s national team, who plays for Arsenal in England’s Premier League, and his Welsh teammate Gareth Bale, who plays for Tottenham Hotspur — have said they would like to play. (David Beckham, the onetime England star, has also expressed interest.)

“I don’t see why anyone would want to stop a player from playing in a massive tournament like the Olympics,” Kim Little, a top Scottish women’s midfielder, told The Guardian.

One incentive to play for Britain, noted by Bale, could be that the non-English national teams have such woeful international records. Wales, for instance, has only ever qualified for one major international competition: the 1958 World Cup.

But the federations resist and many worry that this will lead to the erosion of relevance for the smaller nations.

Scotland, for instance, already worries that its soccer federation is “by and large forgotten” and that “for many people abroad, England is Britain,” said Raymond Boyle, a professor at the Centre for Cultural Policy Research at the University of Glasgow. Many Scots, it seems, sympathize with Craig Brown, the former Scotland manager who now coaches Aberdeen. “I would rather lose as Scotland than win as Great Britain,” he told The Guardian.

And in Wales, Neville Southall, the national team’s former goalkeeper, told reporters recently that he could not conceive of supporting a non-Welsh team. “The whole point of going to the Olympics is that special moment when your flag goes up,” he said.

“What flag are they going to put up if Team GB win the football? The Union Jack? Well, it’s not my flag; my flag’s a Dragon.”

As a personal note, my grandfather's family emigrated from Scotland to England (and even then the ancestors were probably part of the great Irish migration to Scotland) and then to the US. My grandfather used to fly the Royal Standard of Scotland, the Union Jack and the US flag at his house in California which made him unusual in his embrace of the Union flag (though perhaps less unusual in the expat community). I would imagine that WWII had a lot to do with his perspective. As a veteran of the war, having served in the RAF, I think the experience of fighting off foreign would-be invaders under the Union flag must have an impact. But perhaps the youngsters have lost this memory and are back to the tribalism of old. I, for one, think it would be cool for all the young stars of the four countries to play together, but then my family spans Scotland, England and Wales so I don't put much emphasis on national identity.

Okay, so there is not a lot of 'nomics to this soccer post...

Picture of the Day: Portland's GDP and Employment Growth

2011-09-16T08:34:00.000-07:00

... was relatively strong in 2010

Q: Why?

Bike-o-nomics: Infrastructure, Part 2

2011-09-15T09:53:00.000-07:00

A reader and economist friend e-mailed me in response to my post on bike infrastructure and biking to argue that there is a lot of endogeneity at work with infrastructure as well as politics and socialization. I agree completely and will discuss each below, but I was trying to focus on a simple point in the post: though many factors are clearly at work, it seems quite likely that part of Portland's exceptionalism is its aggressive push on bike infrastructure.

It is simple economics, reduce the cost of an activity and more of the activity typically happens. Same thing with increasing the benefits. Bike infrastructure reduces the cost of biking making it safer (or at least feel safer), reduce car/bike conflicts, decrease travel times, etc. It may also increase the benefits, for example the Springwater trail which I take to go downtown is a lovely ride and increases the pleasure if the ride (as well as substantially reducing the cost).

But of course it is also true that the more bikes on the road the greater the need for infrastructure and this pressure prompts the city to provide it. So the causality does not all run one way and I didn't mean to suggest it does. But the interesting empirical question remains, what explains the fact that Portland has increased ridership so much faster than other cities?

Credit: New York Times

Washington, DC, for example, is a great biking city over-run with young hipsters and in 1990 the proportion of bike commuters is roughly equal. It is realtively flat, the weather is generally conducive to biking, etc. I lived there in 1993 and enjoyed biking all around. I would argue that the lack of equal bike infrastructure along with the great subway system makes biking more costly and public transportation less costly relative to Portland. So while the growth of infrastructure in Portland is partly in response to bikers, the the number of bikers seems to clearly respond to infrastructure investment.

There are also two other feedback loops that were mentioned. The first is the political one: more bikers means more political pressure that can (and is) brought to bear on local bureaucrats to provide more bike infrastructure. More infrastructure, more bikers, more political pressure, etc. The second is the social aspect of biking. The more that do it the safer one feels in doing it as well, the more socially acceptable it is, the more 'doable' it seems and the more fun it is potentially. However this can also become a cost - bike traffic jams and difficult traffic (e.g. Hawthorne Bridge at 8:30am) can make the commute more burdensome.

The point of the original post is precisely that it is not obvious to me why these feedback loops would be so much stronger in Portland. They may all be a little stronger, but the increase in bike commuters in Portland over the last decade suggests that this is not a complete explanation. I suspect then, that it it probably the case that Portland is exceptionalism is due to an above average push for infrastructure.

What I don't know is if my notion of more aggressive bike infrastructure spending in Portland is correct. The only data I can find in a quick search is from a paper by Jennifer Dill and Theresa Carr of Portland State which includes a table that suggests Oregon was second only to New Mexico in terms of 'average spending per capita for pedestrian and bike infrastructure.' But this is not really informative enough to make the connection to the graph above.

Oregon Unemployment Rises to 9.6% in August

2011-09-13T10:09:00.000-07:00

The Oregon unemployment rate is essentially stuck in the mid-nine percent range. It has been there for five months and this month it inches up marginally to 9.6%. On the jobs front, the seasonally adjusted payroll numbers rose by 800, following a newly revised July loss of 3,300. Relative to past performance, construction was down sharply, while professional and business services employment grew more than is typical. Government employment is off by 7,700 jobs over the last five months while private employment grew each of the last five months.

The local story is essentially the same as the national story: the economy is not creating jobs at the moment, leaving us stuck at the bottom of a very large hole dug by the financial meltdown and subsequent recession. We just aren't making any substantial progress and as the federal government switches from stimulus to austerity there is little hope of a near-term recovery.

Income and Poverty in the US

2011-09-13T08:47:00.000-07:00

I will jump on the same report everyone is talking about: the US income and poverty numbers from the Census Bureau. It is sobering reading and really captures not just the impact of the current recession but also the slow erosion of the middle class lifestyle in the US.

Here is the New York Times:

The portion of Americans living in poverty last year rose to the highest level since 1993, the Census Bureau reported Tuesday, fresh evidence that the sluggish economic recovery has done nothing for the country’s poorest citizens.

And in new evidence of economic distress among the middle class, real median household incomes declined by 2.3 percent in 2010 from the previous year, to $49,400.

So what we have currently is a tremendous number of US households under extreme stress while at the same time we are cutting social services drastically.

Another sobering statistic:

According to the Census figures, the median annual income for a male full-time, year-round worker in 2010 — $47,715 — was virtually unchanged from its level in 1973, when the level was $49,065, in 2010 dollars.

Bike-o-nomics: If You Build It, They Will Ride

2011-09-12T09:45:00.000-07:00

Here is an interesting graph from an interesting opinion piece in the Sunday New York Times about Janette Sadik-Khan, New York City’s transportation commissioner, who has made big waves in NYC for her aggressive push for more bicycle infrastructure. Whenever anyone talks about urban biking in the US, Portland is mentioned. You can see why above.

What strikes me about this is twofold: One, 5.8% of all workers in Portland commuting by bike is an enormously large number and the growth over the last two decades is stunning both in absolute terms and in relative terms. Two, I think it is pretty clear that building bicycle infrastructure works if the goal is to promote more biking, especially commuting.

I bring this up because the amount of city funds devoted to bike infrastructure is a hot button topic these days what with all the budget crunches. The question of whether infrastructure matters that much is a good one, and this of course does not answer it - we will never know the counterfactual - but it seems hard to argue that this hilly town with lousy weather for six months would have seen the same explosive growth absent the infrastructure. Look at the other cities listed and tell me what is exceptional about Portland other than the excellent bike infrastructure. It is possible that lots of semi-employed hipsters account for it all, but I doubt it.

I also think it disingenuous for motorists to complain about bikes getting in their way and the spending on infrastructure in the same breath. The infrastructure is precisely designed to separate the two. I was reminded of both the sheer number of commuters and the effectiveness of bike routes the other morning when I was traveling north on SE 12th at about 8:30am and had to wait at a red light at Hawthorne. The traffic was backed up to SE Clay so I stopped short of Clay to let the bikers pass. Once the coast was clear the stream of bikers crossing 12th at Clay heading west toward downtown was impressive, there must have been 30 bikes in that one group. I thought then about how much better traffic is without those 30 cars and how much better traffic is without those 30 bikes competing for space on Hawthorne.

Of course, it would be interesting to see this data plotted against per capita spending on bike infrastructure. Anyone know if that data is easily available?

Eco-nomics: Hot

2011-09-09T09:04:00.000-07:00

Each dot represents a day where temperatures met or
exceeded 100 degrees. (Credit: NOAA)

This summer was the second hottest ever in the US with several states, Texas, Oklahoma, New Mexico and Louisiana, had their warmest summers on record. So as the temperatures start climbing toward 100 this weekend in the Willamette Valley, just be glad you don't live in Texas.

Picture of the Day: Jobs and Job Seekers

2011-09-08T08:32:00.000-07:00

From the Wall Street Journal

September 7

2011-09-07T08:41:00.000-07:00

1. The day Brazil declared independence from Portugal in 1822.

2. The day the German blitz on London began:

3. A slow blogging day.