The Portland Economy: Incomes are Better than Average After All

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.    

Portland's Economic Performance

This report, prepared by ECONorthwest has been getting a lot of press.  The Oregonian made it the banner headline yesterday and today makes it the subject of the main editorial.  The problem is, as evidenced by the meandering and confused editorial, is that it is simply a bunch of facts and figures and it is not at all clear what it means and what should be done.

This passage from the Oregonian editorial today is priceless:

Nevertheless, the study provides a useful starting point for discussions about economic development, tax policy and other issues that elected officials concern themselves with. It should remind them of the overarching truth about jobs and income at the urban center of the region: Jobs have been disappearing and wage-earners have lost ground.

The solution to these trends is straightforward: Portland and Multnomah County need more jobs with good wages. Cultivate them and every public service will benefit from the additional income tax revenue they bring.

This illustrates beautifully my point: government needs to cultivate jobs! Don't forget that you need jobs to get taxes! C'mon, we need to make jobs!

Great, thanks for that, so just exactly what is government supposed to do and what has it done wrong? Silence.

To me, all this is a lot of hay about a bunch of old facts. Well, at least thouse fasts that are legible, for a professional consultancy, the report is embarrasingly shoddy, with many tables almost completely illegible.

There are also quite a few instances of pretty shocking comparisons for folks who consider themselves economists - wage comparisons not normed by productivity, singling out Multnomah county instead of looking at the metro region. In fact, my favorite table that is used as a special condemnation of Multnomah County is this one (and a good example of the shoddy report - almost impossible to read):

Notice that Multnomah County is just above some place called Santa Clara County in California.  This is, of course, the epicenter of Silicon Valley - what a disaster of an economy Silicon Valley is - let's be sure not to emulate them!

Of course both of these are just examples of equilibrium effects as jobs have been added in Washington County and Clark County, just economic theory would predict, as the core area of Mult. Co. becomes dense and relatively expensive.  The same process is happening in the San Francisco Bay Area.

But the general story of Oregon being less prosperous as our neighbors is true.  This is neither new nor surprising: Oregon with its resource extractive past, its over emphasis on blue collar, manufacturing jobs and its relatively poor education system and support is both burdened by its history and hampered by its present.

What is government doing wrong?  Well, this is hard to pinpoint.  Sure it would be good to have a more stable and well-funded education system, but a lot of the instability in education funding is due to national economic forces and the choices Oregon voters made to give us our present tax structure.

As someone who started living in Portland in 1982, my personal perception is much different than the negative one portrayed in the report.  I view Oregon is a place that has long had to struggle with the fact that its comparative advantage is in resource extraction and low-skilled activities.  These are deeply entrenched economic forces and not easy to change. To see the Portland of the 21st century and compare it to the Portland of the 1980s, to me illustrates the remarkable transformation of the regional economy in a short thirty years from a blue collar manufacturing based economy to a much more diverse and vibrant economy with a healthy professional class.  Unfortunately, this has been achieved through the successful importation of human capital from elsewhere.  What is going to hold the metro region and state back going forward is our continued inability to create human capital on our own.

Which brings us to what government should be doing.  As I have said all along government has limited ability to 'create' jobs (as the editorial suggests) - if they could, they would, and life would be so simple.  What changes the forces of comparative advantage are investments in education, R&D and infrastructure.  These are slow to show effects and don't make a lot of good political theater because the results don't become evident two years later.

It is disappointing that the report doesn't even try to begin to examine the causal links, rather they are satisfied to make a lot of noise about general comparisons that really don't tell us anything about policy.