Local Currency

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.

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

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.

Portland Home Values: Case-Shiller June Numbers

Here are the latest Case-Shiller Numbers for Portland:

Portland Metro Area
June 2011 Level: 134.52
Monthly Change: 0.0%
Annual Change: -9.6%

A 0% increase puts Portland at the bottom of the 20 metro areas it tracks and the -9.6% annual change is second worse to Minneapolis.

Here is a nice sortable table from the Wall Street Journal.

Portland Home Values: Slight Increase in May

The May 2011 Case-Shiller numbers are out and the values increased 1.6% over the previous month for Portland.  16 out of the 20 metro areas in the index saw increased home values.  What I have plotted above are the seasonally adjusted numbers which show a slight decline for Portland (not the normal spring uptick).  Annually Portland lost 9.1% of its home value which puts us in the top 5, not surprising given the state's unemployment levels.  Overall the 20 city index showed a 1% gain for the month, but a 4.5% loss from a year ago.  I still feel reasonably good about my statement at the beginning of 2011 that I didn't think that the year would see substantial decreases or increases but there are 7 more months of data to go so we'll see.

Firearm Homicides and Suicides in Portland

The news of yet another senseless shooting death of a young man in Portland begs the question: how does Portland compare to other major American cities in terms of firearm homicides?

Pretty well it turns out.  According to the CDC, Portland's annual firearm homicide rate of 2.2 per 100,000 (2006-2007 data) is one of the lowest among the largest 62 cities in the US, which average 9.7 per 100,000.  The only other similar sized cities that are close are San Jose, which is lower at 1.5, and San Diego, which is a bit higher at 2.8.  So, in general, Portland has a very low incidence of firearm homicide which makes the recent killings no less tragic or infuriating, but does provide some perspective.

The extreme case, by the way is absolutely horrifying: New Orleans has a firearm homicide rate of 62.1, almost 30 times higher than Portland's.  At what point, I wonder, does the federal government step in and take over the completely ineffectual police force?

Things aren't all rosy for Portland (no pun intended) in terms of firearm deaths.  Portland is actually well above average in terms of firearm suicide where the 62 city average is 4.7 per 100,000 but Portland's is 6.4 (San Jose is 2.1 and San Diego is 4.3 by comparison).

I leave you with some interesting notes on the data from the CDC:

Although firearm homicide rates tended to be higher with increasing urbanization and among youth relative to persons of all ages, this was not the finding for firearm suicide rates. The 50 largest MSAs collectively had an annual all-ages firearm suicide rate of 5.0 per 100,000 persons aged ≥10 years, and 52% of these MSAs (26 of 50) had rates lower than the national rate of 6.5. Central cities within these MSAs collectively had an annual all-ages firearm suicide rate of 4.7, and 55% of these cities (27 of 49 cities with reportable all-ages firearm suicide statistics) had rates lower than those of their MSAs. Youth firearm suicide rates were comparatively low, with a composite rate of 1.3 for the 50 largest MSAs and an identical composite rate of 1.3 for their central cities. Males accounted for more than 87% of firearm suicides (ages ≥10 years) nationally and for all MSAs collectively.

Notable patterns by geographic region were observed. All-ages firearm homicide rates generally were higher for MSAs in the Midwest (seven of 10 above the median MSA rate of 5.4) and South (13 of 21 above the median rate) than for MSAs in the Northeast (six of seven below the median rate) and West (eight of 12 below the median rate). All-ages firearm suicide rates were generally higher for MSAs in the South (15 of 21 at or above the median MSA rate of 6.3) than for MSAs in the Northeast (six of seven below the median rate), Midwest (six of 10 at or below the median rate), and West (seven of 12 below the median rate); the highest rates were concentrated in the South and West.

***

During 2006--2007, firearm suicide and firearm homicide were the fourth and fifth leading causes of injury death in the United States, respectively. For youths aged 10--19 years, firearm homicide was the second leading cause and firearm suicide was the fifth leading cause of injury death nationally. The statistics presented in this report indicate that firearm homicide rates were higher and firearm suicide rates were lower among residents of the 50 largest MSAs compared with the nation as a whole; residents of these MSAs represented 54% of the U.S. population during 2006--2007, but accounted for 67% of firearm homicides and 41% of firearm suicides nationally. Similarly, for youths aged 10--19 years, residents of these MSAs accounted for 73% of firearm homicides and 39% of firearm suicides nationally. More than 85% of violence-related firearm deaths occurred among males, both nationally and for the 50 largest MSAs collectively.

Note that the statistics given above are for the City of Portland and other cities proper. The statistics for MSA's can be found by following the link.

Portland Home Values Showing the Effect of a Long Spell of High Unemployment

The Case-Shiller Home Price Index for January is out and the dismal news for the Portland housing market continues.  This is not surprising as a couple of years of high unemployment is bound to have a serious impact, but depressing nonetheless.  

Here is a nice sortable table of the January numbers courtesy of the Wall Street Journal.  The headline numbers for Portland are a 7.8% decline since January of the year before and a 1.8% decline from december to January.

I do finally think that we are moving in the right direction in general, the jobs numbers have been good and overall US growth is pretty healthy, but it will take a while before we see these improvements make their way into property values.

The Portland Youth Magnet

Portland got another national star turn this morning on NPR with a story about the migration of twenty somethings to the city despite relatively high unemployment and low pay.  The usual suspects are trotted out as reasons - lifestyle, hipsters beget more hipsters, etc.

It seems to me, however, there are two points that keep getting missed in the discussion that provide the essential linkages to provide at least a plausible explanation of the phenomenon.

The first is that as societies grow more affluent one of the biggest jumps on consumption we see is a jump the the consumption of leisure time. Affluence buys us rest and relaxation - and the related vacations, travel, etc.  This has been true for some time, over the 19th and 20th centuries we saw the amount of leisure time increase dramatically in high-income countries.  But I wonder if now what were are seeing is a generation that puts more worth on lifestyle as opposed to more material goals.  So it is now no longer just more leisure time, but the quality of your leisure and your work time.  Being in a community that affords quality leisure time activities, like minded individuals and a pleasant atmosphere is worth a lot to the youth of the 21st century in America.  For this reason they are cashing in on the compensating wage differential - accepting lower pay for the chance to live in Portland.  And they are not just willing to accept lower salaries, but are actively looking for places that match their preferences and thus are willing to move without job prospects - suggesting that the value they place on lifestyle is extremely high.  This is not lack of ambition, but just the opposite - the ambition to make a life that is the most fulfilling holistically, not just materially.

The second point is that this should be a source of comparative advantage for the city not disadvantage.  The recent report from ECONorthwest lamenting low salaries, in my mind, got it all wrong.  The fact that skilled wages are depressed (if, in fact, they are - they did not account for education) are a sign of an incredibly successful job done by city government in creating a place where educated young people want to come and live.  They are willing to pay for the chance to live here and they do so by accepting lower wages.  Is is also a source of economic strength: that there are talented people here willing to work for less means that Portland should be a good place for companies to come and set up shop.

Anyway, when thinking about the path that led us to the Portland that is now the media darling. I always think about the downtrodden, blue-collar city of my youth that specialized in cheap, home-grown diversions.  It was a great place to be a college student or aimless twenty-something even then, as rents were incredibly cheap, you could go to the Mission Theatre for free and then spend your few dollars on local beer.  What more could you want?  I think that these trends start slowly and then gain feedback momentum and this is where my consciousness begins - Portland in the early 80s.  Looking back we look for big answers, but often the roots are humble.

Portland Home Values: Case-Shiller November Numbers

Portland hits a new low. And I am now ready to declare my relative optimism (that home values would end the year not much worse then when they started) too optimistic. Portland homes lost, on average, 7% of their value from November of 2009 to November of 2010. And since near in neighborhoods like mine have not done quite so badly, the suburban areas must be especially bad.

Anyway, here are the numbers as compiled by the Wall Street Journal:

Home Prices, by Metro Area

Metro Area	November 2010	Change from October	Year-over-year change  ↓
Atlanta	100.67	-2.5%	-7.9%
Chicago	119.57	-2.2%	-7.6%
Detroit	67.26	-2.7%	-7.1%
Portland	139.92	-1.6%	-7.0%
Phoenix	104.85	-1.1%	-6.4%
Seattle	141.57	-1.1%	-4.7%
Cleveland	100.12	-2.0%	-4.4%
Minneapolis	118.8	-2.1%	-4.4%
Charlotte	113.61	-0.4%	-4.3%
Dallas	114.88	-1.1%	-4.2%
Tampa	134.05	-0.8%	-4.0%
Las Vegas	100.59	-0.4%	-3.5%
Miami	143.81	-0.2%	-3.5%
Denver	125.02	-1.2%	-2.5%
New York	169.75	-1.0%	-1.7%
Boston	152.76	-1.0%	-0.8%
San Francisco	137.23	-1.2%	0.4%
Los Angeles	173.28	-0.4%	2.1%
San Diego	160.08	0.1%	2.6%
Washington	185.42	-0.1%	3.5%

Source: Standard & Poor’s and FiservData

Dumb and Dumber Public Policy: Portland's Leaf Fee

Roger Jensen/The Oregonian

In this recessed economy municipalities are struggling with diminished revenue in the same way states are. It is becoming harder and harder for them to provide the same services in this new economic reality. So many cities are looking for new ways to impose fees for services that were once funded with general revenues. Portland is no different.

And so the mayor saw the big wad of money spent on fall feaf removal as an opportunity to raise new revenue by imposing a leaf cleanup fee for the neighborhoods where the cleanup occurs. The problem with this tactic is twofold: charging specific fees for public goods is dumb public policy, and ironically, allowing households to opt-out actually makes it dumber.

To properly frame the policy we should begin by discussing public goods and to properly discuss public goods we can start by asking the question: why does government provide things like roads, parks and fire departments?  The answer should be clear to anyone who has had even the most basic economics education: these things are public goods - they have elements of non-rivalry (one persons's consumption does not leave less for another) and non-excludability (you cannot prevent people from consuming).  City parks are a clear example, you cannot prevent people from using them and if I stroll through a park, there is plenty left for the next person.  The moral of public goods is that given these two elements, private provision of them is always going to be inadequate relative to what is optional and so government steps in to correct this market failure.   

Roads are also public goods - especially city roads.  Yes, I use the road on which my house is situated more than the average Portland resident, but I rely on the entire network of Portland's roads to walk, bike and drive and to keep traffic evenly spread throughout the city.  This is why the network of safe and well-maintained roads is the city government's responsibility and a big part of what my taxes pay for.  So while the leaves that my and my neighbors trees deposit on the street may seem like and obvious thing to charge us for, the benefit of clearing them from the street accrues to everyone.  Streets free from leaves are safer for anyone who travels on them and also prevents clogging up the city's sewer system that we are all responsible for.

The logic of why we don't leave street maintenance up to individual neighborhoods is obvious.  One neighborhood's decision to spend less and degrade their streets imposes a cost to local residents in terms of bad roads to traverse to get to and from home, but it also imposes a cost to the the rest of the city. Of course a cost is imposed on those who travel through the neighborhood, but also in terms of displaced traffic from those who avoid the neighborhood and thus cause congestion and additional wear and tear on other neighborhoods' streets - a classic externality problem.

Using the same logic of the leaf fee removal program leads to plenty of other absurd policy options.  We could charge an extra police fee to residents of high-crime neighborhoods.  Or we could impose a park fee for those that live within two blocks of a park.  [As an aside, we already pay for this in the differential values of our homes though Measures 5 and 50 have de-linked taxes with market values but the historical value remains the basis of the tax assessment]  Clearly, these are absurd suggestions, crime affects us all, we all enjoy parks, etc.

So the leaf fee policy is dumb, but the opt-out actually makes it dumber.  You see, since the leaf fee can be avoided be cleaning up the street in front of your property yourself, this creates a dis-incentive to have and maintain street trees - something the city is actively promoting (the water bureau Environmental Services bureau even has, or had, a program by which they gave you a $50 credit for planting a tree).  It is also not going to be very good for neighbor relations - what if I sweep my leaves over in front of my neighbors house?  What if I have no trees, but by neighbor's trees drop tons of leaves on my part of the street? In fact, I think perhaps each block should pool and every house but one sweeps their leaves in front of one house and everyone chips in to play that house's leaf fee.  You can see how this program creates perverse incentives.   

I understand the cities desire to find new revenue to help support its services, but this policy is just plain dumb.

Portland Home Values: The August Case-Shiller Update

Here are the numbers, nicely displayed thanks to the Wall Street Journal:

Home Prices, by Metro Area

Metro Area  ↓	August 2010	Change from July	Year-over-year change
Atlanta	109.09	-0.8%	-2.0%
Boston	158.35	-0.3%	1.5%
Charlotte	116.6	-0.4%	-3.4%
Chicago	126.7	0.4%	-2.9%
Cleveland	107	-0.3%	-0.4%
Dallas	119.41	-1.1%	-1.7%
Denver	128.57	-0.1%	-1.2%
Detroit	71.54	0.5%	-0.1%
Las Vegas	101.03	0.1%	-4.5%
Los Angeles	175.55	-0.4%	5.4%
Miami	147.47	-0.3%	-1.0%
Minneapolis	126.53	-0.3%	2.9%
New York	175.27	0.2%	0.1%
Phoenix	108.84	-1.3%	0.4%
Portland	147.02	-0.9%	-2.3%
San Diego	163.99	-0.6%	6.9%
San Francisco	142.83	-0.3%	7.8%
Seattle	145.93	-0.8%	-2.4%
Tampa	137.53	-0.5%	-4.1%
Washington	188.26	0.3%	4.8%

Source: Standard & Poor’s and FiservData

The news is bad: Portland is losing ground and in the top group for lost value. Not at all surprising given the unemployment situation.

Portland Home Values: Case-Shiller June Numbers

Once again, farmed out to the Wall Street Journal, after all nothing much is happening in Portland to make a specific graph worthwhile - we have pretty much been holding steady since the beginning of 2009.  The sobering fact here is that this represents the tail end of sales influenced by the government tax credit, we may start to see another wholesale decline soon given the current moribund state of residential real estate transactions.

Home Prices, by Metro Area

Metro Area	June 2010	Change from May	Year-over-year change
Atlanta	109.74	1.7%	2.0%
Boston	157.83	1.2%	3.4%
Charlotte	117.24	0.7%	-2.7%
Chicago	124.9	2.5%	-0.1%
Cleveland	107.26	1.3%	0.8%
Dallas	121.14	1.0%	1.2%
Denver	129.19	0.7%	1.8%
Detroit	70.04	2.5%	0.8%
Las Vegas	101.77	-0.6%	-5.2%
Los Angeles	175.66	0.6%	9.2%
Miami	146.92	0.4%	1.1%
Minneapolis	125.91	2.5%	10.7%
New York	172.76	1.3%	0.2%
Phoenix	110.98	0.0%	6.0%
Portland	148.73	0.5%	0.2%
San Diego	163.82	0.4%	11.2%
San Francisco	142.55	0.3%	14.3%
Seattle	146.83	0.0%	-1.8%
Tampa	138.58	0.2%	-1.6%
Washington	185.77	1.7%	7.3%

Source: Standard & Poor’s and FiservData

Portland Home Values: Case-Shiller May Numbers

Once again, I am farming this out entirely to the Wall Street Journal.  Portland's home values increased slightly from April and from the previous year, but what little improvement there was most likely is representative of the federal incentive programs.  Portland is, and always has been, unexceptional - middling in terms of increases and decreases in home values. Here is the WSJs chart:

Home Prices, by Metro Area

Metro Area	May 2010	Change from April	Year-over-year change
Atlanta	107.82	2.0%	1.7%
Boston	155.95	1.6%	4.8%
Charlotte	116.39	0.3%	-2.8%
Chicago	121.9	1.2%	-1.5%
Cleveland	105.85	1.0%	3.7%
Dallas	119.93	1.5%	2.9%
Denver	128.24	0.6%	3.6%
Detroit	68.29	0.7%	-2.5%
Las Vegas	102.35	-0.5%	-6.5%
Los Angeles	174.67	1.7%	9.7%
Miami	146.33	0.9%	1.2%
Minneapolis	122.63	2.8%	11.6%
New York	170.45	0.8%	-0.4%
Phoenix	111	0.9%	7.2%
Portland	147.98	1.2%	0.7%
San Diego	163.11	1.1%	12.4%
San Francisco	142.16	1.7%	18.3%
Seattle	146.82	1.2%	-1.4%
Tampa	138.29	0.9%	-1.5%
Washington	182.1	1.5%	7.4%

Source: Standard & Poor’s and FiservData