Wednesday, June 30, 2010

Portland Home Values: Case-Shiller April Numbers

Farmed out to Jeff Manning at The Oregonian:

Portland-area home prices jumped 1.8 percent in April from a month earlier, according to the S&P/Case-Shiller home price index released Tuesday.

It was a nice contrast to earlier this year, when the index in Portland was falling.

But experts warned against getting too optimistic over the April improvement, as it doesn't take into account the market slowdown that struck in May after the April 30 expiration of the federal tax credit for certain home buyers.

"Don't read too much into the increase," said Tim Duy, an economics professor at the University of Oregon.

Portland, like much of the rest of the country, enjoyed a last-minute frenzy of real estate dealing as the tax credit was about to lapse. But afterward came a lull.

In the 30 days ending June 13, there were 3,280 home sales or pending sales in the Portland area, a 24 percent decline from the prior four weeks, according to numbers compiled by Realty Trust Group. The average price of the sold homes was $282,910, a 5.97 percent decline from the earlier four weeks.

I agree with Tim, this should not be taken as a sign that the home market is appreciating in general. I still think, as I have for many months, that 2010 will not see significant appreciation nor depreciation. In fact, all indications are that my overall view of the economy - that 2010 will be a year stuck in a rut - is exactly what is happening. There is just no momentum causing airflow over the wings of the economy and providing lift.

Tuesday, June 29, 2010

Too Funny...

Things Change...

Soccernomics: New Timbers Crest, Take 2

Now that I have commented about it a couple of times I am kinda locked in to commenting once again (and hopefully for the last time) about the Timbers sudden and abrupt re-jiggering of their new crest.  In case you missed the drama, the Timbers, with lots of pomp and circumstance, introduced their new MLS crest in Director Park, during halftime of the USA-England match.  [Weird to think of the hype now, after both sides were revealed to be decidedly mediocre]  The unveiling did not go well. A vocal group of Timbers Army-types announced their displeasure almost immediately with a profanity laced chant.  Classy.

Here was the original version:

Timbers Army types hated it - but special ire was directed at the axe, which, with the shading and detail, was derided as 'cartoonish.' In fact I got a comment on this blog directing me to a Facebook page dedicated to getting the Timbers to change it. No way in heck, thought I, will the Timbers touch it. To me it represented the Timbers trying to stay in touch with the roots of the team (in reality these roots are entirely erzatz, I mean come on, resurecting ther mame for a second division franchise is not the same thing as having a long-standing team).  I was equivocal about it, but my initial reaction was that the shading on the axe was bad.  In fact it was especially bad when the secondary color was produced as yellow which it was a lot at first. In fact, I thought that the Timbers did this intentionally to ease the transition away from yellow. If so, this was a mistake, because the axe shading works much better in the moss green that is the actual secondary color.  In fact the first logo started growing on me and my eight year old son eagerly grabbed a new t-shirt and has worn it proudly:

Which I think, in the dark/light green colors, looks pretty snazzy. Not at all classic like I prefer, but then it is not about me, and I can be objective.

Next thing you know the Timbers abruptly cave to the Timbers Army and announce the newly redesigned new logo:

Which seems to me an improvement in some ways - the logo is a bit cleaner and simpler - but essentially unchanged, save for the axe which has no detail at all. And now, I am not so sure which I prefer. [What I am sure about is that I am pissed off that I spent $20 on a temporary logo shirt for the boy - I await word about what they are going to do with people like me] The boy hates the new logo compared to the old one, which makes sense to me - the old one seemed more geared to the younger set.  The new one feels less logo-y and more crest-y so I guess if I saw the two and had to pick I'd pick the new one, but it sure has the feel of a compromise - a fully realized design tweaked at the last minute.  I thought a good compromise would have been a refreshed original logo as a secondary crest.  And if you are going to redesign it, you should start from scratch.  So in then end, I think the Timbers should have stuck to their original design and, like Arsenal, the fury would have quickly subsided.

I don't know whether to think the Timbers should be applauded for reposinding to the criticism or if this portends something worse - letting the Timbers Army have too much agency over the team's business decisions. The Timbers should have involved the Army in the design process from the get-go, for sure,  and they blundered on the public unveiling because they didn't.  And the Timbers Army has every right to express their opinion and they matter a lot - a successful MLS Timbers need them.  But come on, is this new new logo so different that before the world was ending and now everything is sunshine and light?  No.  [And of course, lots of folks still hate it]

The fact is that the Timbers Army are great and a big reason that soccer in Portland is unique, but they too often act like adolescents and are going to have to clean up their act if the Timbers are going to be a successful MLS team. Profane chanting in a public square? - c'mon, that is totally bush league. The Timbers are going to have to fill a lot of expensive seats and families don't always like sitting and listening to chanted obscenities for two hours.  So there is going to have to be a middle ground here and I know the Timbers Army feel ownership of the team right now, but they are going to have to learn to share.

So that's all soccer, where is the 'nomics? Well, the Timbers are in the always sticky situation of trying to attract new customers while still keeping the loyal ones happy.  Remember New Coke?  I didn't think so.  There is an additional pitfall when part of the allure of being a customer is that you are part of a small club.  It is similar to a popular underground band that hits big.  All of a sudden some of of the utility customers got from consuming the band's music disappears as part of the fun was knowing about a band only a few others did as well.  Lots of big time companies have trouble with this, so it does not surprise me that the Timbers have too.  A little more inclusion before and a little more spine after would seem to have been a better strategy.

Oh, and as far as merchandise, the Timbers are trying to have it both ways: hawking the old stuff without explicitly disclosing than change.  In fact if you go to their website the front page has the redesigned logo but the merchandise page has the original new logo with lots of gear to match. [UPDATE: They fixed the logo on the store page - good job - but still show merchandise withe the old logo and no explanation] This is not cool.  This seems to me like something awfully close to fraud - deliberately trying to mislead.

Monday, June 28, 2010

Warning: Don't Feed the Economists!

If you see a disproportionate number of geeky looking folks around Portland this week making painfully bad jokes about things like optimality or discount rates or the like (and if you are a restaurant server and find your tips rather skimpy this week), it's because a fairly major economics conference is in town.

The Western Economic Association International's Annual Conference in in Portland at the Downtown Hilton this week, from Wednesday to Saturday.  Lots of cool presentations if you are a über-nerd, and even some if you are not.  If nothing else, as an anthropological exercise, you can wander near the Hilton and stare in wonder at the culture that is economics.

You have been warned.

Friday, June 25, 2010

O Rei

“Football is like a religion to me. I worship the ball, and
I treat it like a god. Too many players think of a football
as something to kick. They should be taught to caress it
and to treat it like a precious gem.”


This quote (and many others) is in an interesting Goldman Sachs report on the economics of the World Cup.

Thursday, June 24, 2010

Beeronomics: Complements

Chuck Sheketoff sends along this press release (note the fourth entry) from the good folks at the Oregon Employment Department and muses: "wonder if a personal injury lawyer will set up an office nearby to represent the people who got injured using tools under the influence..."  Too funny.

China's Exchange Rate Policy and Economy

There is a great piece in Vox this week from Barry Eichengreen and Andrew Rose about the effect of an appreciating Renminbi on China's growth.  In case you haven't been paying attention, China has for years kept is currency artificially low.  This is great for China's exports as it makes them cheaper around the world.  But it also leads to massive imbalances as, in order to keep the currency low, they have to sell lots of yuan by turning around and buying lots of dollar and euro denominated assets.  Right now this is great for us as it keeps our cost of borrowing low, but in general it is bad as it sustains a massive trade imbalance.  Letting the value of their currency rise to market levels would make chinese goods more expensive but also make US goods cheaper to the Chinese.

After almost two decades of astounding growth, the pent-up demand for consumer goods is probably very high and the US and other nations could benefit greatly from the opportunity to sell to Chinese consumers at fair market prices.  And so there has been increasing pressure on China to let its currency appreciate.  Recently the Chinese have finally succumbed to the pressure and announced that they would allow for some appreciation and it looks like they have begun to act on this.

Eichengreen and Rose ask the question, what would letting the renminbi rise do to China's economy?

Here is their answer:

In a new paper, we ask what can be learned from other times and places about the likely effects of China now exiting its de facto pegged exchange rate regime in favour of renewed currency appreciation. It turns out that it is possible to construct a sample of other “exits up,” although the resulting data set is relatively small.

We have identified 27 instances where a fixed peg was abandoned and the currency appreciated over the subsequent year either against the dollar or Special Drawing Rights. Many of these are clustered around the end of the Bretton Woods System in the early 1970s, although there are also a number of other episodes ranging from Equatorial Guinea in 1979 to Mozambique in 2004 and Malaysia in 2005. The average rate of appreciation in the first year is not too different from China’s 2005-8 average of 7% (Eichengreen and Rose 2010).
What do we find?

The average annual rate of GDP growth slows by 1 percentage point between the five years preceding the exit and the five years following. But there is no growth collapse. Exiting up does not doom the economy to a Japanese-style lost decade.
More generally, we find little evidence of economic and financial damage as a result of exits up.

  • There is no increase in the incidence of banking and financial crises.
  • There is no evidence of significant stock market declines.
  • There is no evidence of a significant deterioration in the current account.
  • There is no evidence of a significant fall in the investment rate.

A variety of other economic and financial variables are similarly unaffected.
While the rate of export growth slows from 9.5% to 5.5% per annum, the rate of import growth slows by nearly the same amount.

Because countries that exit up were growing faster than other countries in the five years preceding the policy change – by 1.5 percentage points per annum on average – it is hard to say whether the slowdown is a healthy correction that avoids overheating or something more. One bit of evidence is that countries that exit up were also running higher inflation than other countries in that preceding period, consistent with the overheating view. Their inflation rate is about 5 percentage points higher, too big a difference to be explained away on Balassa-Samuelson grounds.
So what accounts for the growth slowdown in a proximate sense? Since the rates of growth of exports and imports slow by the same amount, the answer is not the contribution of net exports. Nor are there significant changes in the rate of growth of investment and government spending. Rather, there is a significant slowdown in the growth of household consumption. With the country now exporting less, there is a decline in consumption of both imports and domestically-produced goods (all relative to their prior rates of growth). Again, this could be a healthy adjustment to more sustainable growth rates that avoids overheating. Or it could be that the slowdown could have been avoided entirely had the government boosted public consumption and taken measures, such as liberalising financial markets and developing the social safety net, to encourage household consumption.
The experience of other countries gives little reason to think that an exit up will have seriously adverse consequences for the economy. But it points to the possibility of economic growth slowing. If the authorities wish to limit the risk of an excessive slowdown, they can maintain the level of public spending and redouble their efforts to foster the growth of private consumption. If more domestic spending means more spending on, among other things, imported goods, this will represent a Chinese contribution to global rebalancing.

And herein lies the future for China in my opinion: the pent up demand for education, healthcare, rural infrastructure and household consumption, as well as existing and looming environmental problems will soon start to create enormous pressure on the economy. By inflating their currency and starting to spend their reserves internally rather than on dollar- and euro-demoniated debt will be good for themselves and for everyone else. But it does mean that there will be a structural adjustment internally - their comparative advantage in many export industries will go away. But these will end up being replaced by new industries that serve the domestic demand.

This would be excellent news for Oregon, as China is our biggest export market.  However a lot of what we ship over there are intermediate goods: things like microchips that get turned into iPhones and shipped right back to the US.  This type of manufacturing might end up migrating somewhere else, like Vietnam, which would not really matter to Oregon.  But 1.2 billion new iPhone customers in China would benefit us a lot.  

Wednesday, June 23, 2010

World Cup: Wow

The lads do like to make it dramatic.  But you have to love the relentless attacking soccer they displayed for almost the entire game and the fact that they didn't let another bad referee decision distract them.  This decision was worse, by the way, as there was no discretion involved - Dempsey was clearly onside and you expect top linesmen to get that right every time, it was not one of the more difficult ones.

Amusingly, I was waiting to go on Marketplace live and watching the waning seconds of the game on my computer. [It was hard to accept the interview given the game - I knew it would be the dying moments but, after all, I do owe all of humanity the benefit of my drivel wisdom]  The goal was scored at almost the very moment I went live - so how is that for composure?

Penalty kick?  I am your man.

Monday, June 21, 2010

New Poll: Stimulus or Austerity?

Paul Krugman has a new column today about what he considers to be the misguided emphasis on getting deficits under control in the midst of a severe recession.  He thinks that it is imperative to spend now to spur the economy and become fiscally austere later.  How do you tell?  When the Fed is no longer up against the zero lower bound.  [Of course this zero lower bound is a matter of policy as well - the Fed could start raising rates whenever it decides to]

Anyway, this makes me wonder about the attitudes of my readers, are you generally in favor of more stimulus or more austerity (I don't allow you to be neutral)?

I don't presume you believe in the theory of stimulus - if you don't I assume you will vote on austerity.

Let me know what you think.

Saturday, June 19, 2010

Beeronomics: The Hopopotamus™ Debuts and Time Inconsistent Preferences

Despite my claims that it is the Best Beer in the History of the World™, this the first iteration of The Hopopotamus™is good but could use some fine tuning.  The hop alchemy yielded stong citrus but fewer floral notes than I had hoped.  The yeast (Wyeast American Ale II was a wonder, hungry and effective - the final gravity of 1.010) was a good choice and I am pleased with the color and bitterness. But the hops don't sing in perfect harmony.  I slightly under-primed the bottles intentionally to give it a bit of a cask mouthfeel.  And it is definitely a beer that does not like to be served too cold.

UPDATE: Serving it at appropriate temperature transforms the beer.  It is really quite tasty when not chilled beyond recognition.  My fridge seems to have gone a bit hyperactive, once I solved the temp problem the beer really shined.  I am very pleased.  

I have an idea of making the The Hopopotamus™ as an annual experiment in hop alchemy.  Each year the same recipe save for a new mix of many hop varieties.  

Anyway, The Hopopotamus™ made me think of another way in which I fail to act like a textbook rational economic agent: I have a hoarding problem and therefore "time-inconsistent preferences.


Do you ever get caught up in the moment - at a pub say - and have that extra beer that later you regret ("I really didn't need that last one and now I have a headache...")? These types of indulgences that lead to later regret - something you would do differently if you had the chance to do it again - are examples of what economists like to call "time-inconsistent preferences."

It applies to procrastination as well, putting of an unpleasant task (like mowing the lawn, say) and then having to do it later under worse conditions (longer grass) is another type of time-inconsistent preference.  

What the term refers to technically is when people make mistakes in their choices because they put too much weight on the present. If people acted like computers they would very rationally take into account all future time periods appropriately and we would never regret our actions (or at least those with predictable outcomes).

For me this behavior manifests itself in many ways but one of the most apparent is my tendency to covet.  I hate to consume something that I enjoy because once I do, I know it will be gone. This could be rational if I get enjoyment in the anticipation and in the consumption - by delaying consumption I could maximize the total enjoyment I get for the good. But for me it becomes a burden, delaying until finally to good itself degrades, or the optimal moment passes. In fact this why, after a period where I was building up a collection, I stopped cellaring wine. I could never deal with the whole waiting until the optimal time problem.

Well, this same type of time-inconsistent behavior bedevils me in beer brewing as well. Last weekend The Hopopotamus™ was finally ready for its debut, and the result is great.  But now I have the problem of coveting it - I want to drink it and it is fresh and ready now, it will only get worse through time, but I don't want to reach the day when it is all gone. So I find excuses not to drink it and eventually will have a number of bottles in the back of the fridge that are way past their sell-by date so to speak. I will then regret coveting it so much and wish I had been less stingy with it early.  

At least I have an understanding and a name for my disorder.

Friday, June 18, 2010

World Cup: Destiny in their Own Hands

Well, after an odd day the fates of England and the US became clearer: Win and advance. Tying could result in advancement, but don't count on it.

The US looked awful for the first half of their match v. Slovenia, and were robbed the go-ahead goal by a phantom call from the ref, but showed a lot of heart and probably got what they deserved by tying it in the send half.

England?  They just looked dismal. Awful. Terrible. Especially Wayne Rooney who seems out of it: bad first touches, bad second touches and he rarely gets a third as he is usually stripped of possession by then if he still has it after his first touch.  Anyway they drew nil-nil with Algeria which could not have been a better result for the US.

So it all sets up for an interesting (and nail-biting) Wednesday morning. Big fun.

Traffic Stops and Discrimination

This interesting article in Thursday's Oregonian about the disproportionate number of traffic stops the PPD makes among African Americans in the city prompts me to repost an old entry (actually, I was writing something almost identical when that sense of deja vu came over me and I remembered that I had written it all before).  The question is, does this statistic mean that the PPD is discriminating against African Americans?  The answer is that it may be evidence of discrimination, but it is not, in itself, proof of such discrimination.  The question is, are these stops justified?  Or, in other words, is it simply because of increased rates of criminal activity?  Here is some of what I wrote last year:

[This very question was addressed by] a famous paper by John Knowles and Petra Todd that looked at the conviction rate, by race, of vehicles searched from traffic stop data in Maryland.

The premise of the paper is this:

Suppose you see that police in some jurisdiction are stopping and searching cars driven by African-American (black) drivers just as often as Caucasian (white) drivers even though only 10% of the population is black.  [In Maryland 63% of cars stopped were driven by African-American drivers, while only 18% of all cars on the road were driven by African-Americans along I-95]  This stopping and searching of cars then is disproportionately focused on black drivers and is evidence of racial profiling, stopping and searching cars precisely because they are being driven by black drivers.  Even if it is the type of car itself, say, that is the reason for the search, if that type of car is disproportionately driven by black drivers it could still be considered racial profiling.  But what if police officers are using their wealth of knowledge and experience to judge which cars to search regardless of the race of the driver, and it just so happens that this leads to half the cars searched being driven by black drivers?  In other words, what if officers are quite good at detecting illegal activity and that this activity has disproportionate racial participation.  How could you tell the difference between discriminatory behavior, searching drivers because of race regardless of likelihood of illegal activity, and good policing, searching only cars with a high likelihood of illegal activity?

Well if it is the former, what we would expect is a higher number of unsuccessful searches among those performed on cars driven by blacks than among those driven by whites because blacks are being stopped due to race and not evidence of illegal activity.  This is precisely the test Knowles and Todd did with the Maryland traffic stop and search data.  It turned out that though the searches were disproportionate, the conviction rates from those searches were not.  There was no lower a conviction rate among black drivers that were searched than among white drivers.  So while racial profiling might be the reason for the search it is not, in this case, evidence of racial prejudice.  Now, as I said before, there is a bigger question about whether, even if this is true, racial profiling is justified and should be allowed.  You are welcome to discuss this in the comments, but I am going to leave it as an open question.


On a related note: my study of racial discrimination in the NFL has a similar design.  I looked at whether the outcomes of players in the NFL were consistent with their draft position and found that non-white players systematically outperformed their draft position while white players underperformed relative to what their draft position would predict.  This is evidence, then, that NFL teams discriminate against non-white players when they draft players into the league.  [Note that the action here is not in the first and second round stars but the in the outcomes of the many players taken the the later rounds]  Why? That is an open question, but I believe that teams find white stars more marketable (at the time the white Ed McCaffrey was a huge media darling in Denver while the statistically better black Rod Smith was not).  I did find some suggestive evidence that teams pay a real price for this behavior where teams that were more egregious in their racial preference fared worse in terms of the their record.

Now a caveat that I did not highlight then is that this assumes a race-blind criminal justice system (or a class neutral one - which ours is certainly not - because of the high correlation between race a class in this country). However, if the incentive of the police officer is to get convictions then this is not a condemnation of police but of the court system.

It would be very interesting to see if subsequent conviction rates justified the stops in this case, but sadly we cannot really say anything about whether these stops are justified. Which is a shame, for we really ought to know.


Thanks to my brother who is a wiz at these things but who is really too busy to have his little brother asking for some help.  Nevertheless, I played the family card and got this beautiful new logo for my blog.  Too bad the content is the same old stale s*#%.

Thursday, June 17, 2010


This is making the rounds, a fascinating interactive map of migration using IRS data from Forbes.  Note that you only get county-to-county moves for numbers of 10 or more.  So what is going on for Portland?  Looks like people are still coming here more than leaving here-in-migration is in black and out-migration is in red.  Here is the picture for Portland (Multnomah County):

You want to see what a dying city looks like?  HEre is the same picture for Detroit (Wayne County):


There is some interesting analysis at The Economist which notes that the data do not seem to support the idea that the rich flee areas of high taxation.

Wednesday, June 16, 2010

Eco-nomics: Concentrated Solar

AFP reports on the pending opening of Egypt's concentrated solar power plant which, when open, will be among the world's largest.

Egypt will open its first solar energy plant by the end of this year, electricity and energy minister Hassan Yunis said in a report published on Monday on the ministry's website.

The plant will be among four in the world with a 140-megawatt capacity, the report said.
Yunis had earlier said the government-run plant south of Cairo would be linked to the national grid as Egypt tries to meet a target of producing 20 percent of its energy needs from renewable sources by the end of 2020.

The country's oil and gas reserves are projected to last for three more decades.

Last week another Middle Eastern country, the United Arab Emirates, said it was building "the world's largest" concentrated solar power plant.

State-owned Masdar in the UAE said that French oil firm Total and Spain's Abengoa Solar were partners in a project to build the 100-megawatt facility.

Concentrated solar plants use mirrors to heat liquid which then heats water to power a steam generator that produces electricity.

To give you an idea of the relative size, PGEs Boardman coal-fired power plant has a 585 megawatt capacity.

Tuesday, June 15, 2010

Oregon May Unemployment Stuck at 10.6%

The unemployment rate was flat and so were jobs.  The number of seasonally adjusted jobs added in May: 0.  Oy.

In a word: depressing.  This is beginning to look like what some call a U shaped recession which essentially means being stuck for an extended period in the trough.  And stuck we appear to be.

Monday, June 14, 2010

Soccernomics: The Economics of the World Cup

Sick of soccer yet? I know I am pushing my luck but never fear, the Oregon jobs report comes out tomorrow. So today I give you another World Cup related post as I am busy trying to finish my grading by the noon deadline. Here are some nifty charts about the economics (really the business) of the World Cup:

Saturday, June 12, 2010

Speaking of Logos...

The new blogger design function has prompted me to refresh the look for the blog.  But now my little logo looks especially pathetic.  Anyone want to help a brother out?

Do you like the new layout?

New Timbers Crest

Though here is the logo as it appears on a t-shirt - clearly light green rather than yellow as the second color. The light green is, in my opinion much easier on the eye:

So is it good? What do you think? Me I am ambivalent. Not the worst ever but not what I would have chosen - something more traditional.  Overall,  ho-hum. I like the light green much better than the yellow - especially where it adds highlights to the axe- though I think traditionalists will disagree.


Sorry Mum, but I was born in America:

But if it makes you feel better I think it'll be 3-1 to England. The USAs defensive lapses are its achilles heel.

Update: the US scored on a terrible blunder by the keeper, but it has to be said that 1-1 was a fair result. Quote from the Guardian: "Shooting at the goalkeeper is a policy that only ever seems to pay off for England's opponents."

Friday, June 11, 2010

Economist's Notebook: Unintended Consequences

NPR has a nice story on the unintended consequences of flooding Haiti with free rice:

L'Artibonite, a Haitian town two hours north of Port-au-Prince, wasn't damaged in this year's earthquake. But the foreign aid that flowed into Haiti after the quake has been a blow to the area.

Most of the people in l'Artibonite earn their living by growing and selling rice, Haiti's staple food. But the influx of foreign food aid has meant that many Haitians can now get rice for free. As a result, the price of rice in Haiti has plummeted.

Mirana Honorable, a rice farmer, has to choose between selling enough rice to pay for her children to go to school, and having enough rice for her family to eat.

Good to have a little economics training - would teach you to expect this and plan in anticipation. Buying local rice at regular market prices would be a good start.

Thursday, June 10, 2010

World Cup Video of the Day, 8

And now for the best of them all: Brazil's Carlos Alberto in 1970 versus Italy. The beauty is in the movement, the fluidity, the gracefulness of the team and finally the incisiveness of the final attack that typifies Brazilian football.  Note how Pelé freezes the defense and then makes the perfect pass without looking. Jogo bonito.

Current Brazil Manager Dunga has adopted a more European, cynical, hard, rigid style which to me is a crime against humanity for which he should be brought to justice at the Hague. Still, you can't keep Brazilian flair down and this is why Brazil will win #6 in South Africa.

And by the way, If you are new to the sport but motivated to watch a little of the WC, the most important thing to understand and appreciate about a soccer game in my opinion is that the game is continuous - there is never a stop to draw up a play or strategize, it all has to happen spontaneously. So you have to think of the 11 players out there as one big organism that is contantly mutating to try and create opportunities to score and to prevent the other side from getting those same opportunities.  The manager has very little influence once the game has started.

So the moments of brilliance are entirely endogenous to the team of players, not the result of some great play sent in from the sidelines and executed by the team as in American football.  To me this is the true beauty of the sport and why I love to play and watch.  It is also why national teams have such 'personality' because once you are out there playing, a lot of what you do is instinctual - ingrained from the time you played in the street, park, lot, as a kid.  This is why I think that despite Dunga's best efforts, Brasil will still be Brasil.  

Okay, time for talking is done, let the games begin. And go BRASIL! (and Les Éléphants!)

Economist's Notebook: Game Theory and Athletic Conferences

In my Managerial Economics class this term we studied strategic interaction in great detail.  We saw how one player's actions can affect others' payoffs and how players can gain advantage through being first movers and making credible commitments.

I thought of all of this today as the news that Colorado has agreed to join the Pac 10 hit the news sites.  This decision by Colorado is likely to set of a cascade of movement across the Big Ten, Big 12, Big East and Mountain West conferences.

Colorado's decision to join the Pac 10 may seem abrupt, but they have employed a classic strategy and gained the first-mover advantage.  You see, there is widespread speculation that Texas, Texas A&M, Texas Tech, Oklahoma and Oklahoma State are going to join the Pac 10 and politicians in Texas were starting to make noise about preventing the Texas schools from joining the Pac 10 unless Baylor was included as well.  As the Pac 10 does not want more than 16 teams, this would have left Colorado out.  Seeing that this was changing the strategic landscape and not wanting to be left out in the cold, Colorado jumped first and gained the first mover advantage.

Now, every other team and conference's payoffs have changed and I expect to see some pretty swift defections right away.  Apparently Nebraska is about to leave the Big 12 and join the Big Ten (which will then become, humorously, a 12 team league).  Missouri may follow suit.  This leaves Kansas, Kansas State, Iowa State and Baylor without a conference and I imagine that the Mountain West which is employing a different strategy - wait and let the payoffs change to the point that you become an attractive option - will open up its arms to these schools.

If I were the Mountain West I would bring on board these four schools and Boise State pronto in the hopes of becoming a BCS conference.  But Kansas basketball battling it out in places like Ft. Collins, Reno, Provo, Laramie and Albuquerque?  Weird.

The most interesting piece is the play of Notre Dame, which has a lucrative deal for its independent football team but risks the rest of its sports getting lost in the conference shuffle.  My bet is that they end up in the Big Ten along with Nebraska, Missouri, Rutgers and one other - Syracuse maybe?

Anyway, this is all an incredibly high stakes game being played at the moment and it is fascinating to observe as a student of game theory.   The one player in all of this that does not seen to have any kind of winning strategy is the Big 12 conference.  It looks like a goner for sure.  Like I said, weird.

Don't know if this is a net positive or negative for Oregon State, but it hardly matters, the status quo is gone.  Little tiny stadiums like those in Corvallis, Pullman and Palo Alto are going to look awfully puny if Austin, Norman, College Station are added to the mix (all over 80,000 capacity).  And now there is the real prospect of two orange and black OSUs in the same conference...

Picture of the Day

Okay Oregonians, why is this flag (strange as it may seem) special?

Click here to discover the answer and make your own funny flags.


Went the Oregon general fund.  The Office of Economic Analysis blog has a nice picture that does a good job describing the torpedo they good ship Oregon took to her hull.

This is net receipts from February though April for the last 14 years.  Note how Oregon is $400,000 in the red in 2010, meaning we refunded $400,000 more than we took in during that period, and this is with 66 and 67.

What is going on?

...preliminary numbers show that the biggest culprit was capital gains. Following a 60 percent decline in capital gains income from the 2007 tax year to the 2008 tax year, we were expecting an additional 10 percent decline for the 2009 tax year. This was in line with what many other states were projecting (5 percent to -20 percent) based on an informal survey conducted early last winter. Unfortunately, preliminary estimates show that capital gains income likely dropped at least another 50 percent for the 2009 tax year. Going forward we believe that we will see an uptick in capital gains income, but carry forward losses and low levels of business transactions will limit growth.


Which brings me to another topic. Polictical football is being made of the decision not to call a special session and institute a 9% across-the-board cut. But, of course, as OPBs Chris Lehman reported lots of agencies only rely partly on general fund monies.  In fact K-12 education makes up more than 40% of general fund spending thanks to Measure 5.  Higher ed. another 10%. Mandated Medicaid about another 12%.  After that the only other significant portion is corrections and we see what a 9% cut will do there.   Given the dire state of K-12 in particular it seems difficult to understand why we wouldn't want to try and protect it.  But the reality of the numbers is stark: there just isn't a way to protect K-12 without totally gutting other state programs.  So while I like the idea of being more nuanced about cuts, there just aren't many degrees of freedom here.

Which of course brings me back to kicker reform and a rainy-day fund.  Yes, it does not fix long run trends that Tim Duy has very clearly explained, but a substantial rainy-day fund would allow us to avoid these types of draconian cuts to basic services in recessions.

Wednesday, June 9, 2010

World Cup Video #7, How Will the Dutch Be Received and My New Prediction

Okay so this is not actually the World Cup, but the 1988 European Championship, where the Netherlands played the final against the Soviet Union (click here kids if you don't know what I am talking about). One of the most famous goals of all time: Marco Van Basten's wonder-volley.

But this raises two questions for me. The first is simple, can a lucky strike like this really be a 'great' goal?  This is not even in the same class as fellow countryman Dennis Bergkamp's goal in the 1998 World Cup in my opinion.  I value the skill, control and build up as much as the ball slamming into the net.

The second question relates to the Netherlands' participation in the World Cup in South Africa. Now that just about every African superstar is hurt and out of the World Cup my prediction of an African team winning it all is out the window. My pick of Les Éléphants of the Côte d'Ivoire was predicated on Didier Drogba scoring many goals. Now that he is out with a broken elbow (and I don't believe reports that he may play) I have to pick another favorite.

The Netherlands would be an obvious choice. The World Cup is being played in the South African winter so will have conditions not too unlike Europe in the winter and thus European teams are expected to do well. Even though the Dutch are perennial underachievers (1988 Euro Championship notwithstanding) it might just be the year for them - they are packed with tough and creative players.  The Dutch seem to always have personality issues however - and reading the article on the Ajax youth academy makes me think I know where this comes from - they get frustrated with each other and petulant so I normally don't pick them to win it all.  The inevitable implosion will come, thinks I.

But a bigger question in my mind is how the Dutch will be received in South Africa.  I don't pretend to even begin to understand the modern South African society, but with the complex and fraught history of the Boers in South Africa, do modern South Africans still relate to the Netherlands along racial lines?  Anyone know what to expect?  Perhaps they will have strong and emotional support from the crowds, or perhaps they will be treated derisively.  I wonder.

Anyway, I think I am going to write off the Dutch, their defense is a little shaky for me.  Spain looks locked in and I picked them to win Euro 2008, which they did, so you have to believe they have the self-belief.  But they didn't have to get through Brazil and Argentina then.  Brazil has my full emotional support as I travel and work there regularly, but I think Dunga has taken to much of the Brazilian-ness out of the team.  Argentina will lose their heads - obviously.  Italy and Germany always play good solid defense first football which is what you have to do in tournaments like this, so you can never write them off.

So who will it be?  Okay I am going to go with...BRASIL!  I can't bring myself to pick anyone else, I love Brazil, I love Brazilians, I love Brazilian football.  Even Dunga can't keep them down.  Besides my good buddy André in São Paulo is getting worried now that Italy has won four World Cups - time to put a little more distance between the Seleção and number two.

Eco-nomics: Photo and Temperature Sensitive Window Tinting

This is cool.  [Yes, the pun is intended] The New York Time's Green blog reports on a new innovation in window tinting film - film that is both photo and temperature sensitive.  So when it is hot and bright the windows darken keeping the interior cool, but when it is cold and bright that windows stay clear, letting all the warmth in. And they key is it does it without an electrical current.

How does it work? They are not saying save to say that it is "an organic, nontoxic polymer which changes its molecular structure in response to temperature.”

Just having this film on windows has been found to lower building energy consumption 30 to 40 percent. Like I say: cool.

I would imagine that this film has to be on double paned windows given the response to ambient temperature, so putting the film on old windows in old houses might not work so well, and I imagine that this 30 to 40 percent figure is for glass cladded buildings.  Which is all to say, it does not seem like it is a really effective residential solution which is where the big aggregate savings are to be had.  But it is another good step in reducing energy usage.    

Economist's Notebook: Money and Sports Drafts

On the morning after last year's number one pick in baseball, Stephen Strasburg, had a stunning debut for the Naionals...

AP sports writer Jimmy Golen has a nice article that wonders why Major League Baseball does not allow the trading of draft picks as do the NFL and the NBA.  MLBs prohibition doesn't make sense to economists who know that prohibiting voluntary transactions almost always leads to sub-optimal outcomes.  Why not let teams trade draft picks if they think it can make their club stronger?

Steve Levitt mentions this article on the Freakonomics Blog and Economist Richard Thaler is quoted in the article making the same point.

But I wonder why these economists have not mentioned the obvious question: why not monetize the draft?  In fact this is not my idea, it was the idea of a friend of mine from grad school who, before he went to grad school worked as an economic consultant and even got an audience with the NFL to suggest the idea.  Apparently he was not persuasive enough.

The idea is pretty simple: barter economies are much more inefficient than money economies.  If you have a kumquat and would like to consume an orange in a barter economy, you have to find someone who both wants a kumquat and has a orange to offer.  In a money economy you need only to find a buyer for a kumquat and then you can take your money and give it to the holder of an orange.

Trading in sports drafts is the same thing.  If you have the number one draft pick, but prefer, say, three role-players you have to find a team that both wants the number one and has three role-players that you want.

What if instead of getting to pick first, the worst NFL team from last season were given 10,000 "draft bucks," the number two team 8,000, the number three 7,000 and so on.  The absolute amounts are not important, only the relative amounts.  Then on draft day, you hold a big auction - e-bay style - on all players eligible that year.  Teams that value a certain player highly will bid a lot ( and will therefore have less to spend on other players if they win the auction), and teams that don't won't bid at all.

So instead of having the number one pick, you have the most money to spend, but you can spend it exactly as you see fit. It wouldn't have the drama of the draft and nowadays these things are big media events, but it should increase efficiency and improve the level of play in the league.

In fact, according to economic theory, what you should get is Pareto-efficient outcomes, outcomes that capture all of the total surplus available in the market.

What's not to like?

Tuesday, June 8, 2010

World Cup Video of the Day, 6

Josimar of Brasil - 1986.

Soccernomics: Crests and the Economic Value of a Good Logo

Just because I have posted on this before I thought I had better follow-up, though even I am weary of too much soccer despite the worlds biggest sporting event being only a few days off.

The Vancouver Whitecaps have released their new MLS crest (as seen above).  Pretty boring in my opinion but, and more importantly, inoffensive. [See my earlier post on MLS crests if you care to witness the horrors of earlier logos]  Interesting that they are going for the FC label - seems to be de rigueur these days.  I have no problem with it - but how about someone bucking the trend and going all American with an SC?

Meanwhile the Timbers will be unveiling their new crest on Saturday at Director Park during the halftime interval of the USA - England match being shown on a big screen there.  To get people worked up into logo frenzy thay have released a series of four teaser videos with clues to the new crest.  In them, they have revealed that the new crest will: one, be round; two, have an axe that 'escapes' the confines of the circle; three, have three chevrons; four, be dark green and light green.  So there you go.

Everything fine as far as it goes, but the light green makes me nervous. "Loud and bold" according to the Timbers.  Sounds like it is to replace the yellow so I imagine will be a bit yellow-green, but hopefully nothing neon-ish like the Sounders' nightmarish green which appears to be a way to keep the colors close to the Seahawks and to their current sponsor, XBOX.

But it got me wondering, just how big an economic gamble is this?

Well, fortunately the Sports Business Journal has a recent article on the latest addition to the MLS, the Philadelphia Union (new crest: OEB approved).

Seattle Sounders FC may not be an expansion team any more, but they still lead MLS in merchandise sales.

The Sounders’ continued success combined with strong sales of Philadelphia Union merchandise have combined to drive double-digit percentage increases in MLS merchandise sales this year. Sell-throughs of MLS merchandise at large retail partners such as Dick’s Sporting Goods have been strong, allowing MLS to set a record for the first quarter for merchandise sales, said Stu Crystal, MLS vice president of consumer products.


The club has already sold seven figures worth of merchandise and is expected to hit eight figures by the end of the year. It is enjoying 90 percent sell-through on core items such as replica jerseys and scarves.

“It’s been an incredible shot in the arm for our business,” Crystal said. “There’s a lot of competition with other teams in Philadelphia, but fans have been gobbling up their merchandise.”

Crystal credited the team’s logo as being a major factor in sales. [Emphasis mine] The club incorporated a rattlesnake from the famed “Don’t Tread on Me” flag into its shield. It was an image that its largest supporters group, the Sons of Ben, had used in their campaign to get an MLS franchise.
“The merchandise … is some of the hottest-selling gear for the MLS right now,” said Steve Sterhan, soccer category manager for Adidas America. “We are only five weeks into the season, and retailers are reporting double-digit sell-though.” 

So the answer is that it is pretty big business in general, but still how much does a good logo matter over a bad logo? Or in economics terms, what is the marginal value of a good logo? Crystal suggests it matters a lot, but you can't really test these things. Portland is a smaller market than Philly but has less sports competition, so I would imagine similar sales. Let's go with the eight digit floor of $10 million. If a good logo increases that by 10% we are talking real money and that is only in the first year - the present discounted marginal value of a good logo could easily reach eight figures itself.  Hmmm...let's hope Merritt and the rest of the Timbers management chose wisely.

Does Studying Economics Make You More Republican?

Thus is titled Patrick McGeehan's New York Times Economix blog post on a new study about economics training and political leanings.  Oops. He apparently doesn't understand the difference between correlation and causation. In fact he starts his post with this paragraph:

Several academic studies have found that there is a link between education levels and civic behavior. But anew study from the Federal Reserve Bank of New York has concluded that how much economics people study can influence their political activity and how they spend their spare time. does no such thing. It states very carefully that is is merely uncovering a correlation between political affiliation and economics education, nothing more, it makes no claim of causality. The correlation between republicanism and economics could be because economics teaching causes people to believe more strongly in ideas generally more associated with republicans or it could be that people who believe in ideas generally more associated with republicans are more drawn to economics classes.

Here is a line from the conclusion of the study:

Unfortunately, we cannot say if our results reflect what individuals have learned in these courses and majors, or if the relationships identified here are due to self-selection among college graduates into different college majors and economics course taking.

Now, I don't expect reporters or bloggers who cover economics to understand everything about the field, and I run into erroneous causal claims constantly from other sources, but I do expect economics reporters and bloggers to understand this one fundamental concept of empirical economics.  Come on everyone, it is not that hard, is it?  [This is an honest question, what seems obvious to me may be only because of years and years of careful training]

But, you are probably asking, do you think there is a causal link?  I do a but, but I think it is weak and is actually a non-linear linkage: I think a little economics education leaves you with the impression that the answer to all public policy questions is free markets. This is because in intro classes, we often only have enough time to study and understand markets and their wonderful aspects and about the distortions that taxes and price controls create, often leaving very little time to talk about market failures. This can be true of intermediate classes as well.  Later in economics classes, market failures come up all the time and you start to get an appreciation of the limits of markets.  But those that only take one or two economics classes will be inclined to believe that market failures are really not that big a deal, after all they were just a quick end note in the class...  But I also believe that students self-select into economics classes and that those with free market, anti-tax attitudes will find a lot to like in economics classes.  In general I think that professors have very little influence on the core beliefs of students and that mostly student gravitate to professors that teach things that resonate with those core beliefs.

Either way I welcome and value all points of view in my classes and I have found that I am very fortunate to generally have a broad spectrum of opinions in my class and what I try to do is to get all viewpoints to understand and respect the power of markets, understand carefully that nature of distortions and appreciate that rarely do markets function perfectly and so it behooves us to try and understand the failures of markets and whether they are significant.  In the vast majority of cases they are probably not.  I hope that I am producing students with a nuanced understanding of the field so that regardless of their philosophical beliefs they can use solid economic theory to back up their beliefs and that they can move beyond pure ideology.

Monday, June 7, 2010

World Cup Video of the Day, 5

The little prince: Roberto Baggio (1990):


A nice article in The New York Times about O Rei.

Economist's Notebook: Sunk Costs

Why didn't I think of this before?  The perfect example of sunk costs:

By the way, what this means is that, starting today the cost of erecting a high rise on this spot is less costly than if the hole weren't here, but that the costs already incurred in creating the hole should not factor in the decision today to erect it.

Soda Taxes: Sin Taxes or Pigovian Taxes?

Over the weekend, Greg Mankiw used his Economic View column in The New York Times to address the ides of taxing soft drinks.   He argues that they are sin taxes and not Pigovian taxes because they are designed to save users from themselves, but do not reconcile the market price with the social cost of the activity because the net cost to society is not likely to be positive.  Soda is like cigarettes, he argues, and cigarettes impose social costs through some secondhand smoke effects and from smokers themselves who get diseases that are costly to treat, but they also cause users to die much younger saving society lots of money in social security payments foregone and the like.

Here is Mankiw:

One argument for specific taxes is that consuming certain products has an adverse impact on bystanders. Economists call these effects negative externalities.

Taxes on gasoline can be justified along these lines. Whenever you go out for a drive, you are to some degree committing an antisocial act. You make the roads more congested, increasing the commuting time of your neighbors. You increase the likelihood that other drivers will end up in accidents. And the gasoline you burn adds to pollution, including the greenhouse gases thought to cause global climate change.

Many economists advocate gasoline taxes so that drivers will internalize these negative externalities. That is, by raising the price of gasoline, a tax would induce consumers to take into account the harm they cause after making their purchases. One prominent study added up all the externalities associated with driving and concluded that the optimal gasoline tax is over $2 a gallon, about five times the current level (combining the federal and a typical state’s levies) and about the tax rate in many European countries.

Applying that logic to other consumer goods, however, is not as straightforward. Consider cigarettes. They are among the economy’s most heavily taxed products, as governments try to discourage people from smoking. Yet the case for such a policy cannot rely on a conventional externality argument.

When a person sits at home and smokes two packs a day, the main adverse impact is on his or her own health. And even if second-hand smoke is a concern, that problem is most naturally addressed within the household, not at the state or federal level.

Sometimes, advocates of “sin” taxes contend that consumers of certain products impose adverse budgetary externalities on the rest of us — that if the consumption induces, say, smoking- or obesity-related illness, it raises health care costs, which we all pay for through higher taxes or insurance premiums.

Yet this argument has a flip side: If consumers of these products die earlier, they will also collect less in pension payments, including Social Security. Economists have run the numbers for smoking and often find that these savings may more than offset the budgetary costs. In other words, smokers have little net financial impact on the rest of us.

It may seem grisly to consider the budgetary savings of an early death as a “benefit” to society. But when analyzing policy, economists are nothing if not cold-blooded. If one uses budgetary costs to justify taxing particular consumption goods, the accounting needs to be honest and complete.

He ends with this thought:

...To what extent should we use the power of the state to protect us from ourselves? If we go down that route, where do we stop?

Taxing soda may encourage better nutrition and benefit our future selves. But so could taxing candy, ice cream and fried foods. Subsidizing broccoli, gym memberships and dental floss comes next. Taxing mindless television shows and subsidizing serious literature cannot be far behind.

David Leonhardt takes issue with the idea that soda taxes are not Pigovian. He argues that the health implications of soda are not like cigarettes, people are not likely to die much younger but are much more to have to live life with diseases with long-term and costly implications:

The link between sugary drinks and obesity is stronger than the link between any other kind of food and obesity, as Kelly Brownell, the Yale obesity researcher says. Calorie intake from these drinks — most of which have no nutritional benefit — has increased almost threefold since the late 1970s. The increase accounts for about half the total per-capita rise in calorie consumption over the same period.

Obesity, in turn, causes a very different pattern of illnesses than tobacco does. Obesity has caused a sharp increase in costly chronic diseases, like diabetes, but is much less likely to cause rapidly fatal diseases, like lung cancer. An article in Health Affairs estimated the annual cost of obesity to be $147 billion and growing. That translates into $1,250 per household, mostly in taxes and insurance premiums.

A soda tax obviously would not solve the obesity epidemic. But it appears to be one of the most promising responses, given the central role that sugary drinks play in the epidemic and the fact that they have no nutritional benefit. A tax would also help reverse the big decline in the price of soda over the last few decades, at the same that the price of fruit and vegetables has been rising. Finally, as with a gasoline tax, a soda tax would help cover the broader costs that the product imposes on taxpayers.

I am of two minds in this: I am weary of too much government involvement in markets to try and correct all market failures and I am enough of a libertarian to believe that people should be able to make their own choices when the costs and benefits are largely private.  That is to say that, like Mankiw, I am not a fan of sin taxes.  But if childhood obesity really is an epidemic that has serious potential cost consequences then Pigovian taxes are justified. In fact, I think Mankiw would agree with this premise, but he obviously does not agree that soda has a large societal net cost (or is not yet convinced).

Regardless, the recent push for soda taxes is clearly more about balancing budgets than fixing a market failure.

Friday, June 4, 2010

Soccernomics: Kids as Capital

Joachim Ladefoged/VII, for The New York Times

This time it really is about economics.  The New York Times Magazine has an absolutely fascinating article on the fabled Ajax youth academy in Amsterdam. What is so interesting is the clear (cynical perhaps) motivation of the academy is to produce the rare exceptional talent so that they can sell him for tens of millions of dollars. This is a business model based on the emergence of winner-take-all markets, of which world football certainly is one.

Here is a couple of money quotes from the article:

De Toekomst is not where you come to hear a romantic view of sport. No one pretends that its business is other than what it is. “We sold Wesley Sneijder for a ridiculous amount of money,” Versloot said. “We can go on for years based on what he was sold for.”


When I observed that for all the seriousness of purpose at De Toekomst, I was surprised that the players did not practice more hours or play more games, Rooi said: “Of course, because they do not want to do anything to injure them or wear them out. They’re capital. And what is the first thing a businessman does? He protects his capital.”


Late one afternoon in the cafe at De Toekomst, I was talking with a coach, Patrick Landru, who works with the academy’s youngest age groups, when he asked if he could take my writing pad for a moment. I handed it over, and he put down five names, then drew a bracket to their right. Outside the bracket, he wrote, “80 million euros.” The names represented five active “Ajax educated” players, as he called them, all of whom entered the academy as children, made it through without being sent away and emerged as world-class players. Eighty million euros (or even more) is what Ajax got in return for selling the rights to the players to other professional clubs. Once a team pays this one-time transfer fee, it then negotiates a new, often very large, contract with the player.

The author tries to relate this to the approach in the US in some convincing, and some less convincing, ways. We are certainly moving away from the romantic ideal that sports are good for kids for their own sake and are more and more concerned about player development but we still view youth sports as virtuous in their own right. But if the Ajax youth academy is a money making venture then there is no reason not to expect that these types of academies will arise in the US, offering free training for the slight chance of a pro career. In fact, it is likely that over time MLS teams will do just this.

But I am not sure that as a parent I would let my kid do it: the off chance of a pro-career does not seem worth the psychological toll on kids and the denial of their youth. Here is a 15 year old kid who is a prospect at the academy:

He said he guessed that probably only two or three of the boys he began with when he was 7 would have pro careers in their sport. “I would feel very bad if I’m not one of them,” he said. “I have tried everything I can do to make it. I haven’t done as much in school as I could. I would feel like I’ve been wasting my time all these years. I would get very depressed.”

I asked if some of what he learned at Ajax — focus, perseverance, the ability to perform under pressure — might benefit him no matter what he ends up doing. “No,” he said, shaking his head. “We’re training for football, not for anything else.”

World Cup Video of the Day, 4

Here is another from '98.  Teenaged sensation Michael Owen (remember him?) against arch rivals Argentina - a little payback for the '86 Maradona goals:

Quel Désastre pour Les Éléphants!

UPADTE: Drogba may not be out after all.  Stay tuned.  Allez Les Éléphants! 

Er...remember that prediction of mine that Les Éléphants of the Côte d'Ivoire would win the World Cup?  Nevermind.  That was based about 90% on my immense respect for Didier Drogba, who is for me the best center forward in the game today and can single-handedly win a game for his team such is his ability to score from nothing.

Thus the news today that he fractured his arm in a warm-up match and is out of the World Cup effectively ends any hope of Les Éléphants making a run.  And not just for what Drogba adds on the field, but he is the heart and soul of the team and it is hard for me to believe that they can recover psychologically from this blow.  Very sad.  This on the heels of Michael Essien of Ghana being ruled out and Samuel Eto'o of Cameroon in a pouting phase and suddenly this African World Cup is looking like it will be devoid of the very top African stars.  Perhaps this is a chance for some new stars to be born.

I will still root like heck for Les Éléphants and the rest of the African contingent, but my dream of an African World Cup champion suddenly looks a lot less likely.

By the way, Rio Ferdinand of England has hurt his knee and is also out.

US Unemployment: Depressing

How can 431,000 new jobs and a declining unemployment rate be depressing? When almost all of those new jobs were temporary Census jobs meaning that private sector employment was completely moribund just a month after a very strong private sector expansion.

This might be evidence that the temporarily strong jobs numbers were due to an inventory bounce.  An inventory bounce is when firms that see declining demand in a recession cut back production to drain down bulging inventories.  To do so they have to cut back more than is appropriate for the new lower demand and so eventually when they successfully draw down inventory they will have to ramp up production but only to the new lower level.  In other words, manufacturing is not recovering just adjusting to an over-correction.

It is also very troubling due to the fact that states across the nation are in fiscal crisis and are about to shed jobs and spending like crazy.  Suddenly, this weakness along with trouble in Europe makes me worried about a double dip recession - something I have been sanguine about in the past.  I think there should be very real consideration of a second round of stimulus in the form of block grants to the states.

This is, of course, very terrible news for Oregon, which has yet to gain any real traction in the job recovery front.

Things are just bad all over...

Thursday, June 3, 2010

World Cup Video of the Day, 3

Why is Diego Maradona considered one of the best ever (no not the best - sorry all of my Argentinean classmates)? Here is perhaps his most famous goal (not his most infamous - the hand of god which occurred earlier in the match):

Your World Cup Viewing Guide

A little exhausted today after finishing teaching for the year yesterday and unable to focus as well as I would like.  So I went looking for the TV schedule for the World Cup and found only poorly formatted ones and ones only in Eastern Time.  So, as is typical of me sometimes, I did the anal retentive thing: I got it all in an Excel spreadsheet, organized it nicely and put all in Pacific Time.  You are welcome.

Here it is and I hope you are an early riser (click here for a pdf version):

By the way, posting it on my blog makes me feel like I haven't wasted as much time...

Beeronomics: Micro Brew / Cask Ale Revolution in England

Here is an NBC Nightly News segment that came to my attention from the Oregon Brewcrew listserv on the growth and popularity of craft breweries in England. Sound familiar? It is, but with a twist - this report suggests that the craft breweries in England are concentrating on cask ale. I don't know if this is generally true, but if so it is an interesting contrast to the US where cask is very slow in catching on. Perhaps the difference is that the UK never lost reasonably good beer but did lose local beer whereas in the US we lost local and good beer. Now we are happy to have good beer back, but it seems only a matter of time before the local, fresh, sustainable food movement embraces cask ale.

Wednesday, June 2, 2010

World Cup Video of the Day, 2

Okay, here is a more modern one, from the 1998 World Cup in France. The Netherlands's (And Arsenal's) Dennis Bergkamp with the goal that beat the Argentineans and put them out of the Cup.  It is all about the first touch...

Eco-nomics: Incentives, Innovation and Catastrophe

Ken Rogoff, Harvard professor and former chief economist at the IMF, has an excellent piece in Project Syndicate on the problem of regulating complex new technologies. This was true in the case of exotic financial instruments that caused the financial crisis and is now true in the case of deep water drilling. Here is Rogoff on the Gulf of Mexico disaster:

The disaster, however, poses a much deeper challenge to how modern societies deal with regulating complex technologies. The accelerating speed of innovation seems to be outstripping government regulators’ capacity to deal with risks, much less anticipate them.

The parallels between the oil spill and the recent financial crisis are all too painful: the promise of innovation, unfathomable complexity, and lack of transparency (scientists estimate that we know only a very small fraction of what goes on at the oceans’ depths.) Wealthy and politically powerful lobbies put enormous pressure on even the most robust governance structures. It is a huge embarrassment for US President Barack Obama that he proposed – admittedly under pressure from the Republican opposition – to expand offshore oil drilling greatly just before the BP catastrophe struck.

The oil technology story, like the one for exotic financial instruments, was very compelling and seductive. Oil executives bragged that they could drill a couple of kilometers down, then a kilometer across, and hit their target within a few meters. Suddenly, instead of a world of “peak oil” with ever-depleting resources, technology offered the promise of extending supplies for another generation.


The basic problem of complexity, technology, and regulation extends to many other areas of modern life. Nanotechnology and innovation in developing artificial organisms offer a huge potential boon to mankind, promising development of new materials, medicines, and treatment techniques. Yet, with all of these exciting technologies, it is extremely difficult to strike a balance between managing “tail risk” – a very small risk of a very large disaster – and supporting innovation.


If ever there were a wake-up call for Western society to rethink its dependence on ever-accelerating technological innovation for ever-expanding fuel consumption, surely the BP oil spill should be it. Even China, with its “boom now, deal with the environment later” strategy should be taking a hard look at the Gulf of Mexico.

Economics teaches us that when there is huge uncertainty about catastrophic risks, it is dangerous to rely too much on the price mechanism to get incentives right. Unfortunately, economists know much less about how to adapt regulation over time to complex systems with constantly evolving risks, much less how to design regulatory resilient institutions. Until these problems are better understood, we may be doomed to a world of regulation that perpetually overshoots or undershoots its goals.

The finance industry already is warning that new regulation may overshoot – that is, have the unintended effect of sharply impeding growth. Now, we may soon face the same concerns over energy policy, and not just for oil.

Given the huge financial stakes involved, achieving global consensus will be difficult, as the Copenhagen climate-change fiasco proved. The advanced countries, which can best afford to restrain long-term growth, must lead by example. The balance of technology, complexity, and regulation is without doubt one of the greatest challenges that the world must face in twenty-first century. We can ill afford to keep getting it wrong.

I would add only that the political economy of regulating against activities with uncertain risks but with fairly demonstrable gains is hugely difficult. But it seems to me that the scale of disaster whether it is the almost comical inability to stop a massive man-made fissure in the earth crust from gushing toxic oil or the potentially devastating effects of global climate change suggests we need to change our calculus. In our risk models the worst-case scenarios are turing out to be orders of magnitude worse than we thought and so our probabilistic models of expected benefit and expected cost need to be fairly radically adjusted.