Wednesday, December 8, 2010

Portland's Economic Performance

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

This passage from the Oregonian editorial today is priceless:

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

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

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

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

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

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

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

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

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

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

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

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

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

1 comment:

Chuck Sheketoff said...

I was also unimpressed with the report...and think it epitomizes the new low quality standards at ECONorthwest and the people who hire them.