Thursday, March 31, 2011

The Wonderful Film and Television Tax Credit

You might think, given my previous questioning of targeted tax credits (like the BETC) that I would be rather skeptical of the film and television tax credit now under scrutiny in Salem.  Here is Chris Lehman of OPB:

The sun is setting on a series of tax credits in Oregon. In 2009 lawmakers voted to sunset nearly all of the state's tax credits on a rolling basis every six years. That would allow them to review each one and decide whether it's worthy of renewal.

The first batch is going under the microscope now and includes things like incentives for reforestation and hand-outs to the film and television industry.

One of the beneficiaries includes the TNT television series "Leverage" starring Timothy Hutton.


The setting may be fictional, but the place where it was filmed is the very real city of Portland.

"Leverage" is in the midst of taping its third season of shows in Oregon. But executive producer Dean Devlin says "Leverage" wouldn't be in Oregon at all if it weren't for the state's tax credit for film and television production.

Dean Devlin: "Without the incentives, we wouldn't be there. The incentives are essential."
You would be wrong.  I think this is the best tax credit ever! I mean we get to have real hollywood stars grace our streets, our fair state appears on screens around the globe...the benefits must be endless.

Okay, okay, perhaps it has more to do with the fact that I am a direct beneficiary: the good folks at Leverage are going to film a few scenes at my house and pay me a modest sum for my trouble.

Boy do I love that tax credit!

By the way, I have never actually seen Leverage, but I am totally confident that it is the best thing on TV.  Ever.

Wednesday, March 30, 2011


This ridiculous op-ed by three PPS board members argues that seismic safety is a key component of the PPS facility bond measure.  This is an attempt to answer critics like me who wonder why we aren't spending the money retrofitting as many school buildings as possible.  But the op-ed is false and disingenuous.  The bond measure is about rebuilding and renovating schools - that they will be brought up to current seismic standards in the process is incidental.  Only one school - the Fernwood campus of Beverly Cleary - will have a seismic-specific retrofit.

Now, there is perhaps a good argument to be made that we should spend $548 million in the way PPS is proposing rather than preparing for a random event that may or may not happen in our lifetimes and when it does has only a 10% chance of happening during school hours (hooray for a short school year!). [This is, by the way, how I try and comfort myself given the knowledge that my son's school building will almost certainly collapse in a serious earthquake]  But you should make this argument and people like me who always think in terms of opportunity cost (what else you could do with the same money) can evaluate it on its merits.  What you should not do is deliberately obfuscate and try and pretend the bond measure is about seismic safety in any real way.

Note: I see that PPS has also prepared a press release linking the bond measure to seismic safety.

Tuesday, March 29, 2011

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.

Monday, March 28, 2011

Libya and the Economists

Absolutely fascinating story about Economists, Harvard and LSE and their connection to Libya in Economic Principals. [HT: Mark Thoma]

Friday, March 25, 2011

PNREC 2011

Just a note to draw you attention to an upcoming conference: the 2011 Pacific Northwest Regional Economic Conference to be held in Victoria, BC on May 12 and 13.  Early registration ends on April 11, so get yours in soon.  If you are interested in economic issues related to the NW, this is a great opportunity.

Besides, it is in Victoria in May, what is not to like about that?

For more on the PNREC, here is this from the PNREC website:

PNREC Objectives

The Pacific Northwest Regional Economic Conference is a non-profit organization established to promote research and education on the economy of the Northwest states and western Canada. The objectives of the Conference are:

  • To present a program of professional papers, panels and symposia that relate to regional economics.

  • To enable distinguished regional scientists and policy analysts from elsewhere to play a featured role at the Conference.

  • To provide a forum for those from academia, business, and government to meet and interact professionally.

Budget Puzzle

I am finally going back and cleaning up my inbox and I came across an old e-mail from the folks at Our Oregon pointing me to their Oregon Budget Puzzle in which you yourself can solve the state budget conundrum by choosing what gets cut.  Better late than never I suppose

Good luck.

Monday, March 21, 2011

Spring Break

And I am taking the week off blogging.  I hope to get to a couple of long overdue Beeronomics posts but other than that I am catching my breath and recharging the batteries for the Spring semester.

Friday, March 18, 2011

Soccernomics: Timbers Army and Soccer City

Its Friday, I am busy and don't have time for anything serious.  [By the way part of the reason I am busy is I was taping a Think Out Loud show this morning that will air tonight at 9 on OPB]  Anyway, two Timbers related things from this mornings Oregon stood out to me.

The first was John Canzano's hit piece on the Timbers Army in which he confuses complements and substitutes.  To me he has a point that the Army will have to tone down its act and understand that things have changed with the move to MLS.  I think the Army gets this - just look at their blog where they openly discuss snuffing out overly offensive chants.  But he seems to think the whole Army is a substitute to a more mainstream audience.  I think this is entirely wrong - the Army is a vital complement to the general audience, creating atmosphere that attracts other fans and is vital to keeping the overall experience exciting.

Generally a good thing in that it gets people interested and attracted to the sport, this is the one problem with the proliferation of European soccer on US television: it highlights the enormous gulf in the quality of play between top Euro leagues and the MLS.  Apparently the Timbers field will be at the very small end of the FIFA guidelines at 110 by 70 yards.  Mix a small field with plastic turf and quality but not world-class players and you have a recipe for a pretty dull spectacle of the ball ping-ponging around until it eventually goes out.  So the TA creating a lively atmosphere is going to be vital.

The second is the ridiculous article on which MLS city has the best claim to "Soccer City USA."  The first problem is that the metrics that really matter are not quantifiable and the proxies the O used are not at all good.  Attendance at USL games does not compare to MLS and the fact that there is a huge TA section going crazy is not something that shoes up in attendance figures.

But the most laughable part is who they identified as Soccer City, USA: San Jose.  You have got to be kidding.  They have some of the worst attendance in the league and have already lost their franchise once because of it.  And then there is this line:
Although the Earthquakes averaged an MLS-worst 9,659 in average attendance last season, they rated better than average in that category when the data were adjusted for San Jose's 1.8 million people -- third-smallest metro area in the league.
What? San Jose is a part of the Oakland-San Francisco bay area (one of the biggest metro areas in the US) and is the only soccer franchise in town. There is no other way to view their attendance than as completely woeful.

So, it may not be Portland, but it sure 'aint San Jose.

Go Timbers!

Thursday, March 17, 2011

Economist's Notebook: On-Line News and the Prisoner's Dilemma

I received this today in my e-mail box:

Dear New York Times Reader,

Today marks a significant transition for The New York Times as we introduce digital subscriptions. It’s an important step that we hope you will see as an investment in The Times, one that will strengthen our ability to provide high-quality journalism to readers around the world and on any platform. The change will primarily affect those who are heavy consumers of the content on our Web site and on mobile applications.


If you are a home delivery subscriber of The New York Times, you will continue to have full and free access to our news, information, opinion and the rest of our rich offerings on your computer, smartphone and tablet. International Herald Tribune subscribers will also receive free access to

If you are not a home delivery subscriber, you will have free access up to a defined reading limit. If you exceed that limit, you will be asked to become a digital subscriber.

This is how it will work, and what it means for you:

On, you can view 20 articles each month at no charge (including slide shows, videos and other features). After 20 articles, we will ask you to become a digital subscriber, with full access to our site.

This has been coming for some time now and it will severely hamper my blogging as I rely on The Times for a lot of my content. There is a lot of talk among those who study the news business about this model and if it will work - will people really (finally) pay for content on the web?

NPR recently had a nice piece on The Times of London's experience with a pay wall where they lost about 95% of their audience after instituting it.  So there is every reason to expect the NY Times' experiment to fail as well - though the London Times is still sticking with it and embracing the remaining 5% as the right sort of people (how very British).

To me this is a classic game theory problem: the payoffs to any one news outlet's decision to charge is a function of other news outlets' decisions. To wit, if all the major news organizations decided to charge for on-line content then to read news on-line consumers would have to pay and all the news organizations might be able to sustain healthy readership as there would be no other alternative to those seeking news.

Of course this is not how it works. There are so many sources of news that any one decision to charge sends readers scurrying elsewhere ala The Times of London. But if all of the players could coordinate and contract over charging for the service, they would all be better off.  If there was no one free alternative there would probably be enough custom to go around and keep many papers in newsprint microchips.

This is the classic market failure that we associate with strategic situations in economics and is precisely the point of the prisoner's dilemma game: in strategic situations (where an individual's outcome depends on the decisions of other players) acting in your own self interest can lead to inefficient outcomes. In fact the best outcome is to be the one provider that doesn't charge - gets an amazing amount of visitors and can charge a decent amount for advertising.

Not coincidental, I think, that in the same week as the New York Times institutes a pay-wall, the still free Washington Post unveils a major web-site redesign. Ah the games we play...

Wednesday, March 16, 2011

Picture of the Day: Corporate Cash

Wall Street Journal Graphic

You have heard about how corporations' profits are healthy (thanks in part to US labor market flexibility that allows them to slash costs relatively easily), and you know that the Dow has rebounded nicely since the bubble burst, but you are wondering why the employment situation and the overall economy is still so bad?  Here is a major clue: corporations are stilling on piles of cash.

This is not a condemnation - corporations will start spending when they believe that investment will pay off, and the fact they are not doing so simply reflects the uncertainty that remains in the economy at the moment.  But the silver lining is that when corporations start to invest again, their new investment could become a real source of recovery momentum thanks to these sizable reserves.

Tuesday, March 15, 2011

Oregon February Unemployment Falls to 10.2% on Strong Jobs Growth

The February numbers are out and Oregon's jobs picture looks much better, though not enough to disabuse me of the belief that though we are indeed in recovery mode, it is still going to be a climb out.

The unemployment rate is still at a quite high 10.2%, but the number of new jobs created was a very robust 9,800 on a seasonally adjusted basis. This is the highest monthly jobs gain in Oregon since November 1996. The unemployment rate is of course a function of supply and demand and the supply of those looking for jobs in increasing with demand so it'll be hard to make a serious dent in it quickly, but the jobs numbers have been good for 5 months now, and it is this number that is the important one upon which to focus.  Finally some very good news about the Oregon economy.

Here is a picture of the jobs numbers:

One reason to temper enthusiasm is the terrible catastrophe in Japan, which will not help matters as it is one of the top destinations for our exports and the Port of Portland still handles a number of cars and other goods going to and coming from Japan.  Here is a picture of Oregon Exports by Country from 1997 to 2010 taken from a post at the Office of Economic Analysis Blog.

Turmoil in the middle east and the related surge in oil prices is not helping speed the recovery either.  So the moral of the story is that things are getting better, but still slowly and we still have a long climb ahead.

Monday, March 14, 2011

PPS Earthquake Preparedness

Now is a good time to raise, once again, the question of why we are being asked to pay $548 million for school facilities improvements that does almost nothing to address the very desperate need for seismic improvements in Portland Public Schools?  The only seismic specific project is for Fernwood.

Sure, nice facilities are great, but I'd prefer a less fancy one that doesn't fall down upon my kids in the inevitable earthquake - especially since once you provide good ventilation and lighting fancy school facilities do not translate to better student achievement. [Note, the correlation is high in raw data because fancier schools are usually in wealthier neighborhoods - but, say it with me, correlation is not causation]

Friday, March 11, 2011

Economist's Notebook: Prices and Rationing

I have a great person who cuts my hair in Corvallis.  It used to be easy to schedule an appointment with her but apparently her skills are becoming more well known and now it is much more difficult to find a time that matches with my free time in Corvallis (which is very scarce).  

I have been going to her since 2006 when I first moved back to Oregon and she always reminds me that her prices have stayed the same in that time.  "Still $25, as always!" She proudly proclaims.

This time it was especially hard to make a suitable appointment so she was quite surprised when I responded that I wished it was more so I could make an appointment more easily.  

To her this was crazy talk, but to me this is how scarce resources (her talent in this case) is rationed efficiently - prices rise until demand meets supply.

She still wasn't buying it - especially when I told her she might actually do better with higher prices and a less full schedule.

And so I will continue to struggle to schedule appointments....alas.

Thursday, March 10, 2011

Bike-o-nomics: Economics of Bike Lanes

Photo Credit: The New Yorker
You think there is controversy in Portland about bike lanes? You gotta be kidding - just go to NYC and then you'll see what controversy is.  Start taking away parking in Manhattan and the gloves come off.  But it is interesting to witness erudite and intelligent economists (or at least economics reporters) discuss the merits of bike lanes.

So I draw your attention to this heavyweight match.

Round 1. John Cassidy of the New Yorker writing in his blog:

But from an economic perspective I also question whether the blanketing of the city with bike lanes—more than two hundred miles in the past three years—meets an objective cost-benefit criterion. Beyond a certain point, given the limited number of bicyclists in the city, the benefits of extra bike lanes must run into diminishing returns, and the costs to motorists (and pedestrians) of implementing the policies must increase. Have we reached that point? I would say so.

Round 2. Felix Salmon on his Reuters blog responds:

And so New Yorkers turn to other modes of transportation. Primarily, we walk, taking up very little space while doing so. When we don’t walk, we cram lots of people into efficient vehicles like subways or buses. And sometimes we bike, since doing so makes a great deal of sense in a pretty flat city where space is at a premium.

Driving a car, on the other hand, is an enormously expensive thing to do, with most of the costs being borne by people other than the driver.


If indeed the limited number of bicyclists in the city was a given, then Cassidy might have a point here. But it’s not. Bike lanes attract bikes no less effectively than roads attract cars and the number of cyclists in New York has been growing just as fast as the city can create new lanes for them.

Round 3. Cassidy responds:

Some people like cars, some people like bikes, some people like both. Since there is a limited amount of space on city streets, trade-offs have to be made. In making such trade-offs, a democratic polity should take into account the preferences of motorists, who happen to be far more numerous, as well as cyclists. That is all I am saying.

Round 4. Justin Lahart in the Economix blog points to this piece of research:

Cycling is a form of exercise that can also be used as a mode of transportation if the surrounding environment facilitates such use. According to the United States Department of Transportation, 73 percent of adults want new bicycle facilities such as bike lanes, trails, and traffic signals. Using data from the 1990, 1995, and 2001 waves of the Nationwide Personal Transportation Survey, in addition to data from the Behavioral Risk Factor Surveillance System (1996-2000), I propose to analyze the effects of variations in the built environment in the form of urban sprawl and in real gasoline prices on cycling as a form of physical activity. Using bivariate probit and propensity score methods, I show how cycling can lead to improved physical health outcomes.

He goes on to estimate, according to Lahart, that $6 billion could be saved in health expenditures in the US through increased cycling - though Lahart does not say how much increased cycling and I don't have access to the paper beyond the abstract. It does bear mentioning that such things are very hard to pin down in data and as yet, it does not appear to have been published in a peer reviewed journal.

Then there is the humorous deconstruction of the debate by Adam Sternbergh in his New York Times Magazine blog.

And finally a little pithy snark from Paul Krugman.

See, we here in our little provincial Puddletown are downright civil by comparision!

Anyway as to the economics, I have to give thie decision to Felix Salmon.  The amount of on-street parking in Manhattan is fixed and with or without cycling the relative scarcity only gets worse every year.  How to deal with the problem is not to try and preserve as much as possible but get at the root causes - too much reliance on personal car transport.  Besides, there is an easy solution to the parking problem: more private garages.  To promote biking - an activity that has positive social benefits versus the negative social benefits - you need to share the fixed amount of space on NYC's roads.

Cassidy's suspicion that the cost-benefit analysis would not turn out in favor of biking is completely absurd in my opinion.  Felix Salmon is right about the endogeneity of bikes and cars (so you can't look at the welfare of current users, but of the future equilibrium of users), and when you take into account the social costs of driving and the social benefits of riding, I think Cassidy would be disappointed to learn that a good CBA would point to even more bike lanes than is currently being proposed.

Now, a word of caution, I am taking as a stylized fact that bike lanes cause more biking.  Though I believe this is likely true, I don't think it has been shown to be so.  Nevertheless, living in Portland convinces me that all of the infrastructure has helped create the biking culture and an attitude that biking is a reasonable transportation alternative.

I do award Cassidy the last word, however, as he signs off with this beauty which works as well here in Portland as in NYC:

Finally, thanks to the commenters in general for providing me with a handy guide to the cultural politics of the twenty-first century. I’ll keep a copy of it in my walnut glove compartment:

Bicyclist = Urbane, enlightened, sophisticate.

Car Driver = Suburban, reactionary, moron.

Wednesday, March 9, 2011

Recovery Risks

No time to do much today so here is a pointer to the New York Times's David Leonhardt on recovery risks:

It’s a strange moment for the economy. Just when it is picking up speed, the risks of another slowdown are also increasing.

On the positive side, exports and consumer spending are up, and the job market finally seems to be improving. If anything, last week’s jobs report probably undercounted recent gains. That often happens early in an economic recovery because the Labor Department has a hard time keeping track of newly started businesses.

On the negative side, oil prices have risen more than 40 percent since September, and every level of government is considering spending cuts and layoffs.

All in all, the situation is uncomfortably reminiscent of last spring. Back then, companies were just starting to hire again, before a combination of events — including Europe’s debt crisis and the fading of the stimulus program here — spooked them and cut short the recovery. It’s easy to imagine how energy costs and government cuts could do the same this year.

Read the rest at the Times.

Tuesday, March 8, 2011

Today Nothing Else Matters

Political upheaval in the middle east threatening our economic recovery, budget cutting battles rage in Washington and the states, union bashing in the rust belt, Justin Bieber's new haircut...  No time to dwell on such trivial things, for today nothing else matters.

UPDATE: A sad conclusion to a series that started so brightly in London.  Arsenal looked awestruck in the Camp Nou and were completely dominated and undone by Barça's pressure/possession game.  None looked more awestruck than Cesc Fabregas, whose attempt at a cheeky back heel just outside the Arsenal box led to Barça's first goad courtesy of Iniesta and Messi.  Lionel Messi was back to his very best, which is the best in the world, and by some distance.  That first goal was as sublime as they come.   A ridiculous sending off of Arsenal's Robin Van Persie sealed Arsenal's fate, but in truth they were outclassed at 11 men, and just more so at 10.

Barça have become Arsenal's bogey team, beating them in the 2006 finals and putting them out the last two years.  But there is noting to do but get on the Barça bandwagon and enjoy the show, because it is truly beautiful when it is not against the Arsenal.

Arsenal still have two major competitions in which they are in contention: the FA Cup and the Premiership.  Now they will be free to concentrate.  Another year without any trophy is simply unthinkable.  

Glaeser on Seattle

Stuart Isett for The New York Times

Steel yourselves, oh Portlanders, it is Seattle, not Stumptown getting New York Times love today, in the form of an Ed Glaeser love letter to the Emerald City.

As the 2010 Census rolls out, much of the attention of news organizations is focused on the continuing growth of Texas and Florida, but there is much to be learned from the less extreme, but still significant, population growth in less sunny places, like Seattle.

Seattle is one of the few large cities outside the Sun Belt that is growing more quickly than the country as a whole. The city’s growth reveals the benefits of concentrating smart people in dense cities.

The success of Seattle was hardly foreordained, as it shares much with America’s many declining cities. Like Detroit and St. Louis, Seattle grew as a node of the great transport network, which included canals from Erie to Panama and intercontinental railroads, which enabled Easterners to access the vast wealth of America’s hinterland.

Seattle’s growth spurt during 1880s coincided with its rail connection to the East. In its early years, the city specialized in providing access to timber and Klondike gold.

To succeed in the 20th century, American cities needed to do more than help move natural resources, and Seattle moved into manufacturing transportation equipment, natural enough given the vast distance that separated the city from the country’s population centers.

During World War I, the city’s shipbuilding industry expanded rapidly, and Boeing began as a partnership between a naval engineer and a lumberman.

Just as Michigan’s forests were part of Detroit’s early success in making cars, since early automobiles — like the carriages that preceded them — had plenty of wood, early planes used light wood and Washington’s timber industry was a boon to Seattle’s airplane industry. William Boeing’s own expertise in wood products helped him to be smart about early airplane construction.


A great paradox of our age is that despite the declining cost of connecting across space, more people are clustering together in cities. The explanation of that strange fact is that globalization and technological change have increased the returns on being smart, and humans get smart by being around other smart people.

Dense, smart cities like Seattle succeed by attracting smart people who educate and employ one another.

A person’s earnings rise by more than 7 percent as the share of people in his or her metropolitan area with a college degree increases by 10 percent, holding that person’s own level of education constant. Educated neighbors are particularly valuable in dense cities, where contact is more common.

Skilled people have often chosen to come to already educated cities, and the share of Seattle adults with college degrees has risen to 56 percent from an already high 47 percent in 2000.

Today, Seattle is one of the wealthier and most productive metropolitan areas in the United States. Per-capita personal income is 25 percent above the United States average. Per-capita productivity is 37 percent above the metropolitan average in the United States. That productivity explains why Seattle has grown so robustly over the last decade.

Seattle has also helped itself by permitting taller structures. That density enables ideas to flow freely. Building up is also an environmentally sensitive alternative to building out, and Seattle’s height helps the city maintain a relatively high level of public transportation use and a relatively low level of carbon emissions.

Sun Belt sprawl isn’t the only model of modern metropolitan success. Skilled, tall cities like Seattle provide an alternative model of urban growth that emphasizes the creation of knowledge.

The Seattle model is particularly important, because the ideas created in skilled cities are likely to be the economic mainstay of America in the next century.

Of course, he could have wrote much the same things about Portland, so don't despair. Besides, Seattle is a transportation planning catastrophe, pretty pictures of streetcars notwithstanding. So there.

Monday, March 7, 2011

Two Hard Truths About Incentive Pay for Teachers

Education research has found teacher quality to be the single biggest determinant of student success.  However we also know that teacher quality is not predictable based on any observables - degrees, quality of schools, etc.  Which is why there is such an emphasis on ex-post teacher evaluation and performance based incentives.  It has to be after a teacher is on the job that their performance is evaluated and then there must be a mechanism to promote successful ones. This is all quite logical.

But before we rush headlong on incentive schemes and hiring/firing policies we must confront two inconvenient truths in education:

1.  Teacher evaluation is very hard and the great hope of using value-added measures is not working very well in practice.  The measure are unstable across years, tests and even, I am told from someone with intimate knowledge of the Chilean experiment, across sections of the same test.

2.  Incentive schemes, at least in the US are not working.

Just something to think about apropos the new PPS teacher contract set to be ratified by the board tonight.

Ah Acronyms!

Latin Americans do love their acronyms.  The Brazilians, in particular, love to pronounce them as words so, for example, the Pontifícia Universidade Católica do Rio de Janeiro, or PUC-Rio, is said "pookie Rio." The -ie comes from the way the soften the hard consonant sound a the end of a word, so I am called Patrick-ie in Brazil.  The University of São Paulo (USP) is said 'ooospie' and so on.

Anyway, this morning in my e-mail box I received the latest communique from the Latin American and Caribbean Economics Association (or LACEA, pronounced 'la-say-ah') informing me of the newest network with the umbrella organization.

It is the America Latina Crime and Policy Network.

And the ancronym?

You guessed it: AL CAPONE.

I am not making this up.

Friday, March 4, 2011

A Bank of Oregon?

Ben Jacklet has an outstanding article in Oregon Business magazine on the idea of creating a Bank of Oregon that would lend out public money directly to Oregon businesses.  Jacklet's article is an absolute must read for anyone trying to make sense of the idea.  I blogged about the idea of a bank of Oregon over a year ago when Bill Bradbury first proposed the idea as part of his campaign for governor.  I was skeptical then and I am skeptical now.

Many of the questions and concerns I had then are expressed almost verbatim by private bankers in Oregon:

Bill Humphreys, CEO of Corvallis-based Citizens Bank, says he has studied the North Dakota model and concluded that a state bank would be against the interests of the state and taxpayers. “I don’t see how a state-owned bank could enter the marketplace and all of a sudden start making loans that aren’t being made now,” he says. “Unless they decide they’re going to take on greater levels of risk.”

Humphreys and other bankers point out that one driving reason behind the financial meltdown was loose, easy credit without proper collateral. A state-run bank committed to lending to businesses would “share the consequences of higher risk with the taxpayers,” Humphreys says. “This is not a good time to do this. If you look at the state as a business, they are in such a deficit position that they have no business investing in anything.”

Which is precisely what I pointed out a year ago, if a Bank of ORegon is going to start making loans to businesses that can't get private capital, it means they are going to have to make riskier loans - is this really what we want to do?

Then there is the strange populist rhetoric that doesn't make any sense:

“One of the things about the state bank is that it is not not-for-profit, but that the profit belongs to the people,” said Barbara Dudley, co-chair of the Oregon Working Families Party. Dudley told the crowd that the bank could not only provide money to businesses that need capital, but could also become a viable revenue source for the state.

What is it that banks do? They consolidate lots of little pools of private savings and use it to direct larger loans to the investments with the highest return. This is a vital part of any well-functioning economy and provides a valuable service to both depositors and borrowers. For this service they get a normal return - profit - that provides the incentive to provide the service. Profit is not a measure of usury but of the value of the service to the community.

And how exactly does a non-profit provide a viable revenue source for the state? The state can invest its money in private capital markets and make a normal rate of return already, so the only way the bank can provide additional revenue is to do better than that but making riskier loans is not a good way to get a higher return. If they go after the less risky loans that are already being made by private banks they will just end up crowding out those banks and put them out of business.

Jacklet also does a wonderful job of profiling businesses that have had a hard time getting credit on private markets. The very resasons that they can't get private loans should give one pause when contemplating transferring public money to them.

Another supporter is Barbara McLean, who runs the One Stop Sustainability Shop in Northeast Portland with her daughter Jessica Ilalaole. They have struggled since launching in December 2009 with the goal of providing affordable everyday products to help people live more sustainable lives. Their shelves are stocked with dustpans made from recycled plastic, envelopes layered with old newspaper instead of bubble wrap and handmade soaps.

But it’s hard to pay the bills with idealism. After failing to get a loan through her credit union, McLean took out a home equity loan. She and her daughter moved from the pricey Pearl District to funky Alberta, where they’re hoping business will pick up as the weather warms. “We’d like to pay ourselves at some point,” says Ilalaole. Later in the interview, she mentions matter-of-factly that the shop’s unusual prices date back to the launching of the business, when “we didn’t know what we were doing.”

That offhand admission brings up an important point. Prior to opening his wine shop, Allegri worked for 25 years at a nonprofit. McLean’s previous work was doing fish surveys in the North Fork of the John Day River. Both followed their dreams to launch Main Street businesses, but their companies have not grown organically.

Yes, all struggling businesses would like infusions of cash, but the reason many are struggling has little to do with lack of access to loans and more to do with a bad economy, inexperience or unsustainable business models.

Thursday, March 3, 2011

Budget Cutting and Growth

The Tea Party fueled momentum in Washington is pressing hard in budget cutting, even getting the Obama administration in on the act, but to what end?  Typically when one worries about government spending growing too big one talks about government crowding out the private sector (driving up prices, interest rates, etc.) or borrowing so much that they have to push up interest rates.  But neither of these are happening right now.  And when we look at countries across the pond that are doing aggressive cutting, we see their performance is worse relative to the US - suggesting anecdotally that there might have been something to the stimulus.

David Leonhardt of The New York Times is on the story:

Germany’s economic growth surged in the middle of last year, causing commentators both there and here to proclaim that American stimulus had failed and German austerity had worked. Germany’s announced budget cuts, the commentators said, had given private companies enough confidence in the government to begin spending their own money again.

Well, it turns out the German boom didn’t last long. With its modest stimulus winding down, Germany’s growth slowed sharply late last year, and its economic output still has not recovered to its prerecession peak. Output in the United States — where the stimulus program has been bigger and longer lasting — has recovered. This country would now need to suffer through a double-dip recession for its gross domestic product to be in the same condition as Germany’s.

Yet many members of Congress continue to insist that budget cuts are the path to prosperity. The only question in Washington seems to be how deeply to cut federal spending this year.

If the economy were at a different point in the cycle — not emerging from a financial crisis — the coming fight over spending could actually be quite productive. Republicans could force Democrats to make government more efficient, which Democrats rarely do on their own. Democrats could force Republicans to abandon the worst of their proposed cuts, like those to medical research, law enforcement, college financial aid and preschools. And maybe such a benevolent compromise can still occur over the next several years.

The immediate problem, however, is the fragility of the economy. Gross domestic product may have surpassed its previous peak, but it’s still growing too slowly for companies to be doing much hiring. States, of course, are making major cuts. A big round of federal cuts will only make things worse.

So if the opponents of deep federal cuts, starting with President Obama, are trying to decide how hard to fight, they may want to err on the side of toughness. Both logic and history make this case.

Let’s start with the logic. The austerity crowd argues that government cuts will lead to more activity by the private sector. How could that be? The main way would be if the government were using so many resources that it was driving up their price and making it harder for companies to use them.

In the early 1990s, for instance, government borrowing was pushing up interest rates. When the deficit began to fall, interest rates did too. Projects that had not previously been profitable for companies suddenly began to make sense. The resulting economic boom brought in more tax revenue and further reduced the deficit.

But this virtuous cycle can’t happen today. Interest rates are already very low. They’re low because the financial crisis and recession caused a huge drop in the private sector’s demand for loans. Even with all the government spending to fight the recession, overall demand for loans has remained historically low, the data shows.

Similarly, there is no evidence that the government is gobbling up too many workers and keeping them from the private sector. When John Boehner, the speaker of the House, said last week that federal payrolls had grown by 200,000 people since Mr. Obama took office, he was simply wrong. The federal government has added only 58,000 workers, largely in national security, since January 2009. State and local governments have cut 405,000 jobs over the same span.

The fundamental problem after a financial crisis is that businesses and households stop spending money, and they remain skittish for years afterward. Consider that new-vehicle sales, which peaked at 17 million in 2005, recovered to only 12 million last year. Single-family home sales, which peaked at 7.5 million in 2005, continued falling last year, to 4.6 million. No wonder so many businesses are uncertain about the future.

Without the government spending of the last two years — including tax cuts — the economy would be in vastly worse shape. Likewise, if the federal government begins laying off tens of thousands of workers now, the economy will clearly suffer.


Our recent crisis serves up the same lesson. Germany isn’t even the best example. Its response to the crisis has had some successful features, like an hours-reduction program to minimize layoffs, and Germany’s turn to austerity has not been radical. Britain’s has been radical, with a tax increase having already taken effect and deep spending cuts coming. Partly as a result, Britain’s economy is now in worse shape than Germany’s.

“It’s really quite striking how well the U.S. is performing relative to the U.K., which is tightening aggressively,” says Ian Shepherdson, a Britain-based economist for the research firm High Frequency Economics, “and relative to Germany, which is tightening more modestly.” Mr. Shepherdson adds that he generally opposes stimulus programs for a normal recession but that they are crucial after a crisis.

Now there is a difference between long-term structural deficits and spending during a recession, the former is a serious problem, but the latter is what faces us today: most noticeably (and damaginly) in the form of high unemployment.  I suggest we worry about that first and then thing about what matters most in terms of future growth and start prioritizing those things, starting with education.

Wednesday, March 2, 2011

Economist's Notebook: Exercise and Climate

From The Economist a little blurb on some CDC data abut exercise and climate showing people in colder climates exercise more.  The Economist seems to find this a surprising correlation wondering why don't people in warmer climates get outside and exercise more.

One explanation is that in colder climates it is harder to be outside and idle, you need to be active to stay warm, and that warmer climates in the US are very very warm and often quite humid, making exerting yourself quite difficult.  Another is that these colder climates also are disproportionately places where there is magnificent natural wilderness and recreational opportunities.  A third is that people choose to live where they do for a reason and a lot of people who live in the west and in states in the north like Vermont and Maine do so to take advantage of the outdoor recreational opportunities.

Thats is all to say I don't find it that surprising.

Tuesday, March 1, 2011

Oregon Unemployment Still High in January: 10.4%

Some good news from Salem this morning, Oregon's unemployment rate fell to 10.4% in January.  Not really a significant change, but the better news is the robust job growth.  On a seasonally adjusted basis, 6,300 jobs were added in January, almost all of it private sector growth, after a revised 4,000 jobs added in December.  This is progress.  But before we get too giddy, here is a buzzkil:

We have only just begun to climb out of the hole the recession created. It is going to be a long slow climb...

On Unions

Busy day so here are a few union related tidbits.  The first, and most interesting, is the NY Times/CBS poll results on American's attitudes toward public sector unions.

The second is a study of public employee compensation that shows that public employees are not compensated more than their private sector peers even when controlling for benefits.

The third is an opinion piece by Robert Barro in the Wall Street Journal that argues against union rights. Note that I tried to find the paper cited in the article by Thomas Holmes, but according to his CV, he published nothing in 2000, and I don't see a paper that matches the description, perhaps someone can help me out.

Update: here it is, thanks to a reader, in a working paper version.