Tuesday, May 31, 2011

Soccernomics: Size Matters

An interesting blog post from Steve Goff, the Washington Post soccer reporter, on the DC United win in Portland (which was a dismal affair with almost no quality soccer to speak of). For a while I have been raising the issue of the tiny field at Jeld-Wen, and mostly being chided for worrying about it. But my point - that a small turf field is not conducive to beautiful soccer - is being echoed now by those who are covering and playing the matches.

First, here is Goff himself wondering why (as I have) the field cannot be expanded by a couple of yards in all directions:
On Jeld-Wen Stadium’s narrow pitch, two assists came off throw-ins (by Chris Pontius and Jeremy Hall) and the Dejan Jakovic penalty came off a throw. On United’s final goal, Bill Hamid could’ve been credited with a secondary assist. The dimensions are listed at 110 yards long, 70 yards wide. Oddly, there seems to be ample room to expand the playing surface to a more suitable size. The Timbers have conformed well to these tight quarters, but the matches lack elegance.
"Lack elegance" is one (nice) way to put it... A couple of yards sounds like nothing right?  But the difference between 70 by 110 and 74 by 114 is 10% more playing area.  The international standard right now for new stadia is 75 by 115, I think Portland should work with the league to allow for slightly less room behind the goals and out of touch or else this type of ugly ping pong and punting soccer is going to be the norm. Here is Goff quoting DC United coach Ben Olsen who mentions the field:
“It was about dealing with set pieces, and that’s what this field is about. Unfortunately, that’s what it is. It’s not fun to come here and play because it’s tough to play soccer. It’s about getting the balls into the box, but that’s the reality when you come here. Historically, we have lost when the field is small, when it’s turf, when it’s a real gritty game. The guys today were fed up with that and showed that they can compete physically with any team in the league.”
The emphasis is mine. Note that he doesn't say it is tough to come and play against the Timbers or in front of the Army, but that it is tough to actually play the game: control, passing, movement.  Instead what we get is a lot of punting the ball.

Ajax last wednesday showed that with players of enough quality you can play good soccer even on a small plastic field, but MLS is not up to this level yet and won't be for a long time.  I think this is a real potential problem for the business that is Portland Timbers.  Folks are not going to continue to spend money and time going out to the stadium and watching the match on TV if the game is going to be so sloppy and dull.

A Lesson in Causality

From The Oregonian:

John Tapogna, president of economics consulting firm EcoNorthwest and a seasoned researcher of school spending statistics, said the prospects for Oregon schools to return to above-national-average spending -- or to feel they've shed the constant need to cut back offerings, jobs or both -- are dim.

The main reason Oregon spends less is that Oregonians earn less than the national average -- so they have less to spend. As a whole, Oregonians consistently contribute 4 percent of their collective income to public schools, he said.

Oregon's economy and per-capita income would have to grow faster than the nation's to make it natural for Oregonians to increase their spending on schools faster than the nation, he said. And that's unlikely, according to the state economist and others.

Now how could Oregon make resident incomes grow faster?  I wonder...

Case-Shiller: Portland home Values Still Falling

The post title says it all: the March Case-Shiller report is out and US home values are still dropping significantly.

Here is Brent Hunsberger's write-up in the Oregonian and here is a nice sortable table from the Wall Street Journal.  You can see from the latter that Portland has seen the fourth worst year over year drop in home values, but is one of the better markets in terms of monthly change, losing only 0.7% of value over the last month.

I had assumed this year (2011) would be one of bumps but no significant gain or loss.  It'll take a minor recovery in the summer/fall for my prediction to come true and it is not looking so good right now.

Friday, May 27, 2011

What is the Education Stability Fund For?

This is, by almost any measure, the worst economic recession since the great depression. The recession has hit Oregon public schools particularly hard, given their dependence on the state's general fund and the general fund's dependence on income taxes. Because of the volatile nature of education funding in the state, the Education Stability Fund (ESF) was created to help cushion the blow to schools from economic downturns.

Given all that, why are legislators so reticent to spend all of the ESF? Why create a fund you are reluctant to use at the very moment it was designed for?  Here is The Oregonian's Kimberly Melton on recent developments in the state legislature:

In recent weeks, there is growing legislative support for giving K-12 schools some additional money, likely $50 million to $100 million from the education reserves. In everyday terms, that money could pay for up to 1,100 teachers or a full week of school for all students in the state.

In March, the co-chairs of the Joint Committee on Ways and Means recommended a $5.7 billion budget for K-12 schools, but said they would consider an additional $56 million for 2012-13 if the economy improves. But advocates haven't given up, saying that money is needed immediately to help blunt devastating reductions.

Their goal is still the additional $100 million they asked for initially, but as end-of-session negotiations intensify, many say $56 million is turning into viable middle ground that could help meet a variety of needs. The $56 million figure would give schools the same amount that they received for 2009-11.

I honestly don't understand the thinking behind not spending all you can. Research shows that temporary disruptions, such as large classes, even for just a year or two have long lasting impacts on student performance. The economy is recovering (albeit painfully slowly) so it is unlikely we'll need the ESF in the near future - but students are suffering now.

The state's Education Stability Fund is intended to help buffer schools during an economic recession. Three-fifths of each legislative chamber must approve any action to remove any of that money -- expected to grow to $300 million over the next two years. State legislators can tap the fund only in times of economic crisis or if the governor declares an emergency. As the state revenue forecasts begin to improve, some advocates fear that lawmakers will not be able to make those funds available during next year's session, as they originally intended.

"I think everyone can agree that there's at least $56 million available for K-12," said Democratic Majority leader Dave Hunt. "It's in the Education Stability Fund. Do we leave it under a mattress or invest it in our kids? I think that's an easy choice."

Indeed, but why only $56 million?

Thursday, May 26, 2011


For those uninitiated into the dazzling world of Lionel Messi (well, at least when he is in a Barça shirt), you have a prime opportunity to witness his genius on Saturday for the UEFA Champions League final where Messi's Barcelona take on Manchester United at Wembley Stadium in London.  The game will be on all the Fox channels including the over-the-air one.

To prepare yourself, read this excellent article on him from last sunday's New York Times.  Here is a tinly little snippet:

Messi grew homesick when he arrived with his father from Argentina, club officials said. He missed his mother and sometimes cried himself asleep. Quickly enough, though, he immersed himself in the Barcelona style, which demands flair and creativity, not mere utility. He played the keep-away game called El Rondo, in which one player stands inside a circle trying to steal passes made in tight spaces. He mastered the system known as tiki-taka, built around short, rhythmic passes and movement described by Iniesta as “receive, pass, offer,” triangular exchanges that form a spellbinding geometry.

Tiki-taka is generally understood to be the Spanish evolution of the Dutch 'Total Football' style that Johan Cruyff brought to Barcelona as manger in the late 80s and early 90s.  That style, incidentally was on display last night in Jeld-Wen Field were Ajax outclassed the Timbers and their performance exposed the gulf between upper tier European clubs and the MLS.  But I digress.  Barcelona is mesmerizing in their team movement of the ball and their players.  They apply immense pressure which only effective if the entire team is doing it together and in harmony.  No one is as good as Barça at this.

Messi is both comfortable in this system as well as in moments of such individual brilliance that it leave you breathless.   His quick combinations around the goal box that break through the most stubborn defenses as well as his mazy runs with the ball seemingly magnetically attracted to his feet make Messi the most exhilarating player in the world to watch.

I recommend it.

Wednesday, May 25, 2011

Soccernomics: Home Field Advantage

Rachel Bachman in The Oregonian has a nice article on home-field advantage in sports and how it is a bigger factor in MLS than in other major league sports.   Andrew Patterson, a Las Vegas oddsmaker, claims that the data show that:

In the NHL, home ice alone is worth about a 3-4 percent advantage. In Major League Baseball, home field is worth 5-6 percent. In the NBA, homecourt is worth 7-8 percent. In the NFL, home field is 8-10 percent.

In MLS, home field generally gives teams a half-goal advantage, Patterson said.

"A half-goal is worth more than 10 percent," he said. "It's huge. It's really big."

Economists have studied home field advantage, perhaps most prominently in soccer, where research from Europe suggests that referees are influenced by home crowds.  And there is also a literature that looks at sports betting behavior and whether such betting markets are efficient by adjusting prices to reflect such biases.

But as far as the particular advantage in soccer, I think it is less about the referees (there is no reason to believe that soccer referees are more or less influenced than in other sports I would suggest) but about the nature of the game of soccer with is a continuous flow with few substitutes.  There is no stopping and starting and momentum plays a big role so the crowd can help get the team going earlier in games.  Players also need to stay energized both mentally and physically for 90 minutes of almost constant running and the crowd can play a big role in keeping the players 'up' especially in the latter parts of the second half.

Tuesday, May 24, 2011

The Market Value of College Majors

From the new report out of Georgetown University entitled "What's it Worth" comes a mountain of data about the market value of college majors.  Not surprisingly economics does very, very well.  It is not surprising because lots of previous data has shown economics to be a very valuable major and because of the skills that are developed in the course of an economics training - quantitative, analytic and expository - that are both rare and valuable across many professions.

Here is a look at the general data.  As usual, engineering comes out on top.  A fine and valuable skill and profession is engineering, but we often see engineering students who are quantitatively skilled but looking for some more social applications migrate to economics (and no doubt the reverse is true as well).

Social science is lower in general in the more general rankings, but when you break them up, you see the ascendance of economics as shown in the chart below. This doesn't show income for graduate degrees as in the one above, but the report says that there is a 50% salary bump in the data suggesting a $105,000 median income which is even better than engineering.

You might think that business would be even better (it is so applicable!), but you would be wrong. In fact the only business degree that is better is business economics. The rest are all worse than straight economics - probably because they don't emphasize the rigorous quantitative and analytical training that economics does that the market has determined is so valuable. The good news is that the OSU Economics Department offers both straight economics and business economics, which we call "Managerial Economics" because the business college wouldn't let us call it by its more common name. And you can get both of these degree options on line!

Having said all of this, I DO NOT suggest choosing a major based on market value, because a lot of what you are seeing is also a compensating wage differential. There are many people who are passionate about working in other areas that don't pay as well and are better off for following their passion than their checkbook.  Such folks are happy to make the trade off of a lower wage for a more personally fulfilling career.

Still if economics is your passion, it turns out to be a pretty good major choice both in terms of the likelihood of finding a job and of being paid well.

Monday, May 23, 2011

What is Wrong with a Weak Dollar?

Nothing, if you ask me - in fact it is the natural equilibration mechanism of the world economy and right now the very weak dollar is helping make US exports competitive abroad.  Brazil, right now, faces the opposite problem, the Real is so strong (thanks in large measure to the boom in commodities prices) that it is getting harder for Brazilian exporters to compete.  My experience in flying to São Paulo last fall was a flight from Chicago stuffed with Brazilians and their many purchases from US stores, while the flight home was somber - many Americans broke from a short stay in the metropolis.

Brazil faces troubling inflation and sagging exports.  The response to the former - tighter monetary policy - will increase interest rates and further the appreciation of the Real.  Both will slow down economic growth.  In the US, a weaker dollar and very low inflation will help speed the tepid recovery and keep a lit on imports as consumers will be daunted by their high prices.

But none of this is well understood among the average US worker, and perhaps the governments reluctance to talk openly about it is the culprit.

In the New York Times this weekend, Christy Romer argues that the government should speak more frankly about exchange rates and how they affect the economy:

Some countries, like China, essentially fix the price of their currency. But since the early 1970s, the United States has let the dollar’s value move in response to changes in the supply and demand of dollars in the foreign exchange market. The Treasury no more determines the price of the dollar than the Department of Energy determines the price of gasoline. Both departments have a small reserve that they can use to combat market instability, but neither has the resources or the mandate to hold the relevant price away from its market equilibrium value for very long.


...Perhaps if government officials could talk about the exchange rate forthrightly, there would be more understanding of the issues and more rational policy discussions.

Such discussions would start with some basic economics. The desire to trade with other countries or invest in them is what gives rise to the market for foreign exchange. You need euros to travel in Spain or to buy a German government bond, so you need a way to exchange currencies.

The supply of dollars to the foreign exchange market comes from Americans who want to buy goods, services or assets from abroad. The demand for dollars comes from foreigners who want to buy from the United States.

Anything that increases the demand for dollars or reduces the supply drives up the dollar’s price. Anything that lowers the demand for dollars or raises the supply causes the dollar to weaken.


But in a depressed economy, it isn’t so clear that a strong dollar is desirable. A weaker dollar means that our goods are cheaper relative to foreign goods. That stimulates our exports and reduces our imports. Higher net exports raise domestic production and employment. Foreign goods are more expensive, but more Americans are working. Given the desperate need for jobs, on net we are almost surely better off with a weaker dollar for a while.

I encourage you to read the entire essay at the Times. For other coverage of the benefits of a weak dollar, here is the Planet Money folks at NPR (oh how I hope NPR will move away from the folksy economics coverage) and USA Today.

Thursday, May 19, 2011

Picture of the Day: The College job Market

From the NY Times' Economix blog.  I don't know if economics is excluded or included in business, I cannot find the source material.

Wednesday, May 18, 2011

Quick Take on the Results

PPS construction bond: It's the economy stupid.  

In a period of prolonged unemployment and falling home values, this was a huge ask for Portland homeowners - too huge in fact. It didn't help that the PPS administration and the school board have inspired no confidence in their ability to manage anything of this magnitude after the whole high school redesign fiasco.

PPS levy: Immediate and real impact.

The levy will have an immediate and real impact on the education of our kids - and in ways that are measurably meaningful, most notably class size.  I think voters get this, they get the connection between the quality of the education system for Portland's kids and the type of economy and society that will evolve from these investments.

Clackamas Sellwood Bridge fee: Free rider problem exemplified.

Clackamas voters understood that the new bridge would be built anyway, why not get others to pay for it and get to use it for free? This is the classic free-rider problem in economics with public goods.

Tuesday, May 17, 2011

Oregon Unemployment Falls to 9.6% in April

The Oregon unemployment rate fell to 9.6% in April, down from a revised March figure of 9.9%.  Note that this puts Oregon just a shade above the national rate of 9%.  In addition Oregon added 1,600 jobs in April after a loss of 2000 in March.

UPDATE: A commentator asks about the underemployment rate.  Here are all the various definitions and their Oregon estimates for April:

Underemployment as the term is generally used is the U6 measure and includes those that want to work full time and cannot, those that do not have regular employment, etc.  For Oregon is is estimated to be 18.4% in April as compared to the US which was at 15.9% for April.

Monday, May 16, 2011

Firearm Homicides and Suicides in Portland

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

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

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

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

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

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

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


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

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

Eco-nomics: Bike Sales Up with Gas Prices

From the USA Today I learn that, unsurprisingly perhaps, bike and scooter sales have surged with gas prices:

Sales of new bikes rose 9% in the first quarter of this year, compared with the same period in 2010, and sales of road bikes — commonly used in commuting — jumped 29%, says Scott Jaeger, senior retail analyst with Leisure Trends Group, a Boulder, Colo.-based retail tracking firm.

Sales of gas-powered scooters are up even more: nearly 50% in the first quarter compared with a year ago, says the Motorcycle Industry Council, a trade group.

"We see spikes when fuel prices rise," says Ty van Hooydonk, the group's spokesman, noting many scooters average 60 to 80 miles per gallon.

But is is really due entirely to gas prices? I suspect that there has been a lot of investment in bike infrastructure in many cities, not just Portland and that this has a big impact as well on the bike sales portion. This is mentioned in the article as well:

"It's too early to say definitively that bike sales are up because of gas prices," says Tim Blumenthal, president of Peopleforbikes.org. He expects gas prices to escalate more and take bike sales along with them.

Also driving bike use is the boom in bike trails and bike-sharing programs, Blumenthal says, adding the federal government has made an "unprecedented" $2 billion investment in trails in the last two years.

Last year, Boston installed 20 miles of bike lanes and New York City added more than 50 miles, says the League of American Bicyclists, which designates 179 communities in 44 states as bike-friendly, up from 25 in 2003. It cites new bike-sharing programs in Denver, Washington, D.C., and Minneapolis.

But the idea that people respond to higher prices by changing their consumption patterns is an old one in economics (and one of the criticisms about the way we calculate inflation), and thus I say unsurprising when I see the statistics given the rise in gasoline prices. [HT: Joseph Rose]

Thursday, May 12, 2011

The May Oregon Revenue Forecast

About what I expected: slightly better but no tidal wave of new revenue to save the state.  The new forecast predicts an additional $128 million for the next biennium.  Always nice to have more, but realistically, this is hardly enough to make a real difference. It is clear that this is going to be a long and slow recovery and it will take time to recover the lost revenues.  In the meantime public school districts are resorting to draconian measures to further diminish what already is an embarrassment of a public education system.

Anyway here are a couple of pictures from the presentation to the legislature this morning.

The first is the graph of Personal Income Tax Collections presented as a % change from one year ago (3 month moving sum):

The second is revenue growth relative to the March forecast - corporate is doing better than forecast but personal is doing worse:

In the mean time lawmakers will haver another $40 million plus hole to fill before the end of the current fiscal year.

Wednesday, May 11, 2011

Soccernomics: Does it Pay to be Professional? Timbers Salaries

Ever wonder what soccer players (not named Beckham and Henry) get for playing professionally in the MLS?  Well, here are the Timbers salaries this year (you can find all MLS salaries here).  I know that the order and formatting is terrible, but being a man of an advanced age, this is about as good as my technological abilities get.  Actually and more to the point: the opportunity cost of doing more than this quick clip is too high.

For me the best value-for-money by far is Kalif Alhassan who is my vote for MVP at this point in the season.  The worst is probably Kevin Goldthwaite who has not seen much action and doesn't look to see much more as well as Futty is playing.

The Timbers, by the way, have the lowest payroll in the league:

Mole-o-nomics Redux

Last fall I wrote about my great economics experiment with the moles who have decided to make my back yard their home.  Not wanting to harm the innocent little critters, I bought a 'sonic-stick' that buzzes and vibrates and is supposed to make life less comfortable for them.  (I also refrained from the mole-o-nomics bit, but I have less shame now)

From an economics perspective it made sense: increase slightly the marginal cost of inhabiting my yard and the moles will chose a more peaceful life in my neighbor's ground.  And any good economist starts with good theory...

Alas, it was too good to be true (as I suspected - a good economic naturalist knows that if this were such a winning technology there would not be all of the poisons and traps still available on the store shelf).  But the moles goes away in the winter and I thought that perhaps if the annoying buzzing wasn't enough to make them move away, perhaps it was enough to keep them from coming back.  

Alas, no.  Witness my yard yesterday (pictured above).  To add insult to injury this new mole volcano is about two feet from the stick itself (visible in the picture above just above the volcano) - it is not even keeping them at a distance!  The only conclusion is that they could care less about the buzzing.

In a way it is a relief, the buzzing might not be annoying to them but it sure is to me!  Now I can have a peaceful summer in my backyard undisturbed by intermittent buzzing.  Of course, I also have to move on to more draconian measures of mole control.

As an aside, when the Leverage crew moved in to film a scene in my back yard, the sound guy came up to me and said "I am picking up some kind of barely audible buzzing, do you know what that could be?"   The mole stick strikes again...

Tuesday, May 10, 2011

Picture of the Day: The Falling Dollar

Source: The Economist

This graphic from The Economist shows the fall of the Dollar (though note the recent fairly wide fluctuations).  I am glad my vacationing this summer is all in the US.  

By the way read the blog post linked to above about whether it is a matter of concern.  In my view it is not, it is part of the natural process of restoring equilibrium in world markets and the fact that this can happen to our national currency is a very good thing - it allows us to avoid the fate of Greece, for example, who would dearly love to have a declining currency right about now.

Monday, May 9, 2011

Economist's Notebook: Tenancy Rent Control

This map, created using 2010 census data, shows vacant housing units in the Bay Area

Source: The Bay Citizen (http://s.tt/12lM2) Credit: Eric Fischer

Via Greg Mankiw I find this fascinating article about the affect of tenancy rent control in San Francisco.  Tenancy rent control is a term Kaushik Basu and I coined to describe the type of rent control that is attached to a tenancy as opposed to the old-style price ceiling attached to a rental unit.  Tenancy rent controls (often found in the form of tenant's rights laws) are the far more common modern version of rent control and do not fit the classical textbook price ceiling model that we still teach our econ 101 students.  Which is why Kaushik and I wrote two papers that attempt to model the effects of these types of rent controls (you can find them here and here).

Here is an excerpt from the article in the Bay Citizen:

Koniuk, who himself lives in suburban Belmont, gave a half-interest in the building to his older son in 2007 so he could evict a tenant and move in himself. But under San Francisco’s extraordinarily pro-tenant housing laws, landlords can do this only once per building.

So while Koniuk desperately wants to move his younger son into the building’s other four-bedroom apartment, he cannot. He is exploring legal options. Robert Murphy, who has lived there for 30 years without a lease, remains, paying $525.82 a month.

Last spring, Koniuk offered Murphy $45,000 to move out. Murphy’s lawyer demanded $70,000, a sum Koniuk says he does not have. Meanwhile, the city’s Rent Board notified Koniuk that he was allowed to increase Murphy’s monthly rent this year by $2.63.

Murphy is afforded extra protections as a renter because he is more than 60 years old. Koniuk might still be able to evict Murphy and allow his younger son, Adam, to move in by invoking the Ellis Act, which would entitle Murphy to about $10,000 in compensation and give him a year to vacate. But doing so would impose permanent restrictions on the Divisadero building’s future use, seriously depressing its value. And should 24-year-old Adam decide to move elsewhere, the Koniuks would be legally required for a decade to offer Murphy his old apartment, at his old rent. Invoking the Ellis Act would also mean that any new tenant to the unit, should Murphy decline the chance to return, would also be entitled to Murphy's old rent amount for many years to come. So the Koniuks would likely opt to just leave it vacant.

Kaushik and I were neither condemning nor supporting such laws, rather we were simply trying to understand how they impact an economy.  What we found was that long stayers (those who were able to remain in an apartment for a long time) ended up paying less than they would in a free market and short-stayers paid more.  Landlords were no better or worse off on average.  So whether tenancy rent control is  a good thing depends on what type of tenant you are: older, less-mobile people probably benefit at the expense of younger more peripatetic people.

For example, this story could have been told from another POV that focused on the aging man who has lived in his little apartment for 30 years being saved from homelessness by the good laws of the city.

A research question left open, that I have never returned to, is what economic impact might such legislation have on a city's economy.  As it leads to a lager concentration of older tenants and keeps the younger ones out.

As far as market equilibrium, if there is a higher concentration of long-stayers, this increases the cost of renting an apartment and initial rents have to increase as a result.  In the end, at least in San Francisco, the result is a lot of vacancy.
Increasingly, small-time landlords like Koniuk are just giving up. One of his Divisadero Street neighbors has left two large apartments on the second and third floors of her building vacant for more than a decade, after a series of tenant difficulties. It’s just not worth the bother, or the risk, of being legally tied to a tenant for decades.

“Vacancy rates are going up because owners have decided to take their units off the market,” said Ross Mirkarimi, a progressive member of the Board of Supervisors. He attributes that response to “peaking frustrations in dealing with the range of laws that protect tenants in San Francisco that make it difficult for small property owners to thrive.”

Perversely, that is hurting the city’s renters as well, as a large percentage of the city’s housing stock is allowed to just sit vacant, driving up rents that newcomers pay for market-rate housing.

Sadly, though price ceilings are almost nonexistent as rent controls these days (at least in the US) it is still the general framework people use to think about all such rent control laws thanks to econ 101.

Friday, May 6, 2011

US Unemployment Rises to 9% in April but Job Growth Strong

The BLS has released the April employment numbers and the news is good again - 244,000 new jobs added, all from the private sector (which actually added 268,000 jobs).  The unemployment rate actually edged up to 9% as more job seekers returned to the job market.

This rate of job growth is healthy and strong, but not fantastic and at this rate, as I have mentioned previously, it will take a long time to get back to pre-recession levels of employment.

This graph from the New York Times' Economix Blog is a sobering reminder of this fact:

Source: Bureau of Labor Statistics. Chart by Amanda Cox.Horizontal axis shows months. Vertical axis shows the ratio of that month’s nonfarm payrolls to the nonfarm payrolls at the start of recession. Note: Because employment is a lagging indicator, the dates for these employment trends are not exactly synchronized with National Bureau of Economic Research’s official business cycle dates.

Thursday, May 5, 2011

Think Out Loud

I'll be on OPB's Think Out Loud show in a half hour or so - no time to blog, so listen in! Its all about the economics of tattoos...

Wednesday, May 4, 2011

Not Just a US Phenomenon: Income Inequality Increasing Everywhere

This new article from the OECD about rising income inequality among member nations is getting a lot of attention in the economics blogs.  Here is the figure everyone is posting:

From the report:

What drives growing earnings and income disparities?

The rise of earnings and income inequality occurred in most countries during periods of sustained economic growth, which raises the question why not everybody benefited from growth in the same way. While it is difficult to assess fully the role of many potential driving forces, the following factors have often been identified as having the most important impacts on widening inequality in OECD countries:

  • Globalisation, skill-biased technological progress and institutional and regulatory reforms haveall had an impact on the distribution of earnings;
  • Changes in family formation and household structures have had an impact on household earnings and income inequality;
  • Tax and benefit systems have changed in the ways they redistribute household incomes.

A forthcoming OECD study assesses the relative roles of these different factors. The study first examines how trends in globalisation, technological change and regulatory and institutional reforms have affected inequalities in wages and earnings. Then, it analyses the extent to which trends in labour earnings inequality have translated into changes in income inequality. Finally, the study examines possible reasons for changes in the redistributive effectiveness of tax/transfer systems over time.

The report then goes on to discuss policy responses:

Which lessons for policies?

Reforming tax and benefit policies is the most direct and powerful instrument to increase redistributive effects. Large and persistent losses of low-income groups following recessions underline the importance of well-targeted income-support policies. Government transfers – both in cash and in-kind – have an important role to play to guarantee that low-income households do not fall further back in the income distribution.

At the other end of the income spectrum, the relative stability of higher incomes – and their longer- term trends – is important to bear in mind in planning reforms of redistribution policies more broadly. It may be necessary to review whether existing tax provisions are still optimal in light of equity considerations and current revenue requirements. This is especially the case where the share of overall tax burdens borne by high-income groups has declined over recent years (e.g., because of non-compliance, cuts in marginal income taxes or because tax expenditures mainly benefit high-income groups).

However, redistribution strategies based on government transfers and taxes alone would be neither effective nor financially sustainable. A key challenge for policy is to facilitate and encourage access to employment for under-represented groups. This requires not only new jobs, but jobs that enable people to avoid and escape poverty. Recent trends towards higher rates of in-work poverty indicate that job quality has become a concern for a growing number of workers. Policy reforms that tackle inequalities in the labour market, such as those between standard and non-standard forms of employment, are needed to reduce income inequality.

Policies that invest in human capital of the workforce are needed. This requires better training and education for the low-skilled. The latter would serve to boost their productivity potential and future earnings. Over the past two decades, the trend to increased education attainment has been one of the most important elements in counteracting the underlying increase in wage inequality in the longer run. Policies that promote the up-skilling of the workforce are therefore key factors to reverse the trend to further growing inequality.


Tuesday, May 3, 2011

QPR to the EPL?

Note: Nursing a sick son today so time only for frivolity about soccer - for what you all turn to The Oregon Economics Blog, of course - where else?

Queens Park Rangers have won the Championship and will play in the English Premier League next season (pending a hearing on a potential violation with a player signing). My granddad, from Hammersmith and a QPR man, would be excited were he still around.  Of course, this hearing is serious and could jeopardize their promotion, so one can only wait and see.

In other football news, my Arsenal beat Manchester United Sunday which otherwise would be a glorious event but now serves only to rub salt into the wounds of us supporters following a spectacular late season collapse and no hardware to show for their efforts.   In fact, since I posted my rhapsodic recap of the first Champions Leg tie with Barcelona it has all been down hill.

Timbers in the meantime, look an entirely different side at home.  Clearly the home support matters a lot, but I also think the very small pitch at Jeld-Wen Field helps them with their defensive shape which was a disaster at the expansive Home Depot Center in LA.

Finally, the Barcelona - Real Madrid tie continues today after what can only be called a disgrace of a first leg, especially for Barça, a team I admire immensely but who spent much of the game play-acting to get RM players carded.  But Real Madrid were trying to play the pack it in defense game which was ugly and stultifying. For shame for both of them.  Fortunately football's little superman, Leo Messi, saved the day with a characteristic piece of individual brilliance.

Me and the sicko will watch the second leg, hopefully Real Madrid will actually try and win the game and bring their full-on attack which could be fun.

Monday, May 2, 2011

Eco-nomics: California's Carbon Market

California is in the process of creating perhaps the world's largest carbon market and, in so doing, putting economic theory to the test. Here is an excerpt from an article by Reuters' Rory Carroll:

"This is by far the most ambitious program to reduce greenhouse gas emissions in North America, and by some measures the world," said Franz Litz, a senior fellow at the World Resources Institute.

California regulators are convinced they have the data and intelligence necessary to improve upon the system running in the European Union, which has shown results but has also experienced theft and fraud.

California officials say the market is a key part of implementing a six-year-old law that requires it to slash its emissions back to 1990 levels by 2020.

California also has the advantage of being a very large state -- independent of the United States it would represent the world's eighth-largest economy.

It plans to launch its market in conjunction with the Canadian provinces of British Columbia and Quebec, and officials hope the market will one day draw in other U.S. states and perhaps even Europe.

So officials at the state's Air Resources Board (CARB) are confident it will have the liquidity necessary to reflect an accurate and predictable price.

Many businesses hoping to profit from the trading of carbon credits and major environmental groups agree with the state, saying the market will give power plants and factory operators the flexibility to decide how to reduce their output of the heat-trapping gases.

At the same time, they hope the market's incentives will ignite the ingenuity of the state's businesses, which will invent the clean energy technologies to be sold around the globe like so many Hollywood blockbusters.

Economists love cap-and-trade for a simple reason, it allows for the most efficient reduction of carbon emissions to achieve a target.  The ones that can do so at the lowest cost will and those that find it quite expensive will buy credits from the cheap reduction firms. Thus is the target met and the expense to the economy minimized.  But achieving such a market requires quite a lot of bureaucracy and (as the European experience has shown us) leaves a lot of room for fraud.

But if the California market is successful it will lower the fixed costs for other states who which to participate, for they only have to join in the California market rather than try and create their own from scratch.  There are still many legal and political challenges to the California market, however, so stay tuned.