Tuesday, May 29, 2012

Portland Home Values: The Case-Shiller March Numbers

Here, via the Wall Street Journal, is a chart that features the latest (March 2012) Case-Shiller home value numbers. In this case, I sorted them by the March percentage change.

Portland is still seeing a marked decrease in home values, but overall there is some hope for brighter days ahead. Apparently there is a smaller mix of distressed sales in these data and the home building data recently have been trending up.

Unless there is a collapse in Europe (which is a distinct possibility) I expect the summer and fall to go better for Portland.

Friday, May 25, 2012


The Economist has a Special Report on China that makes for some good and compelling reading.  A few things stand out like the current account surplus shrinking to the question of whether the current low levels of consumption and concomitant high levels of saving are sustainable.  

As you can see form this series of graphs, it is the extraordinary level of investment that is particularly responsible for recent growth, but this is investment in large part done by the government through state owned enterprises.  Such investment by government is the reason for such low consumption on the other end - a good trade off if growth is your aim in the short run, but with it comes a growing demand for social services, education and health care in which the country will have to start investing more heavily.

Thursday, May 24, 2012

Gas Prices in the NW

We got into an impromptu discussion in class yesterday about gas prices - I think they are starting to hit undergrads wallets very hard.  There was a lot of questioning of whether some market manipulation is going on since the NW is seeing particularly high prices.  I did my best to explain the economics of retail gas, but here is The New York Times on the isolated little market that is the Pacific NW:
A spokesman for AAA Washington, Dave Overstreet, said that spring can often be the cruelest season for gasoline on the West Coast, which is largely cut off from the pipeline and refining system that spiders up from the Gulf of Mexico. The Cascade Range here in the Pacific Northwest and the Sierra Nevada in California mark a kind of boundary from the rest of the nation, he said, in gasoline economics.

Refineries in California also routinely reduce production in the spring, preparing for the summer fuel blends mandated by California regulators. And supplies in Washington and Oregon have been further crimped by the shutdown of Washington’s biggest refinery — Cherry Point, owned by the oil giant BP — after a fire in February. A spokesman for BP said on Tuesday that the plant was restarting, but would take some time to resume full production.

In any event, demand also usually goes up in late May, Memorial Day being the unofficial launching pad of the vacation driving season, putting supply and demand back in collision.

“Once they get up and running again, even with the demand being higher, I think that we’ll certainly see things stabilize,” Mr. Overstreet said. How long before prices actually go back down? “Anybody’s guess,” he said.
So now you know...

Update: A reader sends along a few telling graphs from the US DOE showing the dramatic drop in gas supply due to maintenance issues and the resulting excess of crude supply - so once these refineries are back to full capacity, prices should stabilize. And remember folks, this stuff is heavy and transportation costs are high, so local supply is key.

Wednesday, May 23, 2012

Income Inequality in America

Something that caught my eye in a blog post by Paul Krugman:

This is not an unfamiliar graph, but it is always a bit startling to see it. Income inequality is soaring in the US. The Gini coefficient is the most popular measure of income inequality and ours is growing quite rapidly.  What does this mean from a relative perspective? Here is a table I put together from data amassed in the CIA World Factbook:
The US is 98 out of 140 in this measure of income inequality and keeping company with such countries as Uganda, Cambodia, Uruguay and Bulgaria.  Yeay.  Most of the high income world has Gini coefficients below 35.  Ours is 45.

Aside from any moral and ethical interpretations, what of the economic implications?  What do we know about the relationship between inequality and growth in the data?  Not much.

Here is a nice graphic from Wikipedia that shows how the Gini is calculated from a Lorenz Curve - the Gini is A/(A+B):

Monday, May 21, 2012

Picture of the Day: Inflation

From The Daily Beast's review of the NY Fed's exhibit Signs of Inflation.  Sign #1: when you need to print one hundred trillion dollar bills.

Of course this sign of runaway inflation in Zimbabwe is remarkable given that in 2007 the government of Zimbabwe declared inflation illegal.  Problem solved, right?  [Quick, econ majors and econo-enthusiasts, why didn't this work??]

Oh and I should mention - how much was 100,000,000,000,000 Zimbabwe Dollars worth at the time this note appeared?  70 cents.

Friday, May 18, 2012

Eco-nomics: Is Protectionism Green?

An interesting trade case has been playing out in Washington that has direct implications for Oregon.  The Oregonian reports again today on the burgeoning trade war on solar panels between the US and China.  The war, you may recall has begun with the US charging China with unfair trade practices in solar panels:

SolarWorld blazed toward victory in its trade fight Thursday as the U.S. government announced plans to slap tariffs ranging from 31 percent to 250 percent on Chinese solar panels and cells.

But managers of the solar company, aiming to preserve jobs that include 1,000 in Hillsboro, hinted that the duties aren’t high enough to help U.S. manufacturers prosper. They hope the U.S. Commerce Department will soon announce additional tariffs, even as China appears set to retaliate as soon as next week.

U.S. solar stocks jumped Thursday on news that the Commerce Department would impose 31 percent tariffs on exports by companies including SolarWorld’s two largest Chinese competitors, Trina Solar Ltd. and Suntech Power Holdings Co.

Other exporters will have to pay 250 percent because Commerce found that government-subsidized Chinese companies engaged in dumping — using predatory prices to undercut U.S. manufacturers of solar cells and panels, an industry backed in Oregon by state taxpayers.
All of this raises a bunch of interesting questions, some of which I have raised before in this blog.  First, it may be true that through their devalued currency, government subsidies and the like China is creating an advantage for their firms.  But the US does also - states and cities give tax breaks to manufacturers and the US subsidizes the solar industry as a whole. But the bigger question is, given a level playing field, should the US be manufacturing solar panels at all?

My guess is that we do not have a comparative advantage in solar panel manufacturing and thus trying to maintain the industry here is a bad policy choice. Generally people have a hard time understanding this, "what about those 1,000 jobs in Hillsboro?" they typically ask. Well, it all comes down to efficiency. By insisting that solar panels be manufactured in a higher cost environment you ensure that the price of these panels stays high and thus fewer people buy them. Which is bad for the environment if the goal is to get widespread adoption of panels and reduce the use of fossil-fuel based electricity. There is also a secondary effect which the article discusses - the providers of intermediate inputs, in which the US may have an comparative advantage, and the installers of panels which are a non-tradable:
SolarWorld’s campaign has also bitterly divided the U.S. solar industry between cell and panel manufacturers hurt by Chinese competition and companies that buy and install cheap modules from China.

Managers of companies such as REC Silicon, in Moses Lake, Wash., that make the raw material for solar cells fear that Beijing will retaliate by slapping tariffs on their product, polysilicon. That could happen as soon as next Friday, when Chinese officials announce findings of an investigation into subsidies of solar companies by U.S. states.

SolarWorld Industries America, for example, has received Oregon subsidies worth about $13 million. The company, a subsidiary of Germany's SolarWorld, maintains the amount is small compared with its investment in the Hillsboro plant and with China’s subsidies of its solar manufacturers.

Jigar Shah, president of the Coalition for Affordable Solar Energy, a group that opposes SolarWorld’s trade case, said a recent study found that a 50 percent U.S. tariff would kill 14,000 American jobs, and 10,000 more if China imposed duties on polysilicon.
Which, of course, was David Ricardo's basic point: by concentrating on doing stuff in which we have a comparative advantage and trading for the other stuff everyone is better off.  But in this case it may also be that the environment is better served by allowing comparative advantage to determine the location solar panel manufacturing.

So ironically, though the presence of SolarWorld in the local area seems all green and groovy, it may actually be anti-green.  We like to count the SolarWorld jobs as 'green jobs' but are they really?

Wednesday, May 16, 2012


By the way, I ended up voting for Jefferson Smith yesterday.  I figure I'd mention this as I asked for advice here.  I also say this ex post facto because I didn't want to be seen endorsing any particular candidate - the last thing I want is for this blog to become overtly political.  I am comfortable taking a stand on something when I think the economics are clear: funding public education for example, or kicker reform that leads to a permanent rainy day fund, or even the repeal of the ban on self-service gas.  But in this case the differences were small and just thinking in economics terms there is not a clear favorite.

What swayed me in the end was Smith's more skeptical stance on a number of things about which I am very skeptical: the CRC, the new Portland urban renewal district, the Oregon Sustainability Center.  As far as I can tell, he still hedges a bit but I like the evidence of critical thought that, to me, evidences an understanding of opportunity cost.  I was also impressed by a number of Smith supporters known to me in other capacities, and whom I respect, who reached out to me with thoughtful words in support of Smith.

That said, I understood there was a good chance of a Smith - Hales runoff and my vote in that election is not yet sealed.  I will enjoy what I hope will be a deeper discussion of policy in the coming months and the result of these discussions will determine my vote.  

I look forward to exploring some of these issues here in the future.

Stagnant Wages

The Wall Street Journal's economics blog has a little entry on stagnant wages and shows the graph above. In one sense this is good news for the Fed who is trying to keep interest rates low to spur on the economy - the real worry about inflation is when it seeps into wages and starts a feedback loop that is hard to contain. So they don't appear to need to worry very much about core inflation pressure right now and there is no reason to tighten up. But there is a potential flip-side to all the liquidity they are currently pushing:
In one sense, the Federal Reserve‘s quantitative easing may have helped investors, but it backfired on workers. Steve Blitz, chief economist at ITG Investment Research, makes the point that in an open global economy the Fed has managed to raise inflation through its QE programs, but not wages. “As a consequence, consumer growth softens rather than accelerates,” he says.
It is an interesting thought except for the fact that it is completely wrong. Here is a graph of inflation data from the Cleveland Fed:

As you can see, inflation has been and remains quite low.  I am surprised the WSJ wouldn't have thought twice about this. Yes, gas prices are hurting consumers, but this has nothing to do with QE.

Tuesday, May 15, 2012

Oregon April Unemployment Unchanged at 8.5%

Oregon's April Unemployment figure remains essentially unchanged at 8.5% while the state added 2,300 new jobs.  March was also revised to show an addition of 1,200 jobs rather than a loss of 300.

Better, but still slow as molasses.  

Soccernomics: Financial Fair Play

The final day of the English (and Welsh) Premiership had lots of drama.  FIrst and foremost was the stunning comeback by Manchester City to win the title in the dying moments of their game against Queens Park Rangers.  Closer to home (mine, that is) the Arsenal made us Gooners sweat it out but managed to secure 3rd place and thus guarantee a Champions League spot for next season and, even better, pip Tottenham at the line and beat them to the spot.  Also close to home but on the other end of the table, despite QPRs loss at Man City the woeful Bolton Wanderers could only manage a draw at Stoke and thus QPR get to stay in the Premiership another season.  Let's hope that this allows them to ad some more quality to the squad.  

There is actually lots of economics in all of this. First, the ascendancy of Man City was due to the garish spending spree that the new owner, Sheikh Mansour, commenced after purchasing the team in 2008. Never was a title more clearly bought since way back in 2010 when Chelsea won the title thanks to the deep pockets of Roman Abramovich.  But all this may change under the new Financial Fair Play rules of UEFA.  The idea is that a club cannot spend more than it makes, it has to stay in the black.  So a wealthy owner cannot just spend his/her own money willy nilly to buy top players.  It is an interesting idea but seems unlikely to change much.  If an owner wants to funnel money to the club, they can just book it as revenue under some sponsorship deal, for example.  If it does have some teeth, however, Arsenal stand to gain as they are one of the only top clubs currently in line with the new rules. 

And speaking of Arsenal, the one last goal of the season, scored by Laurent Koscielny, was probably worth more than £40 million to the club in the added revenues from Champions League participation.  And for QPR, stokes last goal against Bolton was probably worth £37 million.

And thus blow the winds of soccernomics...

Thursday, May 10, 2012

NW Employment Loss

I use this space to direct you to another interesting post by Josh Lehner at the Oregon Office of Economic Analysis.  The graph above is a taste - it is interesting to see how Portland and Seattle are on similar trajectories but rural Oregon in particular has not experienced any kind of recovery in jobs at all.   Go check it out.

Wednesday, May 9, 2012

A Note on "Job Creators"

Something I have said before in the pages of this blog: when economists talk about creating jobs we are talking about sustained economic activity that creates economic growth and related jobs.  We are not talking about, therefore, a three month job repaving a road.  What is confusing of course is that we also speak about fiscal stimulus getting the economy going and lowering the unemployment rate.  This is true, but the unemployment rate lowering is not, in general, from the people we employ to fix roads but from the new economic activity they ands the project generates which breathes some life into a moribund economy.

Which makes it all so frustrating when candidates for public office are asked about "job creation."  The right answer to this question is to talk about how much you have done to advance public education, how much you have assisted in creating a higher education system that is helping R&D, how much you have done to create the infrastructure (and not just roads and bridges) to support a modern economy that will grow and create jobs.  But the answers are inevitably along the lines of, "well I helped get money for the project to build X Y and Z and they hired 1,000 people to do it."  Which is all well and good but pretty much beside the point.

And I don't blame politicians so much, they need to say something that sounds good and concrete, but they often twist themselves into pretzels in so doing.  I mention all of this because the Willy Week has a new fact checking article on jobs claims and find that some numbers don't add up.  This is all well and good, I suppose, but pretty much beside the point.  They miss the big picture too.  Personally, I am gratified when candidates like Jefferson Smith get uncomfortable talking about specific numbers and defer to more general themes like education because they are right to do so.  That is not, however, what voters want to hear apparently.  But unless you are one of a tiny number of people directly hired by a specific project, you shouldn't care about such minutiae - what you should care about is a state that has fertile soil for economic growth.

Tuesday, May 8, 2012

Austerity in America

Lots of talk about the austerity in Europe and how it doesn't seem to be working well.  But less well publicized is that we have essentially switched to austerity here in the US as many of the 50 states have had to turn to pretty drastic cuts just as the federal fiscal stimulus fades out.  What does it mean, well the Wall Street Journal decided to see what the unemployment rate would be without all the cuts to government jobs and they find that it would be 7.1%.  But this does not take into account all of the general equilibrium effects.  As they state:
If there were as many people working in government as there were in December 2008, the unemployment rate in April would have been 7.1%, not 8.1%. Ceteris is rarely paribus, of course: If there were more government jobs now, for example, it’s likely that not as many people would have left the labor force, and so the actual unemployment rate would be north of 7.1%.
Which is true, but also possible is that the economic activity from those jobs and salaries (the multiplier) could have kept overall economic activity substantially higher and we would even be well below 7%.  They don't mention this but they should.  Nevertheless it is all speculation, we are where we are and the sluggish recovery certainly has a lot to do with all of the cuts going on at the state level these days.

Monday, May 7, 2012

Oops...sometimes the day is so busy you realize at the end of it that you haven't blogged. Mea culpa.

Friday, May 4, 2012


Just at the moment I am wondering about which Mayoral candidate to vote for a reminder that, even in our strange form of city government, there are times when the Mayor matters a lot.  Despite the fact that public school funding is largely a state responsibility, Portland Mayor Sam Adams has come to the rescue for PPS and the other Portland districts.

Knowing that contact hours and class sizes are two of the more important factors in student achievement, this was a excellent move.  All I can say is bravo Mr. Mayor.

Thursday, May 3, 2012

The Portland Mayoral Race

I have been trying to the best of my ability to figure out whom to vote for in the Portland Mayoral contest.  I am completely stumped.  So you should tell me.

Lets get one thing out of the way first: there is no sense in talking about substantive issues because the three leading candidates, Brady, Hales and Smith are all so similar they spend all their time splitting hairs to try and sound different.  So, I am left with choosing on impressions, subtle differences and the different experiences they bring.  So don't mistake this as reasoned, cogent analysis - this is seat-of-the-pant stuff here folks.

So let me do my best to describe my conundrum:

Brady: Early on she seemed the easy choice, but the longer we go the less I like her.  Her campaign themes are all about bringing people together, finding solutions, blah, blah, blah.  She tries to sell herself as the pro-business choice, but I don't really see that.  She has said some weird stuff like Portland getting in on the property development business.  Huh?  And I think my main problem is I can't quite figure her out: why does she want this job?  What really does she bring to it?  I am okay with her claiming to have co-founded New Seasons, but I do think she relies on that too much in her campaign.  I just get the sense of a rich person trying to decide what next to do in life - 'hey why not mayor?'  Anyway, whatever it is, I am not alone, her polls have stalled.

Hales: For a while he seemed the obvious choice.  He has real experience in Portland city government and a reasonable approach to governing it appeared.  Then all the little niggling things: the leaving his council job early to cash in on his government work, the living in Washington and not paying Oregon taxes but remaining registered to vote in Oregon, and the biggest whopper: claiming to have played a pivotal role in the last public schools crisis when, in fact he had left government the year before.  All of this is just a little too much for me.

Smith: Ah Jeff Smith.  He of the cluttered desk but ordered mind?  Um, usually I find the correlation is positive.  He is the quintessential big idea guy - all about the idea and light on the execution.  Just exactly what has he done in his two terms in Salem?  This all smacks of finding the next political rung to climb.  That said, he has sounded the most fiscally prudent of all of them so far and I applaud that.  But the Mayor job is all about coalition building and he has not shown himself capable of that in Salem.

So, what on earth do I do?

Wednesday, May 2, 2012

On Urban Renewal: Wrong Time for new URD

Urban Renewal Districts are a powerful public finance tool by which local communities can redirect funds to support local redevelopment efforts.  Such efforts in the best circumstances and serve as a catalyst for future growth (or he district at least).  There has been some effort to study such districts to see if a clear statement can be made about their overall success in enhancing economic growth and the answer is that the challenges to such a study (the lack of any sort of reasonable counterfactual) are too great.  So we are left to consider anecdotal evidence and draw notional conclusions - but such is the way of the world and yet we still have to make decisions.

Decisions like, for example, should the City of Portland create a new district encompassing PSU and Lincoln High School.

But before we get to that a quick primer.  URDs create a cap on tax revenues at current levels and redirect additional revenues above this 'frozen base' to the URD to spend on projects within that area (or, if Portland had its way, other areas as well).  This diverts tax revenues that would otherwise go to schools, the county, etc.  [See the nice graphic above that I stole from a student]  Now there is a potential endogeneity in that as tax revenues get diverted some of that tax revenue might not have been there absent the URD.  URD advocates argue that the investments they make attract other private investment and contribute to the overall growth trajectory of the area.

The idea at the beginning of URD was that such actions would be limited to 'blighted areas' - really bad examples of areas experiencing urban decay, but city planners and administrators love them because they give them such a powerful tool to facilitate changes and they get to siphon off money from other local taxing districts (local fire districts tend to be suspicious of them for example, as are other entities like libraries).  In economics speak there are real opportunity costs here, this is not just a free lunch.  Yu may recall an angry Ted Wheeler argue against the establishment of a stadium URD to finance the Jeld-Wen renovation while he was Multnomah County Chair.

Which brings us back to the proposed "Education URD" and why some are so opposed.  [From Jack Bagdanski, here is a League of Women Voters screed against it]  From the Oregonian story about the Multnomah County Commission vote (it was 3-2 in favor after Portland promised to direct $19 million for a new MultCo building):

Adams' new zone at PSU would drain about $50 million from the county's coffers over the zone's 30-year life. It would also divert about $60 million from Portland Public Schools, Kafoury said, although the formula for calculating that figure is complicated and it could be lower.

Which is the opportunity cost in a nutshell.  It is amusing that they call it the education URD given that it will cause a bit hit to the PPS budget.

Now I am actually an advocate of URD when done in the right place and at the right time but this is neither in my opinion.  While schools are being forced to make absolutely draconian cuts to what is already an embarrassment of a public education system this is the wrong time to start making investments in an areas where the marginal return is probably very low.   This is not to say that it should never be done, but when the city and PPS are desperately trying to find $10 million to save 110 teaching positions, the timing just feels wrong.  This is also not to say that it should be done, city officials are potentially guilty of overreaching here - using an inappropriate policy tool for goals they are impatient to accomplish.  This risk is great that they could spur a backlash and cause the eventual destruction of Urban Renewal as a whole like what happened in California.

Tuesday, May 1, 2012

World Sport Salaries: It Pays to Play Soccer

This Table is from Nick Harris editor of sportingintelligence.com via ESPN.com. "Average Weekly Pay" is calculated from base player salaries from current or most recently completed seasons from each sport, and excludes endorsements, bonuses, appearance fees and any other source of extra compensation. All figures converted to U.S. dollars.

Note the Portland Trail Blazers are #30 in the world (though #12 in NBA) - talk about not getting value for money.  The Portland Timbers are #259.