Beeronomics: Death and Taxes and Beer

Well I am not dead, so I guess I had better turn in my tax forms. As I am not enjoying Bend and Mt. Bachelor as was the plan for this spring break and am instead dodging nasty germs that my sick kids are constantly releasing into the stale air of my house, I figured I might as well do my taxes.  But now that they are done, my thoughts turn to beer.  This begs the question, what is the best beer to have post-taxes? (And this year I don't owe any extra taxes so I don't have to go the malt liquor route to drown my sorrows, in fact I can be a bit profligate since I get a modest refund - permanent income hypothesis?, pah!)

Well, I had to go to the local Safeway for a prescription (see: sick kids, above) I figured I'd pick up some post-tax filing celebratory beer.  Unfortunately, Safeway's beer selection is the worst in Portland, but I figured that among the many Widmer beers they sell would be the new 'Drifter' that I am eager to try.  Nope.  Dang.

But aha! Salvation.  Of all random things they have a 22oz-er of Deschutes' hop bomb 'Hop Henge,' this is a perfect post-tax beer.  A huge beer that will nuke your senses and rid you of that bad tax after-taste.  I find 'Hop Henge' and the similar 'Hop Lava' from Double Mountain a wee bit much, yet I still enjoy them immensely and they are perfect for certain situations (and this is one).  I love hops, but these are intentionally out-of-balance for the serious hop heads, so beware should you go looking for that perfect post-tax beer.

After my Hop Henge, all the nasty memories of the Form 1040, the Schedule A, the Form 2441, the Schedules SE and C-EZ and on and on and on fade away and my consciousness is transported to Bend - where I was supposed to be all along.  Thanks Gary and the Deschutes crew! [BTW, be nice to my brother who is in the brewing program at UC Davis and going to be doing an internship with you in April]

So, what is your choice for your "Thank God I am Finished With My Taxes!" beer?

When Life Interrupts...

I did not expect to be blogging much this week, it is spring break for OSU and public schools and we were supposed to go to Bend for a little R&R.  Well that all got torpedoed by illness that started in one kid and passed to the other.  It looks like we are finally all on the mend.

But last Thursday, when it all started, I was scheduled to go on the Bob Miller Show on KPAM to discuss some small yet positive signs in the economy.  Unfortunately I got stuck at home with a sick kid and so I called to cancel, but they wanted to do it with me anyway from my home.  Well, I tried, and for a few minutes it worked, but then my sick child came looking for me...  The result was terribly embarrassing (I am sorry Bob!) and the entire time I was very distracted so I can't imagine I was very coherent.  But you know, life is what it is and sometimes we have to roll with the punches.  It is what being a parent is all about.

Why Study Economics?

As an undergraduate at a small liberal arts college (Lewis & Clark), I studied economics.  I am very glad I did, but when I think back about the things my undergraduate education provided me that I find particularly valuable today, it has little to do with the specific economics content and more to do with the well-rounded liberal arts education in general.  First and foremost, the amount of writing I had to throughout my undergraduate career was invaluable.  As I progressed through graduate school at Wisconsin and then Cornell, I found that my comparative advantage in writing was pronounced and helped me succeed.  As a research economist, I have come to appreciate that, now matter how good the underlying research is, a research paper is only as good as the writing.

I also appreciate the exposure I got to many different ways of viewing the world.  L&C at the time had a core curriculum that emphasized critical thinking and I took courses in many different subjects that forced me to first understand how each discipline analyzed the world and then think critically about this particular way of looking at the world.  These writing and critical thinking skills formed the bedrock of my education, without which subsequent investments in my education would have been worth a lot less.

But that doesn't mean I regret being an economics major, in fact the opposite it true.  In addition to being a subject that interested me, Economics taught me to think logically and precisely.  When I started to focus on international development, I appreciated this level of intellectual rigor for a subject where there was an endless supply of 'good ideas' but a dearth of critical analysis.

This is all to say that I think this article in the Chronicle of Higher Education by David Colander about the popularity of the economics major at liberal arts colleges has it just right. [HT: Greg Mankiw]  In it Colander makes this statement:

Companies like to hire economics majors from liberal-arts colleges not because the students have been trained in business, but because they have a solid background in the liberal arts. What I hear from businesspeople is that they don't care what a job candidate has majored in. They want students who can think, communicate orally, write, and solve problems, and who are comfortable with quantitative analysis. They do not expect colleges to provide students with specific training in business skills.

I try and tell my OSU students this, but most choose Business anyway as they see it as a more useful major and a lot easier.  It is true that the econ major is hard, at my last job the economics department had the second lowest GPA in its classes (Physics had the lowest), but for me as a student this was part of the point.  I was intimidated by it but I wanted to challenge myself as an undergraduate and I think this too served me very well - it forced me to become a much better student which helped me a lot in graduate school.  Colander's research shows that rigor is a motivation for other students as well.

Consider the results of another question in my survey. We asked economics students to identify majors as hard, moderate, or easy, and we found that 33 percent viewed economics as hard, 3 percent said sociology was hard, 7 percent saw psychology as hard, and 13 percent thought political science was hard. Since other social sciences were the primary alternative majors that most of the economics students considered, that data is compelling evidence that the respondents perceived those other majors as too easy. Students likely reasoned that taking a "too easy" major would signal to potential employers that the student had chosen an easy path through college, thereby hurting their chances of being hired.

In my current job I see students that consistently eschew hard courses and majors for what they deem as more practical and more marketable alternatives.  This is part of what I perceive as a general moving away from the liberal arts based undergraduate education to a more vocational approach at large state universities.  I think we need to do a better job informing the students that this may not be the best long-term strategy and that basic skills in writing and math are incredibly valuable assets that you keep with you your entire life - especially as the economy evolves and the vocation you trained for as an undergraduate may not be there for you in the future.

The New Treasury Plan

One thing strikes me about this new plan from Geithner to deal with the toxic assets weighing down the banking sector: doesn't this seem an awful lot like trying to create a new bubble to solve the popping of the old one?  [You could also say this about the housing rescue plan and the Fed actions to drive down long term interest rates]

Let's see, create an awful lot of cheap, non-recourse loans to get the 'market' to realize that these assets really are valuable.  Why? Because the underlying assets are strong?  No.  Because other investors think they are valuable, and all of us think so because this scheme creates a humongous subsidy for these assets.  This is bubble 101.  [Paul Krugman has a nice primer on how this scheme works in reality]

That said, I am not so rah-rah about nationalization as some other, much more prominent economists (like Krugman), because I believe doing so with just one big bank could topple the entire system as investors pull out in droves.  So I do believe in treading carefully.  So I hope this plan works, but I am worried... 

The Decline of Western Civilization, Part 1

I suppose I should mention that this tremendous deal is available to you today at the Pilsner Room. But even better - at least as of last night - there is still some of John Harris' 11 year old imperial stout. If you have the chance you should try this remarkable beer, it is so robust yet so smooth, it will blow your mind. You might even forget you are eating corn dogs, which is a bonus.

It's Official: MLS to PDX in 2011

Econ 101: Financial Intermediaries

Something in Ethan Lindsey's story on OPB about real estate fraud in Bend caught my attention. Bend attorney Martin Hansen was explaining a crooked deal and made this statement about the deal between the allegedly fraudulent firm and its depositors: “It did not authorize any removal for any purpose whatsoever under any terms in any circumstance. Period. It would just be tantamount to your bank removing money from your savings account to investment in real estate. They don’t have the authority, without your consent.”

Um, just how does he think banking works? In fact, this is precisely what you are doing when you deposit your money in the bank, which is why they pay you interest for the right to use your money. They are required to give you your money on demand, that is true, but they aren't paying you for the pleasure of looking at your stack of cash. They don't need your specific consent to use your money, such consent is part of the contract from the outset.

Which brings up a bigger issue, why are we so interested in getting the banking sector working efficiently again? This is because the banking sector plays such an important role in our economy. All of us with savings have idle money that could be put to productive uses but it is hard for an individual to know about these. Some of us invest directly in startups, stocks, etc. But many of us simply don't have the time knowledge or level of savings to do so. Banks, by consolidating the savings of many individual depositors and making these funds available to loan direct this idle capital to productive uses. This investment is vital for the growth of the economy and benefits us all in general and individually: both depositors and borrowers gain from this transaction that would not have happened without the financial intermediation of the banking system.  

No matter what scale we are talking about, the role of the banking system is essentially the same - taking idle capital from one set of economic actors (whether your neighbor or the Chinese) and directing it to its most productive use (from a new coffee shop to an international conglomerate to a sovereign nation).  Without this essential link between savers and investors, investment general crashes and, well, you can see the result.  

This is why, without a well-functioning credit market the economy is unlikely to turn around and why, like many other economists, I believe the key to the recovery lies in getting the credit markets sorted, and soon.  Everything else is secondary.

Beeronomics: Pelican

Its Friday, so let's talk beer because I am just tired of talking about economics.  John Foyston reports in The Oregonian that Pelican Brewery of Pacific City brough back 10 medals from their 10 entries in the Australia International Beer Awards.

This is some well deserved recognition for one of Oregon beers real treasures.  Of course, somehow it seems unfair.  Good beer should come from the dreariest, dankest corners of Oregon.  Pelican, in a spectacular setting on the coast, should cook up some mediocre beer for the tourists and leave well enough alone.  Well, they don't.  Their beer is exceptional with an impressive range and amazingly consistent quality.  

Economists know about compensating wage differentials - what about a compensating beer differential?  Folks in Bend and Pacific City have it all, its not fair.  

NB: Spring break is upon us so spotty blogging ahead for the next week.  I am going to Bend to get my own dose of the good life.  

Quantitative Easing and Oregon

I mused to a colleague a while back that since fiscal stimulus is hard to do well and relatively slow, perhaps we would be better off if the feds just pumped massive amounts of liquidity into credit markets.  Well the Fed appears to have decided that it needed to be more aggressive on quantitative easing.  Will it work?  There needs to be borrowers for this capital that have productive uses for it and with recession in other parts of the world this demand will probably be muted.  But I think it is well worth the risk.  The rate at which we are shedding jobs is phenomenal and bold action is what is called for.

For Oregon this strategy may have a side benefit.  The value of the dollar is declining and this will make Oregon exports more competitive.  Since Oregon is particularly dependent on exports, this decline may be some help.

As seen on this nice NY Times graph the effects are immediate: long term debt just got cheaper. This should also help Oregonians buy homes and stay in their homes as mortgage rates come down.

Confirmed: MLS to Portland

Oregonian gets confirmation from City Hall: MLS will announce Friday that it has awarded the expansion franchise to Portland.  

It's Tourney Time!: Pickin' with Obama

Both Cornell and Wisconsin (my almae matres) are in but are not expected to get past the first round.  Obama doesn't think so either.  Fortunately, I can economize by saying "Go Big Red!" for both.  I wonder what kind of deference he would have given to Oregon State had they made the tournament?

MLS: Vancouver In, Portland Waits

The Vancouver Whitecaps got the nod from MLS today to begin play in the top league in 2011 in (yuck) the BC Place football stadium.  But, they are still trying to get a waterfront stadium built in five years (how cool would that be with Grouse Mountain in the background?).

MLS Commissioner Don Garber stated that the league hopes to announce the other expansion franchise 'shortly.'  Both the Ottawa and St. Louis bids have serious problems and, lets be real, they suck.  St. Louis is a sports saturated medium-sized market with a failing team across the state in KC.  Ottawa is smaller, colder, less-interesting and Canadian.  Actually the last bit is a good think, there is more passion for soccer in Canada and they are more ready to embrace the sport.  But my grandmother hails from Smiths Falls, Ontario and I have family in Ottawa, so I know of what I speak when I say - go for a wonderful summer vacation, but don't put a soccer team there.  Actually, Ottawa is a delightful city (in the summer) but a pretty small market and Ontario already has a team, so I don't think it is a good move for the league.

Why wait? MLS should give Portland the nod now!

UPDATE: Portland Biz Journal reports that an announcement awarding MLS to PDX may come Friday.

Unions: Do They Help or Hurt Business?

Rather than try and do a comprehensive treatment of the economics of labor unions, like I have done before, I want to highlight some particularly robust evidence from the economics literature in bits and pieces to try and provide a platform for informed debate. Today, I want to highlight DiNardo and Lee's 2004 paper "Economic Impacts of New Unionization on Private Sector Employers: 1984–2001"

Like almost all empirical economics studies, we don't have the counter-factual and so we are forced to try and do the best we can with the data we have. In this case they use the newly fashionable regression discontinuity design. In essence, they look at businesses where unionization just barely passed, versus businesses where it just barely failed. Why, well unionization is not likely to be random and unions could form at more profitable businesses that are more likely to pay higher wages. So if you see higher wages at union shops it is impossible to know how much is due to unionization and how much is due to the general profitability of the firm.

What do they find?

The analysis finds small impacts on all outcomes that we examine [business survival, employment, output, productivity, and wages]; estimates for
wages are close to zero. The evidence suggests that—at least in recent
decades—the legal mandate that requires the employer to bargain with a certified
union has had little economic impact on employers, because unions have been
somewhat unsuccessful at securing significant wage gains.

Thus the answer is not much. Unions in this period didn't seem to be effective at bargaining up wages and thus don't have much of an impact on firm performance.

But there remains an open question: in cases where unions did seem to win wage concessions was this at the expense of firm performance? I'll try and find evidence next time...

Beeronomics: 3.2 Beer and Craft Brewing

[Note: Oregon economy is just too grim, so today let's think about beer!]

Beervana blogger Jeff Alworth sent along this little beeronomics puzzle: in Colorado, craft brewers have taken a stance against repealing the restriction that allows only beer with an alcohol content of 3.2% or less to be sold in grocery stores. See news reports on the story here and here.

What gives? Why are craft brewers afraid of this change? Here is Left-Hand Brewing's Eric Wallage: “It’s terrible, if it passes, it’ll completely junk up the market for craft beers.”

The premise is that the 3.2 law basically shuts out the supermarket market for craft beers. This is not really true, it is easy to make beer for this market. I asked my fellow L&C alum who is the brewmeister for Boulder Brewing how they made their 3.2 beer. "Just add water" he replied with a rueful smile... But it is likely that the distinctive flavors and qualities that are the hallmark of craft brews over macro brews are largely lost when drowned in water. So, essentially, they believe that this is not their market (though Fat Tire seems to sell exceedingly well in supermarkets). Thus, they perceive the liquor store as their 'turf' and they want to protect it.

But there is no economic reason to suggest that liquor stores have different incentives when it comes to selling beer, nor is it clear that the clientele is different than in supermarkets (or would be in equilibrium). My experience in Colorado was that liquor stores did not have beer displays that were substantially bigger than supermarkets (especially since groceries are constrained by the 3.2 law) and that liquor stores seemed to devote plenty of space to macro brews. They are profit maximizing firms after all, just like grocery stores, and in absence of the law, I would expect just about equal space being given to craft brews as macros in the groceries. It is all about the demand. In fact, I had a conversation with my local liquor store owner in Denver and it was clear that he was stocking only what sold well (we were talking about the removal of Full Sail), he did not express any real personal devotion to craft beers.

One would expect that being able to sell their beer to a broader market would be in the craft brewers interest. It certainly has not hurt the craft brewing industry in Oregon. This is particularly true because of the fact that demand for craft brew is a function of experience. Craft brew is an acquired taste and the more craft breweries can get people to try their beers, the more future demand they can expect.

So what gives? I suspect that this is a short-sighted political move by the craft beer industry in Colorado to curry favor with liquor stores in hopes that they will give deference to Colorado beers. This is dumb, because of its short-sightedness and because of the aforementioned fact that liquor stores are profit maximizing firms and will respond to demand. When push comes to shove, you can't take goodwill to the bank.

One thing is certain, the real looser in this fight is the consumer who will face higher prices and less convenience. Craft brewers ought to think about that.

Oregon Unemployment: 10.8%

I couple of weeks ago I said this: "I would not be surprised to see Oregon's February unemployment at about 10.8%." I am sad to say I hit it right on the head. Education and Health Services and Government were the only areas to see job gains, while manufacturing continues to be battered.

It is just awful out there.

Oregon Forecolsures

OPB's Ethan Lindsey gets picked up by NPR this morning talking about something I have been saying for a while: Foreclosures in Oregon are now more about unemployment than sub-prime loans and speculation. And with unemployment soaring in Oregon, the situation is going to get a lot worse before it gets better.

Nice job on the story Ethan, kudos.

[Note: This post comes a little late because I have been waiting for the latest Oregon jobs report to structure the post around - but it is not yet out]

MLS and Public Goods: Grass Fields

Okay, now that I have been all rah-rah about MLS in Portland, I think it is a good time to look back at the league's history and future. The summary is: it is mostly a big success story but there are some troubling signs on the horizon - most importantly the move away from natural grass playing surfaces.

The league started as a single ownership structure with 10 teams and only a couple of wealthy backers, most notably, Kansas City Chiefs owner Lamar Hunt. Play was mostly in football stadiums and, truth be told, neither the play nor the atmosphere was very good. For a little while the future was uncertain, the expansion Miami Fusion folded, but the expansion Chicago Fire thrived. Losses were common, but Lamar Hunt's construction of Columbus Crew stadium was seen as a glimpse of the future: soccer specific stadia in which the team controlled all the revenue sources.

Slowly the league became established, more stadiums were built and new teams added, but the most important change was the number of new, deep-pocketed, investors in the league that diversified the league and sent a signal that it was here to stay. Now most existing teams are stable, many have their own soccer-specific stadium, and more stadia are in the works, and the league has solidified the broadcast rights and most games are now shown on TV.

A number of very important decisions were made along the way that facilitated the rise of the league in my opinion. The first was to scrap the silly rules that made MLS an international oddity, most notably the shoot-out that determined outcome in the case of ties. The second was a steadfast determination to get the game out of NFL stadiums and to keep it off of artificial turf. The atmosphere in big stadiums is awful (I know from my time in Denver), and the game on turf is horrible: the ball bounces and skids, and players are reluctant to tackle - a key part of the sport - and in stadiums with football, the gridiron mars the visual experience. All of which degrades the spectator sport badly.

This is where my concerns come in. Recently, in the interest of expansion, the league has gone away from the last two criteria. The Toronto franchise built a soccer specific stadium, but it has a turf field. And the Seattle franchise was allowed to play in Quest field and on turf. Vancouver will likely be awarded a franchise and will play in a NFL-style indoor stadium on turf. The degradation of the quality of the product for the spectator is deeply troubling. The Seattle decision is especially so. In the beginning MLS was seen as a good way for NFL owners to get some revenue out of their otherwise idle stadiums. But it has been a terrible failure: most teams that started in NFL stadiums have either folded, left (or are leaving) or are struggling to fill seats. Seattle may be an exception in the short-run, but the long run impact on the televised product of these reversals in decisions will be painful - especially as TV revenue is the key to the future.

So, should Portland get a franchise, I hope (pray) that Paulson puts in real grass. It is expensive to install and maintain. Apparently Chicago spent 1.7 million on a state-of-the-art natural grass field with heating and drainage compared to about $1 million for a new turf field. Maintenance is more costly for grass and there are concerns about durability. But Chicago is a stadium that hosts football and concerts in addition to soccer so if they can do it, surely Portland can too. I know it is a more expensive short-term option and may even be the individually rational long-term option, but turf is a bad option for the league as a whole. It is time for MLS to insist on grass again and the Timbers should too.

[Note, here is a consenting view, and one that makes another point: if MLS teams want to make money by hosting major international clubs, it is likely that those clubs will refuse to play on turf]

The Great Fish and Chips Search

Friday afternoon blogging: what do you expect, economics? No, my attention shifts elsewhere...

Being the son of an Englishwoman I was bred with an appreciation for fine English cuisine. And there is no finer example of the fine art of English cooking than fish and chips. Okay so maybe you think it is low-brow, but there is not much worse than fish and chips done badly - it becomes a greasy, slimy, tasteless fat fiesta. But done well, the batter is crisp and the fish is moist and juicy and wonderful.

In the US, bad is the norm and good is elusive in the fish and chips world. So I am always on the lookout for good spot. The worst offense in my mind is to try and make it too fancy - using bread crumbs and spices and fancying up the fries just misses the point. Also using too much batter and - gasp - overcooking it are crimes against humanity.

It is a typical pub food and as Oregon is awash with good pubs, you often find it on the menu. But one suspects that in most cases this is just because the pub thinks it 'should' and is not really serious about it. I keep trying however because I am determined to find a great spot for fish and chips.

The best I have had in the last few years was at the McMenamins Corvallis. One summer day me mum and I arrived and both ordered the F&C and a little while later were told that they would be delayed as a new batch of batter had to be whipped up. I suspect this was to our great fortune as, after a wait, the meals arrived piping hot, with absolutely perfectly cooked fish on top of McMenamins perfectly unadorned fries. Mum said it was fabulous and I agreed. But subsequent visits to that and other McPubs have not yielded as good results - the kitchen does not pay enough attention usually is my conclusion - but is probably the best I have yet found on average. Deschutes pub in Portland tries to be too fancy, as does the Rogue pubs, the Thirsty Lion yesterday was decent but not memorable and the Pilsner Room/McCormick and Schmicks use too much/too fancy batter. Glaringly, I have never tried the fish and chips at the Horse Brass, which might be expected to have the best.

So I ask you, fellow fish and chips enthusiasts, where to go next in my quest?

Beeronomics: The Honest Pint Project Goes to Salem

Beervana blogger Jeff Alworth's Honest Pint Project is gaining some serious traction. A new bill has been proposed that would require inspections of pubs and would certify their compliance with a true 16oz pint rule with a official decal (I imagine one like the state health 'complied' and 'exceeded' stickers for restaurants).

Though as an economist I support the Honest Pint Project, I do not support this legislation. I think it is costly, requiring inspections; I think it is not entirely effective, there are plenty of opportunities for cheater pints; and I think there is a better solution.

My solution has always been to do what the Brits do: require marked glassware like in the picture. Glassware suppliers can certify the volume and etch it on the glass itself. It is a lot easier to monitor a few glassware suppliers than hundreds of pubs and restaurants and etching adds very little to the extra cost of glassware (and can be phased in to save a big one-time cost to pubs and restaurants). Besides, having an Oregon state seal on a glass certifying its volume would be cool!


The reason I support this remedy is because it addresses the essential market failure: asymmetric information - drinkers do not know the volume of the glasses their beer is served in. Once full information is restored, the market will do the rest.

The Great Lunchroom Fraud

Driving down to Corvallis this morning, I caught this wonderful story on NPR: "Sweet Memories Of A Snack Food Financial Scheme". Reminds me of my middle school, where a vast unregulated economy developed surrounding the distribution and sale of Jolly Rancher candies. I was not implicated.