Portland Home Values Rise

The May Case-Shiller numbers are out and the news is good for Portland.  Portland saw a month over month and a year over year increase in home values.  This picture above, of the seasonally adjusted C-S numbers shows the plunge and subsequent bumping along the bottom.

Here is another graph of the month-to-month percentage change in seasonally adjusted C-S numbers.

Way too early to say we are starting to see sustained appreciation but things are starting to look like we might start to see housing make a modest comeback this year.

Underemployment in the West

Quick, what do California, Oregon and Washington have in common?  Among other things, the Pacific  Ocean and lots of good beer among them, they all have higher than average unemployment, much higher than average underemployment and, along with Nevada, the highest difference between unemployment rates and underemployment rates.

All this according to the US Bureau of Labor Statistics and nicely summarized by the Wall Street Journal.

Theories?

The Merkley Plan: Big Thumbs Up

Here is Merkley doing his best Austan Goolsbee impersonation - not bad actually.

Imagine that, back in 2006, you and a mortgage company took a joint bet on the housing market.  You entered into a contract for a relatively low down payment in exchange for a high interest rate.  Both sides figured that within a few years the appreciation of the asset would allow refinancing at a lower rate.  This contract worked well for both sides, the mortgage company benefitted from the high payments for a few years and the homebuyer was able to buy a house otherwise unavailable to them.

In fact, I did precisely this when I bought my house in Denver.  I obtained a then novel interest-only loan which allowed me to afford the house initially.  Two years later I was in a conventional 30 year fixed mortgage.

But of course this is all predicated on the asset appreciating. What we have now are a bunch of high-interest mortgages that are underwater and thus without hope of refinancing.  The rub is that refinancing works for everyone - banks benefit because being paid back on the full value of the asset is a lot better than a short-sale and homeowners benefit through lower payments.

So now we have the plan proposed by Oregon Senator Jeff Merkley and that would facilitate exactly this exchange.  Here is Felix Salmon describing it in his blog:

Merkley’s plan ... doesn’t come with any moral hazard problems attached: indeed, at the margin, it encourages homeowners to stay current on their loans, rather than defaulting on them.

The basic idea’s very simple: the government will buy, at par, any new underwater mortgage written on certain terms. So if you currently have a $240,000 mortgage on which you’re paying 8% interest, but your house is only worth $200,000 and you can’t refinance, then suddenly now you can refinance. In fact, you have three options. You can get a $240,000 15-year mortgage at 4%, which keeps your payments roughly the same, but which gets you paying down principal quickly, so that you should be above water in about three years. You can get a $240,000 30-year mortgage at 5%, which cuts your monthly payments substantially. And there’s a third option I don’t fully understand, which includes a $190,000 first mortgage at 5% and a $50,000 second mortgage with a five-year grace period; on that one, monthly payments, at least for the first five years, drop even further.

In many ways, if you don’t sell your house, this is functionally equivalent to a principal reduction. That $240,000 15-year mortgage at 4%, for instance, has exactly the same cashflow characteristics as a $198,000 15-year mortgage at 7%. And the $240,000 30-year mortgage at 5%, similarly, asks homeowners to pay exactly the same as they would if they had a $193,00 30-year mortgage at 7%.

Of course the government can do this because it can borrow money at virtually zero interest and it should do this because a moribund housing market hurts everyone through the drag on the economy. There is risk, of course, and there will be default which will make lots of great anecdotal stories about how the government is foolish, but I suspect that the US taxpayer will still come out far ahead.

One question that remains in my mind is: as are talking about subsidizing homeowners who are not delinquent ?re we really helping the housing market? I suspect many of the 'underwater' mortgages that are still current will remain this way. It is really the delinquent mortgages that are at risk of default. But something is better than nothing and this at least will ease income constraints for households.

The same holds true for the bank side: if these are high interest loans on an undervalued asset and yet they are still current - what could be better? You don't want to give up these loans. So I suspect some push-back from the banks and it will be interesting to see how the political winds blow. But, overall, kudos to Merkley for a sensible plan that addresses a real problem in housing right now in a measured and reasonable way.

Soccernomics: Timbers in Disarray Edition

Class: Stephen Ireland was clearly the best player on the pitch last night.
His movement, both laterally and vertically, never stopped.

Because I know that this is the first place you turn for your soccer news, I find it my duty to oblige.  It has been a very interesting diversion to watch the Timbers implode this season and no one seems to know what to make of it.  Except me, of course...

The dismissal of John Spencer as Manager Head Coach (it is funny how we adopt some British terms but not all) caught me by surprise.  Sure the Timbers are struggling but they are a second-year expansion team with an incredibly young and inexperienced roster.  What do you expect?  I believe Spencer thought he had some time to build the team and it was my general opinion that he should be given three years and evaluated only at the end.  

So what happened?  My guess is it all comes down to Nagbe.  Well, not just him, but his category: young developing players of which the Timbers have a lot: Nagbe, Mwanga, Alhassan, Renken, Rincon, Valencia, Jean-Baptiste, Mosquera, etc.  If you look at Nagbe today versus a year and a half ago can you really see growth as a player?  No.  Is it Spencer's fault? Probably not entirely, but I suspect that this is why Paulson chose to pull the trigger so quickly.  This is the only reason I can think of that you would make such a drastic move, if you think the development of these players is hurting and needs to be corrected right away.

Spencer's style is to have players play very specific roles on the pitch and he likes to play a very direct version of football. This is probably not a bad thing for a young team but it does limit creativity somewhat.  Still, when Nagbe has been given a free license to be creative he has not been able to be the creative playmaker in the midfield, so I don't really think that is the problem.  What then is?  Not sure. I would have been more patient I think.

As for the Timbers, the aftermath has been pretty interesting to watch.  The Dallas debacle was instructive: players really seemed to sort themselves.  One player who I have maligned in the pans, and who has really started to play his best football, is Franck Songo'o.  He is finally starting to assert himself on the field and put in a full effort.  Well done.  Eric Alexander is a great player until he gets to the box where his shots are, face it, terrible and his passing uninspired.  If he can develop a shot he could really become a top notch player.  On the other hand, Jewsbury is looking a bit tired and old these days and is not the force in the midfield he was.  Palmer is a disaster - wins the ball well, but then rarely does anything useful.  And the new guy - Kimura - who was supposed to solve the right back problem is horrendous.  I liked Jack there better.  

Last night's exhibition was a lot of fun: you get to see a lot of the youngsters like Brent Richards (man that kid's got hops) and Ryan Kawulok.  Raw, but energetic.  The most instructive thing for me was that even though Aston Villa was not as adept at possession ball as Valencia (the previous exhibition), they still possessed the ball better and, especially, moved the ball faster than the Timbers.  The Timbers are still way too ponderous on the ball and way too static when one player is trying to dribble and break people down.

What I expect from the Timbers for the rest of the season we caught a glimpse of last night: playing compact, especially at the start there was only about 10 yards of space between each line of player. Playing youngsters more.  Within the compact team play allowing players more freedom to move out of position and interchange.  It'll be rough perhaps, but entertaining.

Economist's Notebook: Price Elasticity of Demand

We make trips to visit my mother on Bainbridge Island fairly frequently and we take the ferry whenever we can as we much prefer it to the overland route.  A couple of weeks ago my older son and I were taking the ferry after walking over from the train station and while on the ferry we saw the familiar video game console that always catches my son's eye.

This summer it is the retro Pac Man/Galaga combo machine (which led to a good conversation about the state of video gaming when I was his age - the modern version of having to walk 3 miles in the snow which, by the way I also had to do!).  But over the course of a week on Bainbridge we actually took the ferry over a number of times (once to see the King Tut exhibition which is great but incredibly anti-climactic at the end) and we noticed something interesting: no one ever plays the game.  To me this was unsurprising, the price per play was $1 - a sum which my son (and I) thought outrageous.  Now as an economist and a father, there is never a bad opportunity for some teaching so I asked my son if he though they should price it low enough so that the game was constantly played on each trip (10¢ say) if the goal was to maximize revenue.  He said maybe not - good boy, he remembers my lesson of the un-full parking lot!  [To wit: if you see a downtown parking lot less than full in the middle of a business day, can you assume the parking lot owner made a pricing mistake? No.]

But certainly they have mucked this one up.  $1 is so expensive that it almost never gets played.  Compare that to the marginal cost of punters playing it (close to zero) and you understand that the ferry (or the vendor of the machine) have miscalculated the price elasticity badly.  

So I have a suggestion: price it as 25¢ and compare profis. I think you'll find you do better.  

City and Country GDP: How Does Portland Stack Up?

An interesting little table from the Wall Street Journal lists countries and US metro areas by GDP.  Some pretty stunning facts: the NYC metro area's GDP is larger than Mexico's or South Korea's.  Chicago has a bigger economy than Sweden!

So how does Portland stack up?  Well our economy is bigger than all of Vietnam (and before you dismiss that remember that Vietnam has done pretty well in the last 20 years or so).  What struck me is that the Portland metro area economy is bigger then St. Louis, Cleveland, Pittsburgh, Charlotte and Indianapolis (cue the calls for NFL and MLB in Portland).  

Click here for the table.

Catching Up: Oregon Unemployment

Okay, I'm back and ready for action.  Time to catch up, starting with the unemployment report.  I was off in the mountains last week and was blissfully unaware of the news.  But it wasn't that bad, nor was it that great, however.  Unemployment rate stuck in the mid 8% range and only 1,700 new jobs added.

Same old story: recovering but at a snail's pace and government job losses creating a huge headwind.

Hiatus

As in: me, on.

I'm taking a little break for the blog for the next few weeks.  I may blog on occasion, but not regularly.

I'll try and keep the Twitter feed active with stuff that catches my eye.

Wow

The individual mandate part of the healthcare law was allowed to stand.  Wow.  I had become convinced by all the pundits that it was a goner.  But I am glad it stands.  The healthcare reform may well be tweaked, abolished or expanded by congress in the coming years but that should be the purview of the congress and not the courts. I don't think going back to status quo ante Obamacare is a good solution.  Whatever direction we move in it should be forward not backward. 

I am no lawyer so I have no great insight about the legal side, but as a practical economics matter I didn't see how the mandate was much different than a tax.  The government taxes and provides lots of stuff whether we want it or not - this seemed quite similar to me.  Apparently the Supreme Court thought along the same lines.  As an economist, however, I did recognize the importance of having a mandate in place as a part of the overall healthcare reform effort.

But as an aside, I am pretty glad that it appears we can have justices both conservative and liberal that are independent thinkers and are not subject to political pressure.

Graduation Rates

I just have one question about the otherwise excellent bit of reporting Betsy Hammond did for The Oregonian on PPS graduation rates.

If the point of the story is that PPS's self-reported graduation rate is artificially high because they ship out the high drop-out risk kids to alternative schools not included in their graduation rate calculus, why do you compare your calculated rate that includes those kids with other school districts self-reported rates?  Did you correct these rates for the other districts too or make sure the same problem does not exist there?  If not then this is not a good comparison.

The text of the article suggests that the similar problem does not exist to the same extent in other districts but unless this is the same carefully done analysis, I don't think this graphic is legit. Which is not to say that this diminishes the reporting's impact and findings which are important and damning.  Just that I found this graph a bit odd.

Mac Users and Price Discrimination

NB: A careful reader points out that it is only the selection of rooms and not the price of the rooms that is different.  Which is too bad: they aren't as clever as I thought...

A fascinating little tidbit from the Wall Street Journal (as reported by Briar Dudley of The Seattle Times):

If you're looking for a deal on hotel rooms, perhaps you should use a Windows PC instead of a Mac.

According to a new Wall Street Journal report, travel giant Orbitz has begun offering some Mac users more expensive hotel rooms.

That's based on past spending patterns of Mac users. After tracking and analyzing this, Orbitz decided to experiment with offering Mac users "different, and sometimes costlier, travel options," the Journal reported.

From the article:

Orbitz Worldwide Inc. has found that people who use Apple Inc.'s Mac computers spend as much as 30% more a night on hotels, so the online travel agency is starting to show them different, and sometimes costlier, travel options than Windows visitors see.

The Orbitz effort, which is in its early stages, demonstrates how tracking people's online activities can use even seemingly innocuous information—in this case, the fact that customers are visiting Orbitz.com from a Mac—to start predicting their tastes and spending habits.

Orbitz executives confirmed that the company is experimenting with showing different hotel offers to Mac and PC... (and here the paywall kicks in, but pone presumes the next word is 'users')

Students of economics will recognize this a good old fashioned price discrimination: charging different users different prices based on willingness to pay. In this case a Mac is a bit of a luxury item - Mac users pay a premium for a Mac over a PC - and thus is a sign that on average Mac users might have a higher willingness to pay for some items.

Orbitz has found that Mac ownership (or usership, really) is correlated with higher spending on hotels and so it uses this info to change them a higher price. In economics we call this information (that you are using a Mac) the 'identification' problem: being able to tell who has a higher willingness to pay. The other problem, the 'arbitrage' problem, would come about when a bunch of PC users booked hotel rooms and sold them for a discount to Man users - not likely in this case.

The thing about price discrimination is that sure it is a profit maximizing strategy for firms but it is important to note that two things happen when firms price discriminate: One, customers with higher willingnesses-to-pay end up paying more than they would under a one price regime, but customers with lower willingnesses-to-pay end up paying less than they would under a one price regime. Two, more hotel rooms get rented because by lowering the price on low willingnesses-to-pay people more and more will do so. So how you feel about price discrimination depends on whether you are a high willingnesses-to-pay person or a low willingnesses-to-pay person.

Of course, if this kind of thing takes off there is a type of arbitrage solution: use your friends PC to book, or use some kind of browser that mimics a PC. [I am no techie, but this must be a pretty easy work around, no?] But you can imagine the possibilities.  If you log into a place with your Facebook account and they can see where you live, they know the average income of your area, to give one example and can charge you a price accordingly.  This is great if you live in a low income area, not so great if you live in a wealthy neighborhood.

Picture of the Day: 2000 Years of Economic History

Via The Economist:

A Soccernomics Two-Fer

One

Don't look now but it is the battle of the Euro Zone: Germany plays Greece in the quarterfinal of the Euro 2012 soccer tournament. It would be ephemeral but imagine how a Greek upset of the heavily favored Germans would feel to the embattled Greek people.  Rightly or not, they feel that Germany is forcing an unjust austerity package on them.  A German win would only make them feel more lousy.

Two

The Daily Mirror predicts that if England make the Euro 2012 final beer consumption will increase by 70 million pints!  Wow. Of course if they lose ignominiously on Sunday it is likely that beer consumption will also rise precipitously in England.  Either way its good news for publicans! But as a matter of science, it appears the numbers in the Mirror were pulled out of thin air are are of little value to anyone but bloggers...

UPDATE: Germany pretty thoroughly dismantled Greece even though it ended 4-2.

Understanding the "Creative Class"

I have been chastised for my perceived drive-by on Richard Florida and his snake-oil policy prescriptions for cities.  See, I can't help myself....

Actually, I had only intended to highlight a passage about how what we are really talking about is human capital which, for the most part, means we are talking about education (but in general it is whatever makes us more productive: education, experience, intelligence, yes even creativity, etc).  And that the emphasis on attracting creative types to cities through catering to their preferences is a bit off.  There is no doubt that human capital is immensely important to cities and being able to attract those with high human capital is a great thing, but I tend to prefer we concentrate on how we create human capital ourselves. But of course in the quick firing off of a short blog post all context is lost and meanings become mangled (especially when I tarted up my tweet with the term "Debunking" - which again was meant to refer to the fact that we are talking fundamentally about human capital, not all of Florida's work).

So it is not so much about the substance of the argument - human capital matters and correlates of human capital, creative types, gays, patents, are therefore important as well - but the way that the story is told and the policy prescriptions that follow that we can quibble about.

An argument made forcefully to me is that it is not enough to be right and have evidence on your side, you have to know how to speak to policy makers in a way that can actually move them in the right direction.  Florida has done this - sneakily emphasizing human capital but using language and imagery that can be seized upon by policy maker and that can actually have an impact on policy.

This is fair enough, and a good point: there is no point being precise about everything when no one listens.  And those of us ensconced in the ivory tower tend to think we are doing important work that speaks for itself when the truth is it doesn't.  We have to find a way to make it digestible to, and repeatable by, policy makers.

So what do I think overall of Florida's work, well here is the best thing I have seen written about it by my go to guy on all things urban, Ed Glaeser of Harvard:

But if Florida’s novelty is not emphasizing creativity, or the rise of bohemian lifestyles, he deserves considerably more credit for putting them together. Lifestyles really do differ across occupations, and changing workplace patterns assuredly do matter for changing lifestyle preferences. This insight is correct, and I think Florida really deserves credit for emphasizing it in the popular domain.

He is also right in arguing that if cities want to succeed they need to think about providing lifestyle, or consumption, advantages to their residents. As I have argued elsewhere, declining transportation costs mean that few places have any innate advantages in production anymore. Proximity to the coal mines or the harbor may have mattered in 1900, but do not matter today. Instead, the productive advantage that one area has over another is driven mostly by the people. Urban success comes from being an attractive “consumer city” for high skill people (see e.g. Glaeser, Kolko and Saiz, 2001).

But while I agree with much of Florida’s substantive claims about the real, I end up with doubts about his prescriptions for urban planning. Florida makes the reasonable argument that as cities hinge on creative people, they need to attract creative people. So far, so good. Then he argues that this means attracting bohemian types who like funky, socially free areas with cool downtowns and lots of density. Wait a minute. Where does that come from? I know a lot of creative people. I’ve studied a lot of creative people. Most of them like what most well-off people like—big suburban lots with easy commutes by automobile and safe streets and good schools and low taxes. After all, there is plenty of evidence linking low taxes, sprawl and safety with growth. Plano, Texas was the mostsuccessful skilled city in the country in the 1990s (measured by population growth)—it’s not exactly a Bohemian paradise.

The source of Florida’s policy prescriptions seems to be his attempt to argue that there is a difference between his “creative capital” view and the mainstream urban view that human capital generates growth. As mentioned above, I have always argued that skilled cities grow because “the presence of skills in the metropolitan area may increase new idea production and the growth rate of city-specific productivity levels,” but if Florida wants to argue that there is an effective of bohemian, creative types, over and above the effect of human capital, then presumably that should show up in the data.

He then goes on to do some basic regressions with Florida's data to show that when you put a college educated variable in them it is terribly significant and all the rest of the "creative class" variables - patents, gays, 'super creatives', bohemians - become insignificant.  They do so because, presumably of the high degree of correlation between them and the college educated variable.  It is just a crude way of showing, once again, that it is really all about education.

So you can talk about creatives all you want, but be aware that in so doing what you are really focusing on is education.  Creating places where educated people are created, attracted and retained is crucially important.  I think, as does Glaeser, that the attracting part is a bit of a fools errand - what exactly do they want?  Probably good jobs, first and foremost.  No, what policy makers have more control over is the creating part, through a high quality public education system.  And what concerns me is making sure that the creative class amenities mantra does not dominate the education mantra.

The Creative Class

Just a note today to point out a nice little article on the "Creative Class" idea and how it is mostly a whole lot of hot air. Here is a nice little excerpt that I happen to agree with:

Today, Cre­ative Class doc­trine has become so deeply engrained in the cul­ture that few ques­tion it. Why, with­out any solid evi­dence, did a whole gen­er­a­tion of pol­icy mak­ers swal­low the cre­ative Kool-Aid so enthu­si­as­ti­cally? One rea­son is that when Florida’s first book came out, few experts both­ered debunk­ing it, because it didn’t seem worth debunk­ing. “In the aca­d­e­mic and urban plan­ning world,” says Peck, “peo­ple are slightly embar­rassed about the Florida stuff.” Most econ­o­mists and pub­lic pol­icy schol­ars just didn’t take it seriously.

This is partly because much of what Florida was describ­ing was already accounted for by a the­ory that had been well-known in eco­nomic cir­cles for decades, which says that the amount of college-educated peo­ple you have in an area is what dri­ves eco­nomic growth, not the num­ber of artists or immi­grants or gays, most of whom also hap­pen to be col­lege edu­cated. This is known as Human Cap­i­tal the­ory, men­tioned briefly above, and in Hoy­man and Faricy’s analy­sis, it cor­re­lated much more highly with eco­nomic growth than the num­ber of cre­ative class work­ers. “Human cap­i­tal beat the pants off cre­ative cap­i­tal,” Hoy­man said. “So it looks like growth is a human cap­i­tal phenomenon—if you’ve got a lot of edu­cated peo­ple. We’re in a knowl­edge econ­omy, where human cap­i­tal is worth a lot more than just show­ing up for work every day.” In other words, if there was any­thing to the the­ory of the Cre­ative Class, it was the pack­age it came in. Florida just told us we were cre­ative and valu­able, and we wanted to believe it. He sold us to ourselves.

Amen.

Keeping Up With the Jones: Fox Soccer MVP

Cobi Jones that is...

The Fox Soccer MVP (Mobile Viewing Party) was a hoot.  The football was a little hard to see, came and went, and was on a television screen that seemed continually on the verge of toppling over but that was hardly the point.  We got treated to a nice breakfast at Kells, drove around town in a double decker bus and hung out with Cobi Jones.  Cool.  It turns out Cobi is a pretty nice guy.

I am not sure I'd want to be on the bus when there was a match I was passionate about, but it was a fun way to spend a free day.  And a special thanks to the hosts who were exceptionally friendly and gracious (including Mr. Jones).

Breakfast of champions: eggs, bacon and ... Guiness.
But then he had run the five miles downtown so he earned it.

This bus was pretty cool.

The wee television.

Jeff has some observations about the beer that was available on the bus over on the Beervana blog. Oh and by the way this was a contest where you had to tweet why you should be on the bus, my tweet: "Because stepping on a bus is all my left foot is good for." An expression I learned from an old Mexican teammate of mine.

En-ger-land

Soccernomics: Fox Soccer MVP

Somehow I suspect the Portland bus will no be quite so...big.

Somehow I have found myself on the end of an invitation to join the good folks at Fox Soccer Channel to join the Mobile Viewing Party Monday for the Ireland v. Italy Euro 2012 game (or maybe Croatia v. Spain there are conflicting bits of info - hopefully both).  A little research on the internets reveals this little write-up in the New York Times.  Apparently you load up in a bus where the game is shown on TVs and, um, watch. Should be interesting.

Hopefully it'll be a fun time and I'll be Tweeting the proceedings for no apparent reason at all.

The Brits Call It "Taking the Piss"

Via Jack Bog I am led to this little piece of brilliance from the Willy Week:

The city of Portland's Bureau of Planning and Sustainability has released an "Economic Opportunities Analysis" that, with the help of the number-crunchers at Metro, comes to some pretty interesting conclusions about the future of the local economy.

In another 23 years, for instance, Metro and the city figure Portland will boast another 147,000 new jobs. Wow! That's a lot of economic opportunities. Lucky future people.

What's more surprising is where those jobs are projected to be…

They then go on to say its just a put on...really.

"Used Goods Arbitrage" - I am definitely going to use that in my class.  Too funny.

By the way, Jack hates me because I had the temerity to criticize him (not done apparently) but I do so love his blog.  He is a crank, but a lovable one.

Opportunity Cost

I have a blog and I have a stack of finals to grade.  Finals win. Sigh...