Economist's Notebook: Utter Stupidity

So, let me be the millionth economist to say it - slashing spending arbitrarily in the midst of a struggling recovery when borrowing rates are already incredibly low and on stuff that does nothing, nothing, to address long-term debt issues is just about the stupidest thing the government has done in my lifetime.

I cannot believe that we are being governed by grade schoolers.

Picture of the Day: Federal Spending in the States

Is this good news or a condemnation of our congressional delegation that is failing to bring home the bacon?

Compensation and PERS

Here is the problem with studies that look at PERS in isolation like the one by PSU that is featured in today's Oregonian: it is only one piece of compensation.  Oregon for many years appears to have saved on wage bills by shifting compensation more heavily to retirement.  This is, of course, problematic when it comes time to pay for the retirement of its workers.  It makes the accountants are happy at the time because the books balance and the unfunded liability stays hidden.

I can only speak for myself but when I took the job at Oregon State I had a job offer in hand for 20% more from a certain state to the south.  Oregon's generous benefits helped close the gap and the compensating wage differential meant that I was happy in the end to accept less to live in the state of my choice.  I am Tier III so don't get mad at me by the way.

To retroactively change the terms of the contract that workers agreed to at the time is not acceptable in my mind.  Economically the sanctity of contracts must be preserved. Going forward however, it would be better for Oregon to get more in line and shift more towards wages and away from defined benefits.    

Fred Thompson: Coal for the Powerplants of China

While away in Brazil, Fred Thompson, helps keep the blog relevant by commenting on local issues. Thanks Fred! [Need a hint about the title?]

Coal-fired power plants are a major source of greenhouse gases, carbon monoxide, nitrogen oxides, sulfur dioxide, and particulate matter. Compared to burning coal, burning natural gas is cleaner and, in the US, cheaper.

Increased reliance on natural gas in the US has led to substantial reductions in domestic coal prices, making US coal more attractive to European importers and potentially more attractive to East Asian importers as well. Nevertheless, despite steep cuts in US coal prices, once transportation costs are taken into account, the price of US coal, especially cleaner coal from the Great Basin, is often higher than the price of locally mined coal in Europe and East Asia. Evidently the reason that US coal is preferred in Europe and East Asia to local coal is that it is cleaner. Compared to the lignite mined in Europe and China, burning western coal from the US generates 50 percent less CO2, Carbon monoxide, and nitrogen oxides per unit of energy, 30-60 percent less sulfur dioxide and particulate matter, and one-tenth the oxides of mercury. Burning imported cleaner coal in European coal-fired power plants has, therefore, likely reduced global greenhouse emissions, plus most other kinds of air pollution, although it may have slowed the transition to alternative, cleaner energy sources. Burning cleaner imported coal in Chinese power plants should have an even greater effect, both because the Chinese burn more dirty coal than the Europeans and because they do not now anticipate an early transition away from coal.

Most US coal exports flow through US Atlantic and Gulf ports, like Newport News VA and New Orleans LA, which are a long way from markets in East Asia. Consequently, Canada is beefing up its Pacific Coast coal-handling facilities to take advantage of East Asian opportunities and ports up and down the West Coast of the US are contemplating expansion.

However, the most attractive Pacific Coast option in the US would probably involve diverting the coal now being shipped to a PGE power plant in Boardman OR, which is planned for closure by 2020, to East Asia. This option is attractive because the infrastructure needed to move coal from the pit to Boardman, which is on the upper Columbia River, is already in place and currently in use.

The only major question associated with this option has to do with getting the coal from Boardman to the sea. Here, there are two main alternatives: off-loading the coal trains to barges at Boardman and moving the barges to a deep-sea port on the lower Columbia River, where the coal would be loaded onto freighters for transport across the Pacific, or sending the coal trains on through the Columbia Gorge and the Portland-Vancouver metropolitan complex to a deep-sea port.

Under most circumstances, it might be hard to say which of these alternatives would be better without additional study. The former involves twice the freight handling costs; the latter entails higher transportation, environmental, and aesthetic costs and probably significantly greater traffic disruption, roadway and grade crossing improvements, and safety problems. Given the unusually high levels of unemployment currently obtaining on both the upper and lower Columbia rivers, however, it seems reasonable to discount the freight-handling costs associated with first alternative, since, in its absence most of the labor used would be unemployed, thereby adding to the net socio-economic gains associated with this project.

Shipping cleaner coal from the Great Basin to East Asia via the lower Columbia entails tradeoffs, as do all activities. But its net economic benefits are clear. It even appears, on balance, that its environmental benefits could easily outweigh any environmental costs, although not necessarily the local ones, which under the first alternative are likely to be small. 

Economist's Notebook from the Southern Hemisphere: In Praise of Bulk

Before I begin, let me just say that I do not own a big car, I am not a member of Costco or other such bulk store and I generally do not buy in bulk.

But the proto-typical American stereotype of the SUV driving Costco shopping consumer is the subject of much ridicule, especially from enviro-types, and I think unfairly so.  Because bulk is efficient. Assuming that overall consumption does not go up (and therefore essentially assuming prices are the same) bulk saves packaging, saves carbon emissions from consumer trips and saves energy from storage.

I bring this up because on the plane ride down to São Paulo, my wife had a very pleasant conversation with a Paulista woman who was very environmentally minded and critical of the US for all the packaging they use.  I was very confused, in my mind Brazilians love wrapping things up: here in São Paulo they will bag any purchase in a little plastic single-use bags and if you say you don't need it they look at you cross-eyed.  At the grocery store they will practically bag each item individually and plenty of fresh stuff (veggies and such) come pre-wrapped.

But more than that with the small Euro-style packages and refrigerators I go through much more packaging than at home.  Little jars of sauce for pasta, small packages of crackers and cereal and so on accumulate rapidly.  It may be kind of romantic to stop at the store every day and buy food for one day, but it is terribly inefficient.

Now of course the fact that bulk and low prices lead to increased overall consumption is another matter but as far as saving resources, bigger is often better.

So make fun of big US refrigerators if you like, I prefer to buy my milk by the gallon not the liter and using a quarter of the packaging.

Fred Thompson: Don't Fix What's Not Broken

While away in Brazil, Fred Thompson, helps keep the blog relevant by commenting on local issues. Thanks Fred! 

In a recent editorial entitled “Oregon dawdles while other states take action on taxes,” the editorial board of the Oregonian called for bold tax reform, concluding that we must find a way to balance “the progressivity Oregonians demand with the need for a broad revenue base.” To be honest, my gut instinct is to reject this advice. There is one point that almost all economists who study public finance agree on: other things equal, the most important efficiency attribute a tax system can have is predictability – up to point, whatever is, is right. Don't change things unless the change is clearly for the better.

In this instance, however, I have more to go on than gut instinct. A couple of former students and I did a ranking of state and local tax systems on the bases of fairness, adequacy, and efficiency. We were surprised to find that OR ranked #2 overall out of fifty-one. In other words, our tax system may not be perfect, but it’s not bad. Consequently, to the question, what would the ideal tax system for Oregon look like, I answer: a lot like the one we have now.

Our result was surprising because theory tells us that balanced tax systems have a lot of advantages and Oregon’s tax system is more unbalanced than most. Unbalanced tax systems are supposed to be bad because they increase revenue volatility and because they necessitate high marginal tax rates, which impose substantial deadweight losses on an economy. It turns out, however, that the volatility reducing portfolio effects of relying on multiple tax types are small. Portfolio effects result from the fact that various revenue sources are uncorrelated. But all major tax bases – income, consumption, wealth, real property values – turn out to be highly correlated, >.85. In practice, the tax designs actually found in the US reduce these correlations to between .60 and .70, but at the expense of reduced progressivity – equally progressive tax systems would be equally volatile. Besides, the real fiscal problem is spending volatility, not revenue volatility. As for deadweight losses, tax rates at the state and local level are simply too low to cause big inefficiencies. The implications of these facts are that the costs of balancing Oregon’s tax system would be outweighed by the federal tax penalty involved, not to mention the reduced progressivity and increased administrative costs that sales and transactions taxes impose.

To say our tax system is pretty good doesn’t mean that it is perfect. The main issues that I think need addressing have to do with the property tax, the personal income tax, and upgrading the state’s Department of Revenue.

The property tax is potentially a really good tax; it is also unpopular with voters, especially those who own their homes free and clear and who take the standard deduction on federal income taxes. We can and should make paying property taxes a lot easier and more convenient for those folks. That is something every jurisdiction that relies on the property tax ought to do. I find it astonishing that they fail to do so. Property tax problems specific to Oregon include assessment distortions and multi-jurisdiction compression. Property tax assessments and obligations ought to track market valuations more closely. A reasonable move in that direction would be reassessment at title transfer. Given our land use planning policies, increasing tax rates on land and reducing them on improvements might make a lot of sense. (I think that ALL land ought to be assessed and charged property taxes and discriminatory rates eliminated wherever possible, but this is probably too radical to contemplate.) Compression is a harder nut to crack. (A return to a levy-based as opposed to a rate based property tax system would do the trick, but this is also probably too radical to contemplate).

Oregon should impose a smaller personal income-tax burden on families with low incomes. My preference would be to reduce state personal income-tax rates on the first two brackets to zero. But reducing collections from the poor could be accomplished a lot of different ways, including increasing the state’s EITC. Actually, thousands of low-income individuals fail to file tax returns. In many of those cases more has been withheld from their pay than they owe. Moving to a taxpayer-passive administrative system for personal and corporate income taxes could fix this problem and also increase collections significantly, but that would necessitate a significant upgrade of Oregon’s Department of Revenue.

From a state and local perspective, escaping a jurisdiction’s tax net does not necessarily involve physical movement. It can be accomplished by “a mere stroke of a pen,” or a mouse click. This is especially true of corporations, which are legal fictions or constructs. But it is nearly as true for anyone with enough wealth to make tax arbitrage worthwhile. Relatively high marginal tax rates, which we have, call for more and better tax administration. We have too long ignored that fact in Oregon. As a consequence we allow excessive non-reporting and under-reporting of income and do a half-backed job of collecting taxes owed. This is basically an information management problem and it is a critical one.

The Department of Revenue needs to re-engineer its core administrative processes for all tax types. Modern information technology could reduce both the fixed and variable costs of gathering, entering, storing, organizing and searching data on the tax base, deductions, exemptions, credits and liabilities, and payments, which is fundamentally what the DOR does, but, right now, compared to what is needed or even some other states, let alone what is possible, not very well.

Bike-o-nomics: Bike Research (Correlation and Causation Redux)

I have held my tongue for a while about some of the bike research that is being reported on by the Oregonian, The Atlantic Cities and others because I did not want to seem to be bashing the research.  Nor do I want to really bash the fact that it is being reported on.  Mostly though I do not want to be branded an enemy of the state by bike fanatics whom I have found at times to be a little less than circumspect about their own cause.  But I do want to point out some serious problems with the way the findings are being presented and discussed.

So, what studies am I talking about? First there was a lot of coverage of the PSU study that found that bikers spent more money in local stores.  Then there was a study from PSU that found that bike commuters were happier, and today I learn from Joseph Rose that the Danish have produced a study that said that bike riding children concentrate better in school.

Now, a few things first: I am an avid biker, I chose to live in a place where I can walk and bike to most things, my kids bike to school almost every day of the school year, rain or shine, my wife, when she worked downtown bike commuted everyday and has led the Walk + Bike to school activities for my children's school, so my family has plenty of bike cred.  Additionally, I want to state again that I have nothing against these studies nor their being reported in local and national media.

What I have a problem with is the way the media (and sometimes the authors themselves) fudge the distinction between what the studies find - some very interesting correlations - and the inappropriate causal interpretation of the results.

Here is an example:

Kelly Clifton has heard this stereotype a number of times: "Cyclists are just a bunch of kids who don’t have any money," says the professor of civil and environmental engineering at Portland State University. "They ride their bikes to a coffee shop, they sit there for four hours with their Macintoshes, they’re not really spending any money."

...Clifton says, "we start to see businesses say, ‘Hey, wait a minute. You’re taking away on-street parking to put in bike lanes, you’re taking away the one parking spot in front of my store to put in a bike corral. I don’t see many bikers around here. So what does this mean for me?" 

...Until now there hasn’t been much empirical evidence to allay such concerns. Clifton and several colleagues have attempted to fill that research gap in a project for the Oregon Transportation Research and Education Consortium.

But the study, though interesting and of plenty of merit in its own right doesn't really address the business owners concerns at all.  The study asked folks exiting a set of selected stores how they got there and how much they spent.  There is a problem of selection here in the way stores were chosen but mostly there is a problem with establishing any sort of counterfactual.  The business owner's concern is about the relative revenue impact of lost car parking and additional bike parking.  I'd like to think it is positive, and I think there is a good chance it is, but the study does not address that at all.

The study asks about the money spent at the time of the interview, in some cases the average was higher for car drivers than bikers (grocery stores) and some times it was lower (smaller stores).  They do a good job controlling for some household characteristics (especially income) but they still end up with some controlled correlations of one variable: spending for that trip.  This also does not address overall spending habits hoe biking correlates with spending or how biking affects consumer behavior.

Now both the author and the reporter are careful not to say that you get any firm answers from this study but they sure do fudge the point and make it appear that you would do fine drawing your own conclusions.  What would I like to see?  A better factual description of the actual study, a frank discussion about what it found and some of the potential conclusions an equally frank discussion about the limits of the study and what you cannot say from the findings.

Here is another example:

A new study by Portland State University urban studies doctoral candidate Oliver Smith found that getting to work via “active transportation” – e.g., under your own power – “increases commute well-being, even when controlling for distance, income and other factors.”

Um, no it doesn't. It finds a correlation between commuting and self-reported happiness. It doesn't say that if you take car commuters and force them to ride bikes to work they would be happier, it says that those that self-selected biking to work instead of driving are also more likely to describe themselves as happy. Full stop.

The fact that you control for income, distance and other factors does not change the fact that this is a correlation from which you simply cannot make a causal statement.  Again, this interpretation is, I hope, true, and certainly excercise and happiness are very, very closely related for myself, but this study does not allow that type of causal interpretation.

Finally, we have this:

Every day outside my son’s Brooklyn school, no matter what the weather, you will see a distinctive pale blue bicycle locked to the rack. It belongs to a 7th-grade girl from a Dutch family whose members have stuck with their traditional practice of riding to school each day, despite finding themselves in the not-so-bike-friendly United States for a few years. This lovely blue city bike was a gift from the parents to their eldest child... 

According to the results of a Danish study released late last year, my Dutch friends are giving their daughter a less tangible but more lasting gift along with that bicycle: the ability to concentrate better. (emphasis mine)

No, no a thousand times no!  According to your interpretation of the results of the study which found that bike riders could concentrate better (a correlation), bike riding improves concentration.  Again, this is likely true but the study was of self-selected bikers (as far as I can tell from second-hand descriptions, the study itself in in Danish) not of a group of students some of whom were randomly chosen to bikes and other who were driven - so no such causal interpretation is appropriate.

So as not to be a scold, here are some helpful hints:

-Report that studies find correlations or say "those who bike also X..."

-Be careful not to say or imply that "biking causes, or leads to, X..."

-If you want to make the link, use language like "it is possible that biking causes X..." but if you do make sure you qualify by saying that the results do not support such a conclusion.

-Yes I know reporters rely on academics to interpret their work, but we are not copyeditors, and since you don't have them anymore anyway, you have to be careful in your use of language not to imply causality when there is none.

-Academics, make sure you tell reporters the limitations of your study so it does not look like you are selling conclusions that your research cannot support.

Shopping Malls

Shopping Paulista - in the heart of the business district

Yes I am still alive. It turns out the process of moving an entire family to Brazil, getting settled, setting up and apartment, dealing with Brazilian bureaucracy and finalizing and starting school for the kids and getting myself settled that the university is a pretty long and exhausting job so please excuse my absence.

I did manage to get a pedantic blog post on mergers and anti-trust on the beer blog which is pretty straight econ - so go and have a look if you are having withdrawals - and I managed a few tweets.

Today I'll make a less than spectacular return to blogging my mentioning something from the local paper. [One of two thriving print dailies in São Paulo, by the way, maybe budding reporters in the US should consider a change of hemisphere!  It is nice to have a big fat paper to read through every morning, though a sad reminder of how much we have lost with our local paper fading into a 5 minute read...but I digress]  The Folha de São Paulo reported over the weekend on the flood of new shopping centers being built in SP, 19 over the next two years.  What was interesting to me was the figures they cite that 60% of all retail transactions in the US happen in shopping malls, whereas the figure for Brazil is only 19%.  The latter doesn't surprise me but the US figure, while not really surprising when you stop and this took me aback a little when I saw it.

So here are a few random thoughts:

In a place like São Paulo, where transit is a nightmare, parking difficult and safety an issue, the rise of the shopping mall makes a lot of sense.  With the booming economy, the growing middle class and the increased consumer culture it might be sad but perhaps inevitable that shopping malls would come to dominate the landscape like they do in the US.

Though I am no expert, though they certainly exist in Europe, I do not remember them creeping their way into central cities - my experience in seeing them is mostly on the periphery.  But in SP, they are in both the central districts as well as the periphery

Shopping malls lack romance, but I wonder how to feel about them ecologically.  They seem pretty darn efficient in general (though I am thinking of them in a partial equilibrium - that is I am taking the amount of consumerism as a given and not thinking about how malls may effect it).  

That is all for now, I'll try and keep up a reasonable stream of posts from here out.

Sellwood Bridge

Today the Sellwood Bridge closes for (hopefully) a week so that the venerable old bridge, made on the cheap and from scrap metal, can be shunted on to temporary piers.  Though, as a Sellwood resident, I will be very happy to have a bridge with real sidewalks and bike lanes, I will miss the old bridge which I always found an elegant and interesting part of the landscape.

So, to follow on yesterday's theme, I give you a look and the brand new Sellwood Bridge...in 1926:

I love the view of the old lumber mill located where the Sellwood Riverfront park sits today.  Whatever the new bridge finally looks like on the deck (which is still being planned), I hope and pray that this sign will reappear:

Photo credit: Canon Crawford

Though I suppose we could modernize it and replace 'men' with 'people,' though some of the old-timey charm would be lost.

Fan Mail: Vintage Portland

Just a quick plug for perhaps my favorite blog of all: Vintage Portland.  The blog is simple, it finds and publishes historic photos of Portland.  

I love historic pictures, especially of the place I call home. Portland is a very young city with a very recent and very present history.  I remember watching the log rafts float on the Willamette when I was a kid, and though I realize I am comfortably middle aged now, it feel not so long ago to me in years but so distant in memory.

Which is why I am often mesmerized by historic photos and enjoy looking at them so much.  This city has evolved but it is still a town built on timber and the river.  Go take a look.

Oregon December Unemployment Remains at 8.4%

Oregon added 2000 jobs (2,300 in private and a -300 in public) in December on a seasonally adjusted basis and the unemployment rate held steady at 8.4%.

Not much to say that hasn't been said continuously for the last two plus years.  Doldrums.

Picture of the Day: Cartoon Edition

Coming Soon to the Dollar

Two funny tidbits about the Treasury Secretary's signature on the dollar bill.

Catherine Rampell in the New York Times points out Obama's presumptive nominee, Jacob Lew's, ridiculous signature:

Oh no! The horror of having this ridiculous thing on our money!

But then Marketplace does one better in their old piece on Timothy Geithner and his normal signature:

And the way he changed it for US currency:

Whew, we can all relax.  Thank goodness.

[HT: @EthanLindseyMMR]

Economist's Notebook: Western Cities

I spent the weekend at the American Economics Association annual meetings being held this year in San Diego. As has been the case for the last few years, I saw none of the actual conference because I spent the entire weekend in a hotel room interviewing candidates for two open positions in the department (not new - we had two departures from the department at the end of the academic year).  But it was my first time in San Diego and I did a fair amount of wandering the downtown, and though downtown is not really where you want to be when you go to San Diego, it was still quite interesting to me.

To me downtown San Diego felt just like downtown Denver from the new downtown baseball stadium to the historic district turned into a bar and restaurant spot, the broad avenues devoid of traffic to the distinct absence of residential hosing.  It felt nice and relaxed but a little bit marginal.  The Gaslamp district to me was a little bit scuzzy (more so than LoDo in Denver) but the revitalized waterfront was pretty nice (though mostly dominated by big hotels).  My take on these western ghost town downtowns in the west is quite different than the de-urbanization that happened in the east.

In places like Denver and San Diego I have this impression of early cities that were developing an urban core around stockyards and ports, respectively, when the automobile and the increased mobility of American society had a transformative effect.  Western cities have beautiful landscapes and the automobile allowed folks to live in more picturesque suburbs and close to the natural beauty that surrounded them (yes, Denver sits on a dry arid high plain by the mountain views are spectacular and thus folks spread out along the front range), perhaps despite the pleasant livable downtown areas rather than because of urban blight as in the eastern city.   Later, more and more folks moved to these cities by choice precisely because of the allure of the natural beauty and climate, and these folks were not looking for urban amenities as much as suburban space and nature.  Thus the massive sprawl took off.  In Denver it is vivid and impressive, and San Diego seems equally so.

It is only now that these downtowns are starting to infill residential and mixed use amenities in an effort to create more vibrant and lively spaces.  This process is slow.  I was very amused to see the San Diego Streetcar that circulates the downtown area as well as the number of new condo towers that I imagine sprung up in the early 2000s like they did everywhere including Portland.  The streetcar has become the darling of urban renewal (thanks in part to Portland) but I am not sure how strong an effect it has - it certainly has some.  [By the way, at $2.50 a ride I was not terribly surprised to see half full streetcars at best]

Back in Portland now but ready to go off to Brazil for 6 months - not sure how this will impact the blog exactly, but it has been hard to keep it up during this period.  I hope I can chime in on Oregon topics from afar and post occasionally about Brazil.

Fred Thompson on Gun Policy

Note: Fred Thompson returns with this guest post about gun policy.

Daniel Patrick Moynihan, 1993

Guns are very effective for their purpose, killing. Even if there were no guns in America, we would still be a relatively violent society, but that violence would have much less effect. When a crazy guy assaulted school kids in Osaka a few years back, he used a knife. The death toll was 6, 13 injured. This is the worst such rampage in Japanese history, where guns are outlawed, although it would hardly be a blip on the screen in the US. Getting rid of guns entirely would probably save 10-20,000 lives and prevent at least 50,000 injuries a year. Using standard QALY (quality-adjusted life years) values, that’s at least $100 billion a year, $330 for every gun in the United States (or, in the alternative >$100 per bullet sold).

Getting rid of guns isn’t a feasible option. Instead, what is needed are policies and practices that would work to minimize the harms done by guns and, at the same time, respect the interests of folks who want to own guns and use them for legitimate purposes and the guarantees evidently afforded those interests by the Bill of Rights.

What are those legitimate purposes? Most Americans agree that self-protection, hunting, and target and skeet shooting are legitimate purposes. There are, perhaps, others as well, gun collecting, for example. Presumably, these uses ought to be subject to the minimum restrictions necessary to mitigate the carnage guns cause.

It would be great if, as a result of last week’s shooting in Connecticut, something were finally done about guns, even better if the steps taken were effective. We ought to look a range of mechanisms to increase the efficacy of personal and product liability, including registration of ownership, regulation of access to guns and ammunition, differential taxes to promote legitimate uses and discourage hazardous ones. We probably ought to look at the steps taken in countries with gun cultures like ours, e.g., Switzerland, that have achieved low murder, suicide, and accidental gun death rates (Switzerland has more households with guns than the US, but fewer deaths from violent injury than countries that have outlawed guns entirely like the UK and Japan). It would even be nice if we could work with the NRA on this issue. People who like guns are likely to understand better how to minimize the bloodshed that they cause at least cost to legitimate values. (Noting the NRA’s first reaction to the Connecticut school shooting, a $100 billion solution to $6 billion problem, one that could easily be entirely ineffective, it would be understandable if this sentiment were regarded as a foolish hope, but its logic is, I think, valid).

If it is granted that what we need is a gun policy that permits ownership and legitimate uses and restricts ownership and use where, in the public interest, they should be restricted, what might that look like? Perhaps, something like the following:

ALL firearms should be registered and licensed in much the same way we license motor vehicles, including proof of ownership and insurance and periodic renewal. Registration must include a permanent record of a firearm’s identity, not merely an identity number but also ballistic records, based upon the marks on bullets and cartridges from test firing the weapon. This would provide a useful tool for law enforcement agents and increase the likelihood that, if a weapon is used in a homicide or other crime, the owner will be apprehended. For new weapons, manufacturers should be required to perform this function as precondition for sale.  For existing weapons, it should be done when the weapon is registered.  License holders should be required to keep firearms that are not in use under lock and key and ammunition in separate locked storage. 

A license to own a firearm should be required to buy ammunition. Reasonable limits on the number of rounds that may be possessed per weapon should be set. For example, one might limit purchases to a dozen rounds for each licensed weapon, with the further requirement that additional purchases would require the return of an equal number of empty casings. Moreover, ammunition should be tagged so that rounds and powder residue can be traced, at least by lot number, to purchasers. This is technically feasible and could be supported by license fees and taxes on the sale of ammunition, perhaps, in the form of a mandatory deposit on each casing. Possession of an otherwise legal, but unlicensed, firearm should be an enforceable misdemeanor, as should failure to comply with the terms of a license. Possession of unlicensed ammunition should be made a felony. (I am not entirely convinced that it is reasonable that the regulatory cost of these policies should be financed by fees and taxes levied on the people who own and use firearms. However, to the extent that this is the case, I would argue that basic principles of sumptuary taxation would suggest that taxes be levied on ammunition rather than guns.)

Shooting clubs and firing ranges should also be licensed and subjected to regulation to insure the proper storage and inventorying of weapons and ammunition and the supervision of onsite shooting. However, they should be permitted to store firearms, including automatic and semi-automatic weapons, and to allow their use and unlimited consumption of ammunition on premises. Ammunition expended in a licensed facility should be tax exempt and, perhaps, even publically subsidized. Such a model is standard practice in Switzerland.

The Swiss have a gun culture as pervasive as ours, but they manage its drawbacks a lot better than we do. About 34 percent of US household have guns; in CH 27 percent of households have privately owned guns, an additional 10-12 percent house weapons owned by the Swiss Army, yet they have 1/12 as many gun deaths (homicides, suicides, and accidents; their overall homicide rate is lower than the UK's).

Consideration should also be given to outlawing private storage and use of semi-automatic and automatic weapons and magazines containing more than five shots. There is not much evidence for the efficacy of such a policy, but it is popular, not very intrusive of legitimate gun uses, and, unlike the case of handguns, all the evidence we have is consistent with a belief in the efficacy of a ban. See The Expiration of The U.S. Assault Weapons Ban Increased Homicides in Mexico and Exporting the Second Amendment: U.S. Assault Weapons and the Homicide Rate in Mexico.

More Guns, More Crime

I, like most folks, was totally horrorstruck by the news last Friday of the school shooting in Connecticut.  Being the father of a first and fifth grader it was especially horrifying.  There were a lot of tears and grief stricken faces at the school pick-up that day among the parents.  The kids, fortunately, were blissfully unaware. 

There has been a lot of gun violence lately that has made the news, but we often forget just how much gun violence goes on day to day in the US.  I don't know the precise policy response but I am convinced by one thing: the evidence is pretty convincing that more guns leads to more gun violence.  The one really stupid response to these tragedies would be to call for even more guns: let's arm everyone because that will make us safer! 

And so of course the NRA today does exactly that and has come out with a statement that essentially says the answer to the problem of gun violence is ... wait for it ... more guns!  I know I am venturing into dangerous ground here criticizing the NRA but this is truly stupid.  Do we really want kids to grow up knowing armed guards are necessary to protect their safety?  And the same folks who are calling for armed police in schools are likely the same ones who will complain loudest when taxes have to be raised to pay for it.  

And, by the way, any argument that the Newtown tragedy would have happened independent of guns is absurd, so let's just not even go there. But this is an economics blog and the point of this post is to point to the evidence.

Here is an excerpt from an old blog post:

One thing we can't do is look at correlations: the fact that gun ownership and crime are positively correlated tells us nothing about the causal link.  So what economist Mark Duggan did, in his groundbreaking paper "More Guns, More Crime" was to find something that is correlated with gun ownership, but uncorrelated with unexplained variation in crime.  In his case he looks at subscriptions to gun magazines.  This is plausibly correlated with gun ownership and unrelated to unexplained variation in homicide rates.  Using these data to instrument for gun ownership he finds that gun ownership is significantly positively related to the homicide rate - almost exclusively related to homicides committed with a gun.  Ayres and Donohue have also examined the evidence on concealed weapons laws and found that the evidence is mixed, but the bulk of the evidence suggests that, if anything, concealed carry laws increase the incidence of crimes. 

In my mind there are two arguments, both a flawed: one is that regardless of guns crazy people will find a way to  kill.  This ignores the fact that crazy homicidal people are an order of magnitude more lethal with guns.  The other is that if there are more guns around people will know it and be deterred.  But the crazy homicidal person is ready to die anyway and is crazy, meaning rational calculations do not figure in.  

Though policy should not be based in anecdote, the Newtown tragedy was all about guns.  No guns, no tragedy.

Economist's Notebook: Subsidizing Pro Sports

There is almost nothing that gets people more inflamed than the sweetheart deals pro sports owners (typically multi-millionaires and billionaires) get to construct new stadiums and renovate old ones.  I totally get the populist angst, why should the public support these dudes?  But I am confused by the belligerence and outrage caused by the insinuation that sports owners are somehow evil wizards that have been able to enchant us and defraud us.

To me there are two glaringly obvious problems with this hysteria.  The first is kind of obvious: these are public performance places no different than the theaters and auditoriums that cities typically subsidize, why?, because people enjoy them and ticket sales alone are not enough to finance their existence.  Even though I have yet not gone to a performance at Portland Center Stage, I am glad the Armory theater exists and plan on seeing a performance there in the future so I am willing to help subsidize it.

But operas, theater companies, orchestras and ballets are typically non-profits so that makes it all OK, plus they are 'art' and worth subsidizing go the typical arguments.  I think this is a bit arrogant and it brings me to the second, larger, point: the fact that so much public money has gone into spots venues is not a demonstration of evil wizardry as much as it is a reveled preference.  People like live sports as entertainment, they value sports teams in their communities and they are willing to help support their existence.  What is interesting to this economic naturalist is that it appears that even if you only watch them on TV people value the existence of team in their communities - they want to support 'our' team.

Arguing otherwise is silly, in my opinion.  The market has spoken.  We readily accept this when we are talking about the Pontiac Aztek (or Pontiac for that matter) but refuse to accept it because among the beneficiaries are very rich people.  So we have to construct narratives that speak to some dark magic that somehow has made us all irrational.  You may not like the fact that these things matter to people and you may wish, as I do, that there would be the same amount of emotional appeal for education, for example, but it is what it is.

I am not in any way endorsing this, by the way, just making the obvious point that the fact that so much public money has gone into these project seems pretty good evidence that they are valuable to their communities.

Guest Post: Make Nike Happy, but Fix the Department of Revenue

It is a great pleasure to welcome back Fred Thompson of Willamette University with this guest post on the Nike deal.  I have been simply too busy to do this blog and many recent Oregon policy topics (like this one) justice so Fred's contribution is both timely and very welcome.

Governor Kitzhaber has called the state legislature into special session to give him the authority to make special guarantees to big employers to stabilize their tax structures for specified periods.

This proposal is addressed to an arcane aspect of corporate income-tax policy called apportionment. Apportionment determines how much of a multi-state business’s income is subject to in-state taxation. Most states apportion corporate tax liabilities on three factors: in-state revenue, employment, and assets. For example, if a business earned 5 percent of its revenue, employed 25 percent of its payroll and located 45 percent of its investment in plant and equipment in Oregon, 21 percent of its total income would be subject to Oregon taxes. Recently Oregon changed its corporate tax structure to apportion it on a single factor: revenue. In the example I just cited, only 5 percent of the business’s income would be subject to in-state taxes. The reason Oregon abandoned three-factor apportionment is that it taxes and, thereby, discourages two things that we want to promote: employment and productive investment.

How is single-factor apportionment working for us? Evidently, fairly well. Since Oregon moved to single-factor apportionment, it has outperformed nearly every other state. In fact, only North Dakota’s inflation-adjusted gross state product (GSP) increased faster than Oregon’s during this period. Moreover, Oregon has gone from a middling state in manufacturing to number one, measured in terms of the rate of growth in manufacturing plant and equipment and as a share of value-added GSP. I cannot say that the shift to single-factor apportionment caused these changes, but it certainly didn’t hurt.

Single-factor apportionment has one important drawback. It is associated with greatly reduced corporate income-tax collections – typically on the order of fifteen to forty percent; the higher the tax rate, the bigger the drop. The reason is simple. Single-factor apportionment makes it easy for businesses to bamboozle state tax collectors. One doesn’t have to be very sharp to count employees or buildings. Accurately measuring revenue, especially where businesses hire legions of accountants and lawyers to minimize their tax liabilities, is tough. As a result, although in theory moving from three-factor to single-factor apportionment ought to be revenue neutral, in practice it is not. Consequently, public employee unions, education activists and other groups are pushing to restore three-factor apportionment. This agitation has made Nike and other big employers nervous. Governor Kitzhaber wants to reassure them that they won’t be punished for locating in Oregon.

On balance I think the Governor’s proposal has a lot of merit. But it has two big flaws. The first is that it is discretionary. That means that the Governor would have the authority to make the best possible deal for the people of Oregon. It also means that he would have the authority to make the best possible deal for himself or his party. There is a reason why we prefer our tax rules to be universal and transparent; this proposal violates those reasons. This flaw is easily fixed.

Second, the shift to single-factor apportionment should have been accompanied by an upgrade of tax administration. Most observers believe that Oregon could increase tax payments $450 million a year through better enforcement of the tax code, a fourth of which is due to avoidable underreporting of business income. The state doesn’t have to make reporting requirements more onerous or interactions with taxpayers nastier to collect these taxes. It has the data it needs. What it lacks is the information technology and the sophistication to use that data effectively. For fifteen years upgrading the Department of Revenue’s systems and procedures has been placed on the back burner. It is ironic that the same day the governor asked for authority to reassure employers about its tax policy, it was announced that modernization of the Department of Revenue’s information systems had been deleted once more from the Governor’s budget.

Give the Governor and Nike what they want, but the real priority ought to be upgrading the state’s tax administration. The policy and administration issues are directly linked. Unfortunately, this governor seems more interested in policy than administration. It took him over a year to appoint a successor to Elizabeth Harchenko after she retired as director of the Department of Revenue.

Picture of the Day: Slow Going

From Catherine Rampell of The New York Times.

Soccernomics: Growing Grass in Winter

Grow lights at Arsenal

On the day the US unemployment numbers are released, I choose to blog frivolously because I just cannot be moved to again write - recovery, happening but painfully slow.  Then of course I move on to remind folks that the situation in Europe remains painfully dire and so on.  [Actually as an aside, the ongoing crisis in Europe gets lots of press in Brazil, unlike the US where it is of passing interest to the MSM - it shouldn't be]

So let's move on to far less serious things.  I see with some delight that the Timbers have already widened their field to 74 yards.  They are now 74 by 110.  Much better than before but they could use another 5 years in length as well.  When the whole MLS Timbers things was getting underway I worried about the prospect of watching ugly soccer played on a too-small plastic field.  And while I am a season ticket holder and loyal supporter it is very hard for me to recall beautifully-worked goals at Jeld-Wen, most goals come of set plays or sloppy rebounds or, every so often a bit of magic like Nagbe's goal of the season two seasons ago.  In fact most of what I worried about came to pas: despite the ignorant rantings of the Timbers front office the play on the field was sloppy and unattractive.

So now the Timbers are starting to get it (a couple of years too late, but better late than never) and have widened their field.  I am happy with this because, given the rabid fan base (and kudos for having an 96% renewal rate in season tickets), they could very easily not do anything at all to make the on field product better.  So if nothing else good happens, it seems incoming coach Caleb Porter has already affected a positive change.

But if a bigger field is better, it is still plastic.  It is a damn good plastic field to be sure, but no matter how good plastic is, it is not close to grass.  In one of the open houses I attended during the final phase of the construction of Jeld-Wen a statement was made that grass was out of the question as the MAC club blocks the sun for a good part of the year and as such the grass would never grow properly in the north end.  Fortunately, there is now a solution for that and one which is now in use across Europe and even in US soccer and football stadiums: Stadium Grow Lighting.  The Green Bay Packers use it, as do the NY Red Bulls.

Now, there are nights when any grass field is going to have trouble keeping up with the rain in Portland, even with hybrid grass and sophisticated active drainage systems, but nevertheless eventually grass has to happen and the only real excuse left is cost.  But with 15,000+ season ticket holders becoming more and more sophisticated soccer fans, both the financial resources are there and the future demand for a better version of soccer to watch.  Plus you get the added benefit of staging international matches and friendlies with bigger clubs that will not come and play on turf (witness the Sounders hosting of clubs like Chelsea and spending $1 million on a temporary pitch that makes the soccer even worse).

Paulson has said that they will continue to look at grass within the constraints of the usage of the stadium and evolving grass technology.  I think the technology is getting better and I hope that within the next 5 or so years we might see the Timbers make the switch.  

You can begin the debate about the environmental impact of artificial turf versus grass for which you have to apply lots of energy in the form of artificial light...