Newsflash: Trump is wrong about undocumented workers

Donald Trump launched his Presidential campaign in June 2015 with the insult heard ’round the world:

When Mexico sends its people, they’re not sending their best. They’re not sending you. They’re not sending you. They’re sending people that have lots of problems, and they’re bringing those problems with us. They’re bringing drugs. They’re bringing crime. They’re rapists. And some, I assume, are good people.

Trump missed the biggest stereotype of all—undocumented workers work and they work a lot.

Research published by the National Bureau of Economic Research finds that undocumented workers tend to work more hours in a year than native born workers. On top of that, undocumented workers work longer hours at every wage level, according the to studies author, George Borjas:

This finding is consistent with a frequent conjecture that is made about undocumented immigration— that “undocumented immigrant men come to the United States to work.” It is clear that the data strongly support this conjecture. Undocumented immigrant men … work regardless of the surrounding economic conditions.

Just look at this graph adapted from the study (I overlayed two graphs, added some color, flipped the axes). It shows native born men (the red) can’t be bothered to work at low wages. At $5 an hour, the average native born man would work less than 20 hours a week. In contrast undocumented men work an average of 30 hours a week at $5 an hour.

To get native born men up to 30 hours a week, the wage needs to be more than $8.00 an hour. Yet, at $8.00 a hour, undocumented men work and average of 30 hours a week.

Looks like Trump is wrong on this one. Research shows that undocumented men come to the U.S. to work.

Labor-Supply-of-Undocumented-Immigrants-Borjas-2016
The scatter diagrams show the relation between the average annual hours worked (including non-workers) and the hourly wage of a particular age-education-year group, using the 1994-2014 CPS-ASEC files.

 

New study concludes: There are few things as expensive as free federal money

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Please download and read the new study: Impact of Federal Transfers on State and Local Own Source Spending.

“Free is a very good price” announced the 1980s pitchman for a local appliance store known for it’s buy-one-get-one offers. But, like most things in life, the BOGO offers had some hitches (Like you had to spend $399[!] on a 19-inch color TV in order to get a 12-inch black-and-white TV for “free”).

Regardless, almost 35 years later, “free is a very good price” is part of the Portland lexicon. But, Portland’s not alone. Throughout the U.S., state and local officials pick up the bullhorn and shout “free is a very good price” when the federal government dangles dollars in front of their faces.

We see this play out across the U.S. States that cannot afford their existing Medicaid programs have expanded coverage under the Affordable Care Act, thanks to the promise that federal funds will pay for a huge portion of the additional costs of coverage. Cities are building slow moving streetcar systems because federal dollars will cover half of the construction costs.

What’s often missed is a simple fact: Federal money isn’t free.

Money “from the feds” is money from those who pay taxes to the feds. Those people and businesses are in every state. If the feds didn’t take those tax dollars, you’d have those dollars in your pocket or your bank account. Sending the dollars to Washington, D.C. only to have D.C. send back a fraction of those dollars doesn’t make you richer, it most likely makes you poorer.

There’s another way in which federal money isn’t free. Nearly every single dollar sent to state and local governments comes with strings attached.

Research I just completed finds that each additional dollar of federal money sent to the states is associated with an average increase of 82 cents in new state and local taxes. Across all states, a hypothetical 10 percent increase in federal grants state and local governments would be associated with with approximately $50 billion in additional increased state and local taxes, charges, or other revenue sources, amounting to an additional government burden of $158 per person.

How does federal funding increase the state and local tax burden? The U.S. Government Accountability Office identifies two ways that strings attached to federal grants can increase state spending: (1) matching fund requirements, and (2) maintenance of effort requirements.

Many federal grants require state and local governments to match federal funding with their own spending in order to receive the federal dollars. This allows bad public policy to masquerade as good policy, simply because it appears to be cheaper than superior alternatives. Much like coupons try to entice consumers to buy something they don’t need, federal matching funds entice state and local governments to pursue projects that they don’t need or can’t afford. By drawing limited state tax dollars toward the priorities of D.C., these matching requirements put pressure on state and local policymakers to raise taxes and fees in order to fund existing priorities.

Of course, these federally-funded policies often fail to deliver on their promises, but that isn’t something D.C. tends to concern itself with. For example, the Feds will supply matching funds to build a project, but often leave the costs of operating the project to the state and local governments. For example, federal funds help build the Portland, Oregon streetcar, but nothing to operate it. Today, Portland’s streetcar operations run at a deficit of $4.5 million a year—and growing. That deficit is filled by diverting the city’s money from much needed road repairs and maintenance. To fill that hole, Portland is proposing a citywide 4-cents-a-gallon gas tax. Without the federal funds, Portland wouldn’t have a streetcar, which means it would have millions more dollars for road repairs and maintenance, which means it wouldn’t need millions in new taxes to fund road repairs and maintenance. Who would have thought that free federal money could be so expensive?

The GAO also points out that, in addition to matching funds, state and local governments are sometimes required to maintain spending in the future as a condition of receiving federal grants. For example, the federal stimulus package passed in the wake of the Great Recession required states to provide a minimum state appropriation to higher education. States failing to maintain higher education spending at pre-recession levels would jeopardize a large chunk of their earmarked stimulus money.

For example, a publication from the American Association of University Professors looked at state higher education spending data and found that the threatened loss of federal funds was a key driver of the higher education budget for many states. Spurred on by the pressure of federal money, states spent more on higher education than they otherwise would have in the face of a recession and shrinking state budgets. Some were forced to increase taxes. AAUP notes that it is no coincidence that Oregon set its higher education funding at almost precisely the cutoff amount necessary to avoid the threatened cuts. It is also no coincidence that the state passed the largest income tax increase in Oregon history during the time the federal stimulus program was in action.

Milton Friedman once said “Nothing is so permanent as a temporary government program.” The first annual cash grant to states was made under the Hatch Act of 1887. More than 125 years later, the Hatch Act is still in effect—distributing tens of millions of dollars to states every year (and requiring a dollar-for-dollar match from states receiving federal money).

Perhaps knowing that federal funding translates into pressure to raise state and local taxes, those in elected office will take the long view and reject the empty promises of “free” federal dollars. One can only hope for such leadership and vision from our elected officials.

Next time your local politician/policy wonk/whatever dangles federal dollars in front of you and says “free is a very good price.” Remind him or her of some other wisdom from the ages:

  • “If it sounds too good to be true, it probably is,” or
  • “There’s no such thing as a free lunch,” or
  • “You can’t get something for nothing.”

Or how about a new phrase: “There are few things as expensive as free federal money.”

For more information, please download and read the new study: Impact of Federal Transfers on State and Local Own Source Spending.

 

Obamacare 2016: Where even a Ph.D. economist cannot get a good deal on health insurance

As the calendar flips to November, the Halloween decorations go back to the garage and the Thanksgiving decorations come out.

Now, there is a new special day in between that takes a piece of both holidays.

November 1 is the day that the new Obamacare health insurance plans are unwrapped. In a tribute to Halloween, the premiums are quite scary. In anticipation of Thanksgiving, most of the plans are turkeys.

The Healthcare.gov website is still clunky. When I looked this morning, I could not log on, but I could look at plans.

The website said that 87 plans were available in my state (Oregon), but the site showed only 80 plans. Go figure.

The site lets you sort by premium or deductible, but shows only 10 plans per page. That makes it difficult to see what is “best” and what is “worst.”

Of course that drives us at Econ Minute crazy. All that money, and they still can’t do a nice visualization of all the plans. Ugh!

So, in two hours, Econ Minute has accomplished something the mighty federal government could not do with three years and hundreds of millions of dollars (and Oregon couldn’t do at all).

The graph below shows the Obamacare plans available in Oregon for me and my wife together, a couple in their mid-40s.

Oregon-Obamacare-Exchange-Deductible

Some things really pop out once the data is plotted:

  • There is a wide range in premiums. From $764 a month to $1,824 a month, or $9,168 a year to $21,888 a year. By way of comparison, you can buy a new 2016 Nissan Versa for less than $12,000.
  • Lower deductibles mean higher premiums, and vice versa. On average, a $1,000 decrease in deductible is associated with a $30 increase in the monthly premium.
  • Some plans are real stinkers. PacificSource has some of the worst plans in Oregon.  PacificSource’s Standard Gold plan is a whopping $600 a month more than a Providence gold plan with the same deductible. A plan is bad if:
    • Other plans have lower premiums for the same level of deductible, and/or
    • Other plans have lower deductibles for the same premium price.
  • Even the cheapest plans are darn expensive and kinda suck. The cheapest “best” plan in the graph above costs $772 a month, has a $10,000 deductible, and it covers just about … nothing:
    • Primary doctor: $60 Copay after deductible
    • Specialist doctor: $100 Copay after deductible
    • Emergency room care: 50% Coinsurance after deductible
    • Generic drugs: $20 Copay after deductible

The marketing folks like to make a big deal out of the whole “maximum out-of-pocket” thing.

For most people that is meaningless. To the insurers its seems to be meaningless. The graph below shows that there is almost no relationship between maximum out-of-pocket and a plan’s premium.

Oregon-Obamacare-Exchange-OutofPocket

What about the penalties for no health insurance?

In 2016, the penalties for not being insured really kick in. Nevertheless, for all but the highest income Oregonians, the penalty is still substantially less than the cost of Obamacare insurance.

Taxes, more taxes, and … “recreational” marijuana

With the ink barely dry on Oregon’s costly Low Carbon Fuel Standard law, Portland city commissioner Steve Novick bets than a 10-cents-a-gallon gas tax will be his ticket to re-election. Along the way, Ann asks the question: What if we can say how our tax dollars are spent?

We wrap with the one “sin” that’s not subject to a “sin tax.” That’s right, “recreational” marijuana in Oregon is not taxed. Who will be the first politician to come out of the ganja closet?

Here’s how you can hear more:

  • Listen on Podbean, the podcasting platform.
  • The podcast is now available on iTunes. Please subscribe to make the most of your weekly Econ Minute.

For blogging on the Portland City Council scene, check out TuesdayMemo.

For a minute or so of economics, read the EconMinute blog.

On Demand newsletter for October 2015


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Three takeaways from the Fed’s forecast

The print version of the Wall Street Journal provides a graphic showing that Fed policy makers have reduced key economic forecasts during their latest meeting in which the decided not to raise interest rates.

Three takeaways from the graphic:

  1. Growth is expected to slow over the next few years. After taking out inflation, the economy is expected to grow at roughly 2 percent a year.
  2. Inflation is expected to increase to 2 percent a year. Adding inflation to the real rate of GDP increases, yields an economic growth of 4 percent a year, but half of the growth is from rising prices rather than increasing output.
  3. The Fed expects growth to be lower than it projected in June, but is projecting higher employment. Expect to see reports of declining labor productivity, which may tap down wage pressure.

TuesdayMemo/EconMinute podcast: Win-win

“Win-win” is the topic for this week’s podcast because it’s “game on” for Portland’s election season.

  • Oregon state treasurer Ted Wheeler enters the Portland mayor’s race, facing off against incumbent Charlie Hales. The candidates are virtual twins: both are former Republicans turned Democrats, each trying the show that he is the most serious progressive candidate (or the most progressive serious candidate). What is the one issue on which they differ?
  • A majority of city council is up for grabs. Where are all the candidates? Where are Portland’s Trumps and Sanders?
  • Mayor Hales has a plan to make housing more affordable … by making it more expensive.
  • Trees, trees, and more trees. If you thought bikes were a source of city strife, try cutting down some 100 year old trees.

Here’s how you can hear more:

  • Listen on Podbean, the podcasting platform.
  • The podcast is now available on iTunes. Please subscribe to make the most of your weekly Econ Minute.

For blogging on the Portland City Council scene, check out TuesdayMemo.

For a minute or so of economics, read the EconMinute blog.

TuesdayMemo and EconMinute team up for a very Portland podcast

TuesdayMemo and EconMinute team up for a very Portland podcast. We bring together politics, economics, and a dose of common sense into the conversation about what’s happening in Oregon’s biggest city.

This episode, for the first week of August 2015, covers a wide range of topics:

  • Greenpeace vs. Flugtag: The contrast between how officials treat protestors illegally blocking the Willamette River and how they treat those who jump through the hoops to get a permit. For a bonus, we learn what Portland Mayor Charlie Hales was doing while river was shut down.
  • Then we talk about the mayor’s friends in high places. And some of the friends of City Hall.
    Q: How do you know that Charlie Hales has met the Pope or President?
    A: He won’t stop talking about it.
  • We end with a chat about “Ban the Box.” What’s Ban the Box? Listen and find out!

Here’s how you can hear more:

  • Listen on Podbean, the podcasting platform.
  • The podcast is now available on iTunes. Please subscribe to make the most of your weekly Econ Minute.

For blogging on the Portland City Council scene, check out TuesdayMemo.

For a minute or so of economics, read the EconMinute blog.

Growing population, shrinking streets: A very Portland formula for traffic congestion

It’s not an illusion. Portland traffic is getting worse: Longer drive times, more congestion, angrier drivers, and “active transportation” that should be renamed “aggressive transportation.”

And, it’s no accident. It’s all part of the City’s Vision Zero plan for transportation. One consequence of Vision Zero is that while Portland’s population is growing, its street network is shrinking.

Miles go missing on Portland streets

In a Friday afternoon bad news dump, the Portland Bureau of Transportation revealed (PDF) that the city’s streets have deteriorated over the past year (more on that in another post). The miles of unpaved streets and streets in “poor” or “very poor” condition have increased by 3 percent since last year.

But that’s not the big story.

The big story is that since 2010, 77 miles of Portland streets have disappeared.

In 2010, PBOT reported (PDF) the City had 4,907 lane miles of improved streets and 60 miles of unimproved streets, for a total of 4,967 miles of streets.

The most recent PBOT report (PDF), for 2014, shows 4,834 of paved streets and 56 miles of non-paved streets, for a total of 4,890 miles of streets.

Between 2010 and 2014, 77 miles of streets have gone missing. That’s a drop of 1.6 percent.

And it gets worse …

Over that same time period, Portland’s population has grown by 3 percent (that’s about 18,000 more people in the city).

Put those two things together: Portland has gained 18,000 more people and lost 77 miles of streets. That means that for every 230 people Portland gains in population, the city’s street network loses 1 mile.

One would think that the city would increase the capacity of it’s street network in response to a growing population, rather than shrink it. But that’s not the point of Vision Zero.

On the upside, we have made some progress toward explaining why Portland’s traffic congestion worsens by the year: More people, fewer streets.

Oregon’s low carbon fuel standard: Messy policy, bad economics

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The extension of Oregon’s low carbon fuel standard (LCFS) was crammed through in the early days of the 2015 legislative session.

Supporters of the low carbon fuel standard hope that Oregon can free ride off infrastructure already in place in California and British Columbia to reduce the impact at the pump.

Reality is less hopeful: Every aspect of Oregon life will be affected by higher fuel prices that will do nothing to slow, stop, or reverse global warming or climate change.

Even worse, even experts who have spent years studying the low carbon fuel standard have no idea how suppliers and consumers will respond to the LCFS, leading to years of uncertainty.

This is presentation to the Oregon Fuels Association annual meeting in Sunriver, Oregon on July 20, 2015.

Some things in life are free: Learn economics from one of the best

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This summer Stanford will be offering an open online version of John Taylor’s on-campus course Principles of Economics.  Professor is considered one of the most influential economists today and is likely in line for a Nobel prize.

People can find out more and register for the course, Economics 1, on Stanford’s free open on-line platform. The course starts on Monday (June 22). The  first week’s lecture and study materials are now posted.

Basic economics

The course covers all of economics at a basic level. It stresses the key idea that economics is about making purposeful choice with limited resources and about people interacting with other people as they make these choices. Most of those interactions occur in markets, and this course is mainly about markets, including the market for bikes on campus, or labor markets, or capital markets.  The course will show why free competitive markets work well to improve people’s lives and how they have removed millions from people from poverty around the world, with many more, we hope, still to come.

For more information, visit John Taylor’s blog.

Podcast – Hillary Clinton, jobs, Big Bird, and trolls all in one short podcast!

Big issues in this week’s Econ Minute Podcast:

  • Hillary Clinton gets it wrong on the economy jobs connection.
  • Don’t blame Baby Boomers for the shrinking labor force.
  • Does Big Bird make kids smarter? Does Spongebob make them stupid? Some lessons in pop culture and pop science.
  • Are all Internet trolls bad? Can they be a force for good?

All these topics are covered on one short podcast.

The podcast is now available on iTunes. Please subscribe to make the most of your weekly Econ Minute.

Labor force participation and a working age population that won’t work

FRED is the go-to place for a bunch of economic data. A service of the Federal Reserve Bank of St. Louis, the site is easy to use and has a huge amount of data.

FRED also runs a blog that uses its data to answer—or at least address—some of the big data-driven questions of the day.

FRED’s blog is now looking at labor force participation. But, first let’s see why labor force participation is important.

Let’s begin with with unemployment. Unemployment is a simple concept: The number of people who don’t have a job, divided by the number of people in the labor force. The labor force includes those who are working and those who want to work. If you’re looking for a job, then you’re in the labor force. If you aren’t working and aren’t looking for work, then you’re not in the labor force.

  • If you’re retired, you’re not in the labor force because you left the labor force at retirement.
  • Many students are not in the labor force because their studies leave them no time to work.
  • If you look through the want ads searching for a job, you are in the labor force.
  • Once you stop looking through the want ads, you are not in the labor force.

Labor force participation is a big deal. It’s a measure of employment opportunities. If opportunities abound, the labor force grows as people look for income earning opportunities. As people give up on working, labor force participation drops.

FRED notes that while the rate decreased quickly during the previous recession and its recovery, the overall decline in labor force participation began several years before. FRED argues that maybe demographics is the cause. In particular, in the graph below, the proportion of the U.S. population 25 to 54 years of age follows a pattern similar to that of the labor force participation rate over the past 10 years. The 25-54 age group has the highest labor force participation rate. So, the argument goes, if the share of this age group is declining, the total labor force participation rate is likely to decline as well.

Bottom line: One reason why labor force participation has dropped is that a big chunk of the working age population (age 25-54) has shrunk.

OK, but that does not explain the drop in labor force participation among those who are working age, as shown in the figure below. The participation rate has dropped steadily since 2000. If the U.S. had the same labor force participation rate among 25-54 year olds that it had at the beginning of 2000, there would be 3.4 million more people in the labor force.

Bottom line: Aging boomers may explain some of the drop in labor force participation, but the bigger problem is a working age population dropping out of the labor force.

Bad troll, good troll

 

First there’s this story about Putin’s “Troll House,” a secretive group of dozens of online “trolls” based in Russia who propagate lies and misinformation aimed at the U.S., Ukraine, and other supposed enemies of Russia.

For example, last September 11, this “news” broke on Twitter: “A powerful explosion heard miles away happened at a chemical plant in Centerville, La., #ColumbianChemicals.” Another tweet linked to a screenshot purporting to show the story featured on CNN. Another pointed to a YouTube video of ISIS claiming responsibility.

It took two hours for Columbian Chemicals to catch up and put out the truth: There was no explosion and the “news” was fabricated. It took months to figure out that “news” came from the Troll House.

The trolls also take jabs at President Obama. The Guardian provides this example:

Speech balloons read as follows: Hmm, need to think of a password … I’m going to make it “my dick” … Click OK … What? “Error: too short?!”

 

On the one hand, if you put together Putin’s Troll House and the China’s hacking of government servers (the latest hack got personal information on 4 million federal workers, or 1.25 percent of the U.S. population), it’s pretty clear that the cyberwar is on.

On the other hand, Putin’s trolls don’t seem to have any real or lasting impact.

Then there’s this story … Maybe trolling works.

The Sunday Oregonian newspaper recently published the following letter. The letter hit on some major themes that have been frustrating and angering residents and visitors for years: vagrancy, filth, crime, open drug use, and a deteriorating downtown.

 

andre-marcel

 

Turns out, there is no “Andre Marcel.”

The letter was troll. But it was effective—it’s one of the most read and comment-on letters on the Oregonian’s website.

It was effective because it touched a nerve, a nerve that was already exposed. While Andre Marcel is a false name, his letter spoke troubling truths that got a city thinking and talking.

Sesame Street vs. Spongebob: A war over the preschool brain

Boob tube. Idiot box. The vast wasteland. Television has long had a bad reputation for dulling the minds of young and old alike.

Scientists, parents, and politicians have been debating the effects of television for more than half a century. Yet, after fifty-plus years of research, the science still is not settled.

Is some TV good for kids? Is some TV bad?

Research published by the National Bureau of Economic Research calls the PBS children’s TV show Sesame Street, “one of the largest early childhood interventions ever to take place.” The researchers claim that Sesame Street has had positive impacts on childhood development.

The researchers call their results significant. They note that in areas with “weak” TV reception for Sesame Street, about 79.7 percent of children were at the grade level that was appropriate for their age. They estimate that a move to “strong” TV reception for Sesame Street would increase the percent of children at a grade level that is appropriate for their age by 2.9 percentage points to 82.6 percent.

The researchers note that a move from “weak” reception to “strong” represents a 30 percentage point increase in TV coverage. That’s a huge increase. For example, the paper notes that in 1970, the average coverage rate was 69.4 percent (meaning a little more than two-thirds of households could receive a TV signal). So, a 30 point increase would be a huge jump from two-thirds coverage to 100 percent coverage.

While the results may be statistically significant, they do not appear to be economically significant. Even huge increases in Sesame Street coverage are associated with relatively small bumps in kids performing at-grade-level.

Sesame-Street-Education

Education researchers seem to have a tendency to spin their results to generate the buzz that makes up the 24 hour (or less) news cycle. Spongebob Squarepants, of all guys, highlights this tendency.

A few years ago, the well-respected journal Pediatrics published a study claiming that watching only 9 minutes of Spongebob Squarepants will turn pre-school brains into squishy goo.

The Spongebob warriors had group of 60 4-year-olds who were randomly divided into one of three experimental groups.

  • One group watched 9 minutes of the SpongeBob SquarePants,
  • A second group watched 9 minutes of Caillou, a slow-paced cartoon on PBS,
  • The third group sat drawing.

(Curiously, the researchers didn’t allow the kids to watch the full episodes of the shows, so the kids didn’t know how the stories ended. Weird, huh?)

After watching the shows, the children completed four tasks, three of which are designed to measure executive brain function—such as attention, working memory and problem solving—and one which measured the kids ability to delay gratification.

Here’s what the researchers found:

The fast-paced television group did significantly worse on the executive function composite than the drawing group.

The difference between the fast-paced and the educational television groups approached significance, and there was no difference between educational television and drawing.

Compared to the drawing kids, the SpongeBob kids did worse when the researchers measured the executive function results (attention, working memory, and problem solving).

But compared to the Caillou kids, there was no statistical difference between the two groups of kids. There is a difference between “approached significance” and statistical significance. “Approached significance” is how researchers say, “It’s not significant, but I would sure like it to be.”

But, it get’s worse. The Spongebob vigilantes contradict themselves (or at least mischaracterize their findings) only two paragraphs later:

Children in the fast-paced television group scored significantly worse than the others despite being equal in attention at the outset, as indicated by parent report.

Umm. No. They only scored “significantly worse” than the drawing group in three out of four areas. There was no significant difference between the Spongebob kids and the Caillou kids.

Despite the flaws, the Pediatrics editors gave the go ahead and all Hell broke loose. Heck, even the New York Times jumped on it.

In a world where the sciences is never settled, let’s make today’s Word of the Day skepticism.

How bad are Oregon’s public schools? Digging into the Oregonian’s data

Just how bad are Oregon’s public schools? And, if they really are that bad, is more spending the only solution?

The Oregonian has dug deep into data on state spending on schools and student performance. The Oregonian researchers conclude that the state’s schools produce results that rank in the bottom third nationally, partly because Oregon lags far behind the national average in classroom spending.

In an act of total classiness, the Oregonian researchers have made their data easily available as an Excel file for anyone to use.

We at Econ Minute took way more than a minute to dig into the Oregonian’s analysis. We found some things that may radically change what you thought you knew about school spending and performance in Oregon. (And we don’t even talk about PERS.) All the graphs are available for download as PDF.

  • Oregon’s spending on education is dampened by the state’s relatively low income;
  • Oregon’s performance on reading and math are close to what would be expected for the state’s level of spending;
  • Oregon’s failure to graduate students out of high school is a big mystery to just about everyone; and
  • More spending provides little bang for the buck—huge increases in spending are associated with relatively modest improvements in performance.

First things first … State rankings can be misleading for two reasons:

  1. State rankings do not account for size differences among states. With state rankings, a small state like Delaware is given the same weight as a huge state like California. Oregon may be ranked toward the bottom of states in spending per student, but with respect to the number of students enrolled, Oregon is right in the middle.
  2. Rankings tend to distort small differences between states. For example, Washington spends $345 more per student than Georgia—a difference of only 3.5 percent—but Washington is ranked 7 places higher than Georgia in state spending per student. The difference in spending between Oregon and Washington is tiny, but Washington is ranked four places higher than Oregon.

Let’s adjust this …

The first thing that pops out of the Oregonian’s analysis is that per-student spending is “adjusted” for differences in cost of living across states. The concept of a state level cost of living is a bit odd. Even areas within the Portland metropolitan area have widely different cost of living indexes. The adjustment for state cost of living seems a bit bogus, but that’s a fight for another day. So let’s see what the data say …

The figure below shows the relationship between the state cost of living index and spending per student. There’s a pretty clear trend: A higher cost of living is associated with greater spending per student. Three observations:

  1. The trend line has a pretty good fit with the data. The R-squared of 0.63 says that variations in cost of living index explain 63 percent of the variation in spending per student. Enjoy that 0.63, you won’t see it again …
  2. The trend line suggests an elasticity of a little more than 2. In other words, a 10 percent higher cost of living is associated with 20 percent more spending per student, if cost of living was the sole determinant of spending per student. (Note to self: Put this on the econometrics exam on potential specification error.)
  3. Oregon (the red square) is below the trend line. In other words, Oregon spends less than expected if cost of living was the sole determinant of spending per student. That’s what the Oregonian researchers concluded also.

 

01-Cost-Spending-Oregonian-Education-EconMinute

 

Oregon is a funny state. Oregon has a higher cost of living: 6.4 percent higher than the U.S. as a whole. But, we also have lower per capita personal income: 11.2 percent lower than the U.S. average.

The figure below shows that Oregon’s cost of living is substantially greater than other states with similar incomes. If per capita personal income was the sole determinant of cost of living, Oregon’s cost of living would be 10 percent lower. More generally, Oregonians earn less and pay more.

 

03-Income-Cost-Oregonian-Education-EconMinute

 

On the one hand, Oregon’s higher cost of living would point to more spending per student. But, Oregon’s lower income would point to less spending per student, because the money simply isn’t there. For people who like big words, countervailing factors is the word.

The figure below shows the relationship between  state per capita personal income and spending per student. There’s a pretty clear trend: Lower income are associated with less spending per student and higher incomes are associated with more spending. Three observations:

  1. As with cost of living, the trend line has a pretty good fit with the data. The R-squared of 0.54 says that variations in per capita personal income explain 54 percent of the variation in spending per student.
  2. The trendline suggests an elasticity of a 1.5 to 1.7. In other words, a 10 percent more in per capita personal income is associated with 15-17 percent more spending per student.
  3. Oregon (the red square) is right on the trendline. In other words, Oregon spends exactly what would be expected if per capita personal income was the sole determinant of spending per student.

Bottom line: Oregon’s ability to spend on education is limited by its relatively weak incomes.

 

02-Income-Spending-Oregonian-Education-EconMinute

 

We said that that fight over cost of living adjustments is a fight for another day. Today’s not that day, so let’s dig into the data using the cost of living adjusted spending that the Oregonian researchers used.

Graduation rates

The figure below shows that there is virtually no relationship between current expenditures per student and graduation rates.

Remember when we said to enjoy that R-squared of 0.63. Yeah. Those days are gone. The R-squared on the trend line for the spending-graduation relationship is 0.03. You’d do better trying to throw a dart at the chart.

Even so, Oregon is distinctively bad. That big red box sticks out like a big sore thumb.

Here’s some trivia: The Oregonian data reports that Oregon’s current graduation rate is 72 percent (along with Georgia), or 9 points lower than the U.S. graduation rate of 81 percent. In 1986, Oregon’s graduation rate was 74.1 percent, slightly higher than the U.S. rate of 71.5 percent. Over time, while the national graduation rate improved, Oregon’s rate got worse. Go figure.

 

04-Graduation-Rate-Oregonian-Education-EconMinute

 

Math

The figures below show that there is a slight positive relationship between current expenditures per student and math performance, measured by percent of students who are “proficient” and  eighth grade math test scores.

Check out Oregon’s big red box. For both fourth grade and eighth grade, Oregon is right on the trendline. In other words, Oregon is performing almost exactly as expected in math for the state’s level of spending per student.

Also, check out how flat those trendlines are. That means that even huge increases in spending are associated with relatively modest increases in math performance. There’s just not that much bang for the buck on math.

 

05-4th-Grade-Math-Oregonian-Education-EconMinute

 

 

06-8th-Grade-Math-Oregonian-Education-EconMinute

 

Reading

The figures below shows that there’s virtually no relationship between current expenditures per student and fourth grade reading “proficiency,” but a small positive relationship with respect to eighth grade reading test scores.

Check out Oregon’s big red box. In fourth grade, Oregon is performing as expected (or ever-so-slightly better) given the state’s level of spending per student. Eighth grade test scores are noticeably higher than expected.

The scaling in the charts distort how flat the trendlines are. As with math, even huge increases in spending are associated with relatively modest increases in reading performance. Again, there’s just not that much bang for the buck.

 

07-4th-Grade-Reading-Oregonian-Education-EconMinute

 

 

08-8th-Grade-Reading-Oregonian-Education-EconMinute

 

Composite

The Oregonian researchers have a measure that combines graduation rates, math, and reading into a single number. Then, they calculate that score in to a percent over or under the U.S. average. It’s very clunky and mostly bogus, but that won’t stop us from using it.

The figure below plots relationship between this measure and spending per student as a share of the U.S. average spending per student.

In a perfect would, one would expect a 1-to-1 relationship: Bigger spending, better performance. That is, one could argue a state that spends 20 percent more than the U.S. average should perform 20 percent better than the U.S. average on the combined performance measure.

Not so. The figure shows that the there really is no significant variation. Part of this because of the the way the measure is calculated.

One note on Oregon: The state seems to be dragged down on this measure by its abysmal graduate rate.

 

09-Composite-Oregonian-Education-EconMinute

 

We have also run these graphs using spending as a share of state personal income. The qualitative results are roughly the same. All the graphs are available for download as PDF.

DASM at CenturyLink: Door-to-door sales in a digital era, then things really go downhill

As a consultant, I’m a collector of DASM moments. Today’s DASM moment is brought to you by CenturyLink.

For those of us who work at home, one of the single biggest annoyances is the unannounced drop-in visitor. And the biggest of the biggest annoyances is the drop-in visitor trying to sell something. And the worst of these might be “Mitch” from the hated-telephone-monopolist-turned-broadband-provider now known as CenturyLink.

But first some background …

A year or so ago, as noted elsewhere on Econ Minute, Google Fiber made some noise about coming to our city.

That caused the cable company, Comcast/Xfinity/Whatever, to boost broadband speeds while simultaneously engaging in customer service tactics that only angered current and former customers.

Not to be outdone, CenturyLink boosted its broadband speeds and sent an army of door-to-door salespeople, like “Mitch,” to get people to sign-up for CenturyLink’s service.

One afternoon, Mitch shows up at my door to pitch CenturyLink’s latest offering. I told him I was busy and to just leave the literature.

Nope. Mitch wouldn’t just leave the literature.

He kept talking and talking and talking.

And talking and talking.

I finally asked how much it would cost to match the same package I’ve got now.

Mitch spouted off a number that sounded pretty close to what I pay now, so I told Mitch to wait outside while I got my current bill.

Five minutes later, I come back and Mitch is sitting in my kitchen with his sign-up sheet filled out.

WTF? Who invited you inside my kitchen, Mitch?

Mitch talked fast … Real fast … He was drawing pictures of fiber loops showing how my neighbors are killing by broadband, the that would never happen with CenturyLink.

“Cheaper … better … how many boxes do you need?”

At the same time, my wife is Googling around and sending me text after text saying, that Mitch is full of … well, let’s just say he was talking real fast.

As I questioned him about pricing, he pulled out this fancy multicolored sheet with options and dollar amounts.

I went to take a picture of his sheet so we could work from the same page. So I can say, “Yeah, I want Disney, but not ESPN, what’s that price?” (Plus, he’s sitting in my kitchen.)

That’s when Mitch changed.

His hand shot across the super secret magical price sheet and said, “I can’t let you take a picture of that.”

[Well excuse me …]

That’s when I said, “Then I think we’re done and you need to leave.”

And he did. Just like that.

Thirty minutes of speed talking, fiber loop pictures, packages and pricing, pricing and packages, and *POOF* Mitch was gone as soon as his secret pricing sheet was seen.

I would love to see what was on that magic pricing sheet. Instead, all I have is a picture of Mitch’s forearm. A hairy forearm.

And that hairy forearm is my memento of DASM at CenturyLink: They’d rather lose a sale than provide a customer with transparent pricing information.

Messaging millennials on the economy: An uphill battle

As college students make plans for graduation (and I make plans to teach a summer session at Portland State University), I am reminded how much the world has changed since I graduated college. The typical graduate this year was born sometime between 1990 and 1993. According to the Beloit College Mindset List, here’s how their worldview is different from mine:

  • MTV never featured music videos.
  • The Simpsons has always been on TV.
  • Microbreweries have always been ubiquitous.
  • There has always been an airline going into, or coming out of, bankruptcy.
  • Stadiums, sporting events, and music tours have always been sponsored.
  • Global warming has always been a crisis.
  • 9/11 is a meme (“jet fuel can’t melt steel beams”), rather than a national tragedy.
  • The Soviet Union never existed and there has only been one Germany.
  • Google has always been a verb, and Milli Vanilli has always had no meaning.
  • They have never used a floppy disk and they don’t know why CC stands for carbon copy.

But, here’s one that the Mindset List has missed:

  • Today’s college graduates do not remember a time that the economy was booming.

The last time the economy was booming with rapid employment and income growth, today’s college grads were early teenagers, watching the first Harry Potter movies while their parents were scandalized by Brokeback Mountain.

Then, as they were getting ready to leave high school and enter college, employment dropped. Their parents may have lost a home or a job.

As they began to see and understand the world around them, they saw recession bordering on depression. They saw job opportunities fade away. And they gained the feeling that the only way to “make it” in the world was in high tech, entertainment—“Apps and Raps”—or high finance. It seemed that success depended less on your skills and what you knew and more on who you knew and how you could game the system.

So, now, the Republican message of making it on your own through smarts and hard work is rejected as cynical when it comes from silver spooners like Mitt Romney. And the Democratic message of income equality is rejected as cynical when it comes from the Clintons who make 10 times more from giving a speech then the average family makes in a year.

And that’s the challenge in promoting economic opportunity through the free market.

Today’s college grads can’t remember a world where hard work, education, and the freedom to make money meeting the market were almost certain to produce prosperity.

The economic booms during the Ronald Reagan and Bill Clinton presidencies are ancient history to today’s young adults.

Older generations may say, “Remember what happened to the economy when we cut taxes and reduced regulations?” They don’t know that airline deregulation gave us cheap plane tickets. They don’t know that trucking deregulation paved the way for next day delivery. They don’t know that railroad deregulation is why we can get fresh produce all year ’round.

Today’s young adults will answer, “No. And we don’t believe you.” They only remember recession and sluggish recovery. They only remember failed solutions like the Stimulus, Cash-for-Clunkers, Recovery Summer, and Quantitative Easing. To them, nothing has worked, which means nothing will work. Only Charlie Brown will come back to the football after it’s been pulled away so many times.

 

Chinese wines are getting better and heading here soon, but what did the military have to do with it?

A few years ago, I did some consulting and testimony regarding a land use matter for a vineyard owner and winemaker. He bought 1,600 acres of wheat land in the Walla Walla Valley American Viticultural Area—home to some of the best red wines in world. He wanted to subdivide the wheat land into 40 acre vineyards that he would sell off. Because of Oregon’s one-of-a-kind land use laws, the process required a major hearing with expert testimony.

As we were touring his existing vineyards, the winemaker told me to keep an eye on China and Chinese wines, because someday they’d be big in the U.S. His thinking went like this:

  • Anywhere you can grow apples, you can grow grapes.
  • In the 1980s, China shrunk its military considerably to free up resources for economic development, nearly 1 million men were rotated out of the military. Because of the one child policy, there was a shortage of potential brides, so the Chinese government determined that these ex-military guys needed gainful employment.
  • Many of the former military men were given agricultural land and trained to run apple orchards.
  • As their agricultural skills improved, apple orchards were converted to vineyards.
  • Winemaking is a natural extension of vineyards, and the Chinese would quickly learn how to make good wines.

Now, it looks like that someday for Chinese wines is almost here.

The Wall Street Journal reports that China now accounts for nearly 11 percent of the land devoted to vineyards in the world, ranking second behind Spain.

On top of that, WSJ says that quality of Chinese wines is improving and have begun to win awards outside China. In addition, French luxury-goods conglomerate LVMH Moët Hennessy Louis Vuitton has built a winery in a place called Shangri-La in the Himalayan foothills that aims to produce China’s best, and probably most expensive, wine. Moët Hennessy, the LVMH unit that makes Dom Pérignon Champagne, already produces sparkling wine in Ningxia, with a bottle selling for $27.

You’ll know when Chinese wines have really hit the U.S. market when you see them on the shelves of Costco or Trader Joe’s.

Podcast – The worst solution to homelessness, Millennials and their parents, and a taste of Chinese wines

 

 

This week’s Econ Minute Podcast spans the globe and crosses generations.

First we have what may be the one of the worst solutions to urban homelessness. Cities across the globe go to great lengths to get their homeless population out from under bridges and away from railroad tracks. Progressive Portland turns that goal on it’s head. The city’s mayor is finalizing a deal to purchase some land under a under a bridge and only few feet away from an active railway line. His goal: Move some of downtown Portland’s homeless population to a place where they are out of sight and out of mind.

Next we follow up on our look at millennials and see how their parents are changing TV programming.

We end with a story of a bold prediction that came true regarding China’s burgeoning wine business.

The podcast is now available on iTunes. Please subscribe to make the most of your weekly Econ Minute.