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.

A very Portland solution to homelessness: Give up

Sometimes you wish some of the things coming out of Portland City Hall were really just a bad Portlandia skit.

Like now, when the mayor’s solution to a downtown homeless camp is buy some land under a bridge where the city will relocate the homeless population. And get this:

  • The bridge is a very Portland bridge. Cars and trucks are not allowed, only mass transit, bikes, and pedestrians.
  • The bridge is called Tilikum Crossing: Bridge of the People. Yes—really—Bridge of the People. The mayor wants to put a homeless camp under the Bridge of the People.

But, it’s not a bad skit, it’s a bad idea. The following is an editorial, co-authored with Ann Sanderson and co-published on the Tuesday Memo blog.

Industrial Zones are No Place to Live

Late last month the Mayor’s office and Commissioner Amanda Fritz proudly announced that they were finalizing a deal with the Oregon Department of Transportation to purchase a half-acre lot near the landing of the new Tilikum Crossing Bridge of the People.  Once the deal is completed, the mayor intends to relocate the Right 2 Dream Too (R2DToo) homeless population, which has been camping illegally on property at the entrance of downtown Portland’s Chinatown.

Fifteen years ago, when Charlie Hales was a city commissioner, a group of homeless men and women set up camp under the west end of the Fremont Bridge. They claimed the space was their “Dignity Village.” The were eventually moved to city owned space seven miles away from downtown. Fifteen years later the temporary camp is now a permanent settlement whose population is now out of sight and out of mind of Portland’s polite society.

Once relocated, Right 2 Dream Too would be deep in the heart of the Central Eastside Industrial District. Walk a quarter mile in most directions and you’ll be walking through industrial zoned land. Except west. If you walk west for a quarter mile, you’ll end up in the Willamette River.

While the Central Eastside Industrial District has changed a lot in the past few years, it has been and remains primarily an active hub for distribution and manufacturing, consistent with its industrial zoning.

The main purpose of zoning laws is to separate incompatible uses. The goal is to limit the impact of negative externalities and spillovers. When we think of incompatible uses and industrial land, we tend to focus on the noise, vibrations, and traffic associated with industrial uses. These noise, vibrations, and traffic disrupt homeowners and renters, so zoning keeps industrial and residential uses separate.

But, the spillovers go the other way, too. For example, increased pedestrian traffic creates a hazard in an active industrial area with heavy trucks and freight trains in action day and night. If people believe that they have a right to unimpeded access to an industrial area 24/7, accidents, including fatal accidents, can be expected to increase.

Last year in Multnomah County alone, 10 people were killed or injured while trespassing on railroad property. The site selected by Mayor Hales and Commissioner Fritz is only a few feet away from an active railway line. Even worse, residents of Right 2 Dream Too would have to cross the railroad tracks order to access the Eastbank Esplanade, Springwater Corridor, or to access a bridge crossing the Willamette River.

After years of industrial use, the land may be contaminated with toxins rendering the space unsuitable for a camping. Residents may have only a sleeping bag between themselves and the potentially contaminated land. Emissions from diesel electric trains and diesel trucks could cause or exacerbate respiratory illnesses in a population that is already subject to opportunistic diseases. What is the city’s long term liability for moving a homeless population to a potentially contaminated site? Will Portland taxpayers foot the bill when someone from Right 2 Dream Too claims that his or her lung cancer or emphysema came from years of living on city property next to the railroad tracks.

However, the real question is not where to put Right 2 Dream Too. The question is why? What went wrong with our city’s approach to it’s at-risk population that homeless camps like Right 2 Dream Too or Dignity Village became the preferred solution?

The city claims Right 2 Dream Too’s move is a temporary solution to a long term problem.  So was Dignity Village. As we’ve already seen after 15 years of Dignity Village, the structures may be temporary, but the camp has lived on for years. A tent city under a bridge is not housing and in no way does it represent an acceptable permanent solution to homelessness.

While immediate services and housing options need to be made available for Portland’s most vulnerable citizens, institutionalizing homeless by shifting residents to city-owned land is an admission of failure: It says “this is the best we can do.”

Portland calls itself The City that Works. We can do better. We must do better.

This post was co-authored with Ann Sanderson and co-published on the Tuesday Memo blog.

MTV learns a Millennial lesson: Parents are OK

A recent Econ Minute Podcast featured a clip from Matt Edlen‘s presentation at the Portland State Center for Real Estate Annual Conference.

One of the more mind blowing revelations (at 9:13 in the podcast) was that the GenY / Millennial generation shares many of the same values as their parents and they and their parents actually like each other. So much so, that many make an effort to live close to their parents.

A weekend feature on Vox re-enforces this point:

A distinctive characteristic of the millennial generation is that we’re closer with our parents. The president of MTV announced in 2013 that the network is overhauling its content because young people today are “not rebelling against their parents at all. They’re moving in with them. They don’t want to leave.” A therapist wrote in The Atlantic a few years ago that she keeps seeing clients who call their parents their best friends.

Too bad no one cares about GenXers anymore …

Confessions of an Uber economist: Politicians and their crazy contradictions on crime and safety

Portland, Oregon is a contradiction wrapped in a mystery inside an enigma.

We are transportation innovators. We began the streetcar revival that has infected cities throughout the US. But, we still can’t pump our own gas—too dangerous, you know.

We have mandatory minimum sentences for certain crimes. But, if certain legislators and city commissioners have their way, it will be illegal for employers to ask job applicants if they’ve been convicted of a crime.

We are a high tech hub—the self-proclaimed home of the Silicon Forest. We bent over backward to get Google Fiber in our city. We even made our own Google Fiber beer. But, until a week or so ago, we couldn’t use the Uber or Lyft ridesharing services, because several city commissioners admitted that they didn’t understand the technology. (And, it’s well known that one commissioner still doesn’t have a smartphone.)

All these contradictions played out in the small space of one week. Last week, in fact.

Monday of last week I applied to be an Uber driver. The first step was to submit my background check. I also had to submit a copy of my driver’s license, my vehicle registration, my insurance information, and my City of Portland business license.

Oh, and I had to get my vehicle inspected to make sure it was safe and that there was no visible damage.

Now the background check is important, or so it seems. In fact, one of Portland’s city commissioners explained her fear of ridesharing by remarking that her mother always told her not to take a ride from a stranger. Yes, she really said that.

The car inspection was a snap. In fact, it took about 30 minutes and Uber paid for it.

The background check happened to be the biggest bottleneck. Turns out that the third party vendor Uber uses has a bit of a backlog from all the people who want to drive.

Nevertheless, just after noon on Friday of that week, I received text message from Uber saying that I was approved. Yes … a text message.

Fifteen minutes later, I picked up my first fare, which I detailed earlier on the Econ Minute blog.

That same day, a community activist and one of my former students was thrown off the Portland Streetcar for complaining that a vent in the streetcar was leaking water and smelled of smoke.

After complaining a few more times, the rider was thrown off the streetcar for making a disturbance and issued a citation.

Streetcar management dismissed the rider’s complaint as a disturbance to the driver and other riders. They explained that the leak was due to the aging car, which gets smoky and leaks when it’s hot outside. But streetcar management said even their smoky leaky cars are safe to ride in.

Keep in mind that the oldest car in the fleet is about 15 years old. (By the way, the average age of the planes used by Southwest Airlines is 19 years.) Also keep in mind that it wasn’t that hot outside. The high that day was 73 degrees. If that’s “hot,” then Portland’s streetcar would be expected to smoke and leak about five months out of the year.

Now let’s get to the contradictions.

We have a city commissioner who is afraid that Uber drivers might commit some sort of violence against their passengers.

At the same time, the city commission and the state legislature are pushing “ban the box” laws that would make it illegal for a business like Uber to ask whether their drivers have ever been convicted of a crime.

We have rules that require all rideshare car to pass a safety inspection. Yet the city runs streetcars that would fail the same sort of inspection to which Uber cars are subjected.

And we have a city in which African Americans complain that they can’t get a cab or get thrown off the streetcar, yet my first two Uber customers were young African American men—both Five Star riders.

And that is this week’s visit to the contradiction wrapped in a mystery inside an enigma that is Portland, Oregon.

Can education pass the economic development smell test?

Economic growth is probably the single most studied topic in economics, dating back at least as far as Adam Smith’s 1776 book, An Inquiry into the Nature and Causes of the Wealth of Nations.

After almost 250 years of study, you’d think we have the answer to what causes the wealth of nations.

But, alas, science is never settled, so economists keep coming up with new answers.

For example, the idea of microlending has been all the rage lately. Especially after Muhammad Yunus was awarded the Nobel Peace Prize for his work in microcredit.

But, does it really matter?

Harvard development professor Lant Pritchett describes a “Eureka!” moment when he realized that maybe micro efforts produce only micro results.

Pritchett was in West Bengal with a World Bank team researching a program that built and financed women’s self-help groups as a means of increasing women’s productivity and incomes. At one point, one of the women asked: “You all are from countries that are much richer and doing much better than our country so your country’s women’s self-help groups must also be much better, tell us how women’s self-help groups work in your country.”

That’s when it hit him:

We all looked at each other blankly as none of us had any idea whether there even were at any time in our countries’ history such a thing as “women’s self-help groups” in our countries (much less government program for promoting them). We also had no idea how to explain that, yes, all of our countries are now developed but no, all of our countries did this without a major role from women’s self-help groups at any time (or if there were a role we development experts were collectively ignorant of it), but yes, women’s self-help groups promote development.

Think about that for a second.

A bunch of First World experts are telling a bunch of women in a Third World country that microlending is a path to economic development. But, the “experts” don’t know of any such lending in their own countries. If the US, UK, Germany, New Zealand, and other “developed” countries advanced so far without microlending, why would anyone expect microlending to be the path to economic growth for developing countries?

Pritchett’s “Ah Hah!” moment led him to develop a four-fold “smell test” for determining what is important to development:

  1. More developed countries must have more X (e.g., natural resources, access to warm water ports, educational attainment) than less developed countries.
  2. The developed countries must have more X than when they were less developed; in other words, they unlocked some potential.
  3. Recent development successes must have more X than development failures.
  4. Countries that are developing rapidly must have more rapid growth of X than those that are developing slowly.

Economist Paul Romer jumped on this observation and applied the “smell test” to urbanization. He concludes that urbanization passes the smell test, meaning that urbanization is important to economic development.

Can education pass the smell test?

Here at Econ Minute, we decided to perform our own “smell test” on education and economic development. We chose education because there is very little debate that greater educational achievement is associated with better economic growth. Because it is relatively uncontroversial, it’s a good test of Pritchett’s Smell Test.

We used data from the World Bank on education and per person gross national income see the relationship between lower secondary education completion and per capita GDP. (Details of the data—including why education completion rates can be greater than 100 percent—are available from the World Bank.)

The first figure (below) shows the education completion rate and gross national income per capita. The figure shows the strong correlation of education completion with GNI per capita.

 

EconMinute-Pritchett-Education-Figure1

 

The second figure (below) is the same as the first, only GNI is on a natural logarithm scale because economists love natural logs. As with the first figure, the figure below shows the strong correlation of education completion with GNI per capita.

 

EconMinute-Pritchett-Education-Figure1-ln

 

The third figure (below) shows one simple way to get at the cross-sectional variation, by looking at only a single year, 2012. That year was chosen because it was the most recent year with many observations. The data suggest that in 2012, more development countries had higher education completion rates than lesser developed countries.

 

EconMinute-Pritchett-Education-Figure2-ln

 

The fourth figure (below) looks at the changes over time. For each country, over the interval 1970 to 2013, it shows the 10-year percentage point change in educational completion and the 10-year percent change in GNI per capita.

As noted in Romer’s post, this kind of relationship measuring changes is less tight than the relationship in levels, but the simple correlation is still positive, and a fitted curve that allows for constant plus a nonlinear relationship suggests that the association between the two is particularly strong for countries that experience a rapid growth in the secondary education completion.

In other words, the figure suggests that countries that have a bigger increase in GNI per capita also tend to have a bigger increase in secondary education completion.

 

EconMinute-Pritchett-Education-Figure4

 

The fifth figure (below) provides an overlay of China’s experience. In contrast to Romer’s analysis, the World Bank data begins in 1990 for China, so we do not have the clear before- and after-reform break. Also note that what appears to be a big jump simply reflects missing data between 1997 and 2007, so what appears to be a big jump is actually a 10 year jump. Nevertheless, increases in China’s GNI per capita have been accompanied by increases in educational completion.

 

EconMinute-Pritchett-Education-China-Figure5

 

At this point, you begin to hear a chorus of voices turn to shouting, “Correlation is not causation!”

And, the chorus is correct. Indeed, one could make a very good argument that improving incomes cause greater educational attainment. As incomes improve, family can afford the time and money it takes to better educate their children. As a country’s national income improves, greater resources can be devoted toward public education.

Nevertheless, this exercise was not meant to end the debate, but really to start a conversation about what matters in economic development and how to measure it.