Monday, March 08, 2010

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The cost of Northstar 

From an email of the Freedom Foundation of Minnesota:
Metro Transit has set a goal of 897,000 riders in 2010. Monthly ridership goals begin at 45,000 in January, climbing to 71,600 in June and ramping up to 102,000 in November. In the first three full months of operation, ridership has averaged around 45,000.

Officials estimate passenger fares will only cover an estimated 21% of Northstar�s $16.8 million 2010 operating budget, requiring taxpayers to subsidize the difference. For every $14 round trip ticket purchased between Big Lake and Minneapolis, taxpayers kick in an operating subsidy of $29.66 per ticket to keep the trains running. Total operating cost per round trip: $43.66, based on Metro Transit�s operating $16.8 million operating budget and projection of 897,000 riders.

Yet the taxpayers� ticket to ride on Northstar is far higher when you take into account the amortized $317 million capital costs - a combination of federal, state, and local funds � that it took to build the line. Using a standard federal government formula, Northstar�s capital costs come to $25.3 million annually.

Thus, the true taxpayer cost of operating Northstar is about $42 million annually: $16.8 million in operating costs and $25.3 million in capital costs.
While I won't quibble the data -- I haven't checked every one of their figures -- let's take it as correct. Let's also assume that some of those 45,000 people are substituting Northstar for their cars. Certainly for some it's greater value than for others, and their benefits should be accounted. And the benefit of less congested roads and less maintenance needed therein should be counted. Do we think this will account for the entire amount? As I often say about cost-benefit analysis: We usually can measure the costs pretty well but we measure the benefits pretty poorly. It will be little more than a SWAG to get the benefits. I do know this press release doesn't get all the benefits written down yet.

I still would argue that if the elasticity of demand for Northstar riding is sufficiently high, we should lower the price of the ticket. Would FFM agree? I'll have to get them on the air some day to find out.

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Saturday, March 06, 2010

The Flying WASPs - Real Feminists 

Today's Wall Street Journal tells the story of WWII's Unsung Women Pilots, The Women Air Force Service Pilots (WASPs). These pilots were real trailblazers, a group of 1,102 female civilians who flew military aircraft under the direction of the US Army Air Forces. From 1942-1944 the WASP ferried aircraft from factories to air bases throughout the United States. One of these great women, Betty (Wall) Strohfus, lives near Faribault, MN.

These feisty fliers contributed much to our air training, safety and defense during WWII yet went unrecognized by the military; they were considered civil servants and were unceremoniously deactivated in December of 1944.

Finally, those grandmothers and great-grandmothers will be recognized for their work. They will meet in Washington, DC to proudly take their place in history among the unsung heroes of WWII on March 10 when they will receive the Congressional Gold Medal in a ceremony that will be held at the US Capitol.

An added bonus: I have heard Betty speak - she is just riveting. The stories will have you holding your sides - her delivery is fantastic. You will be able to hear her stories at the CD 2 Reagan Dinner to be held May 14, in Lakeville, MN. Details will be forthcoming.

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Friday, March 05, 2010

"Not all stimulus spending is created equal" 

I had the pleasure last week to speak on the phone with Kevin Libin, who writes for the National Post in Canada. He added some comments from me to an article (a little old, but very instructive -- sorry, Mr. Libin, I simply missed it till now) on how not all government spending comes with a multiplier. It's a very basic point: You must be spending money on something that will not have money spent on it otherwise, it must come from funds that were going to otherwise lie idle, etc. This part is well done:
The thinking behind stimulus spending comes from economist John Maynard Keynes, who argued that amid rising unemployment, the government might as well bury money underground and let private companies dig it up, if that�s what it takes to create jobs and soften a recessionary shock. But even if you accept the theory, and what Keynes considered the �multiplier effect� of government spending (spending a dollar of government money creates more than one dollar in positive economic effects), not all stimulus spending is created equal, notes University of Alberta economist Bev Dahlby. Given that it costs Ottawa money to borrow the money it�s been spending (the Tories have forgiven themselves for running a predicted $56-billion deficit in the fiscal year just ending, claiming it was imperative to rescuing the economy), some stimulus projects may actually take more out of the economy than they put in. The difficulty, he says, is picking the right projects.

�It�s not a free lunch; you just can�t push money out the door,� Mr. Dahlby says. In a recent paper for the C.D. Howe Institute, Mr. Dahlby calculated benchmarks for how Ottawa should select stimulus projects; anything not delivering sufficient and rapid direct consumptive and productivity results is better left on the shelf.

But with such a wad to spend, in a short time, the government often lacks enough options to park funds properly, which is why we might end up with plainly non-stimulating spending like the IndyCar grant. While a �more measured and slower response� is required in planning spending, Mr. Dahlby says. �The problem with that is that it might mean that, effectively, the timing of the stimulus will be screwed up, because then most of the projects and the money will be coming out in fact when the economy is recovering.�


Mrs. S writes 

For the past few months, I�ve been looking for a job. It�s a long, arduous process, and sometimes I wonder what it would take for someone to hire me. They would have to pay me a salary, Social Security, unemployment insurance and perhaps health coverage and retirement benefits.

Where do they get this money? Because I can make them more profitable, or at least support them in their efforts to become more profitable. And if I can�t do that, no employer would hire me unless they wanted to lose money.

I�m not alone. About 6.3 million Americans have been unemployed for more than six months, up from 2.7 million a year ago. There�s talk of another jobs stimulus bill. But if government creates jobs for me, it needs to pay those things. Where does it get the money to do this?
That's the start of her column today, which may have gotten more notice than the news report on last night's Economic Outlook. Good for her. I don't think it's just because she's married to an economist that she thinks her job prospects depend on potential employers making a profit.

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February unemployment: Obama just says snow 

Obama, touring a small business in Arlington, Va., said that the 36,000 jobs lost last month was "actually better than expected" considering the massive snowstorms that devastated the East Coast.

But the president said the steady number also �shows that the measures we're taking to turn our economy around are having some impact.�
From the Hill. I'm sure he only had time to read the executive summary, but if you read the actual report it includes this:
Major winter storms affected parts of the country during the February reference periods for the establishment and household surveys.

In the establishment survey, the reference period was the pay period including February 12th. In order for severe weather conditions to reduce the estimate of payroll employment, employees have to be off work for an entire pay period and not be paid for the time missed. About half of all workers in the payroll survey have a 2-week, semi-monthly, or monthly pay period. Workers who received pay for any part of the reference pay period, even one hour, are counted in the February payroll employment figures. While some persons may have been off payrolls during the survey reference period, some industries, such as those dealing with cleanup and repair activities, may have added workers.

In the household survey, the reference period was the calendar week of February 7-13. People who miss work for weather-related events are counted as employed whether or not they are paid for the time off.
That says to me that BLS does not think the storm greatly altered the employment data.

Where you would see a real effect of the storm would be on hours worked, but the data has a half-hour decline for construction and not much else. The headline number for private sector hours worked declined by 0.1 hours, with a similar small drop in weekly earnings, even though hourly wages were up three cents.

There are no data on hours worked in the government sector in that report. But Diana Furchgott-Roth of the Hudson Institute notes that those government workers who were unable to work did not lose pay and weren't laid off. So they can't be in this number.

36,000 jobs lost is a bit better than the consensus of 50k, but 14,000 is certainly smaller than the margin of error or the size of the monthly revision. The January number was revised to -26,000 from -20,000, for example.

On the good news/bad news front, the household survey actually showed job gains in February, but also an increase in those that had left the labor force but still wanted a job. The suddenly-fashionable U-6 unemployment rate (including discouraged workers, marginally attached workers and those working part-time that would prefer full-time work) rose to 16.8% from 16.5% in January.

In that context, Obama also promised a zero unemployment rate:
Despite the relatively good news, Obama repeated his pledge that he �will not rest� until every American who wants a job has one.
Good luck with that.


Thursday, March 04, 2010

Bullard at SCSU 

It's been Winter Institute day here today, and I have been caught up in listening to speakers and helping get a workshop started, while thinking about my evening talk. Our first speaker this morning was the return of St. Louis Federal Reserve President Jim Bullard to our campus. Here are his slides and text. A few notes:
Off to finish my duties -- see you tomorrow.

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Wednesday, March 03, 2010

Tell me if you've heard this one before 

An interesting proposal has been brought forward by Representatives Jeb Hensarling, Mike Pence and John Campbell, to limit government's share of GDP to 20%, enshrined as an amendment to our constitution. Since World War II, government spending has averaged about that percentage, but CBO shows this percentage exploding over the next 25 years. If we tried to pay for the spending increase CBO projects, the representatives claim:
...they would have to more than double in order to pay for what will be spent under current law, insuring that future generations simply would not have the freedom and opportunity that Americans currently enjoy. According to CBO, by 2050, individual income tax rates would have to be increased by about 90 percent to finance the spending between then and now. By 2082, tax rates would have to more than double with a potential tax rate on the highest incomes of 88 percent. �Such tax rates would significantly reduce economic activity and would create serious problems with tax avoidance and tax evasion.
This brings me a real sense of deja vu, as many years ago I was a research assistant to Prof. Craig Stubblebine at Claremont Men's College (now Claremont McKenna College.) Stubblebine was part of the early efforts in the late 1970s and early 1980s to get real spending limits on the Congress. (I arrived in Claremont in 1979, and worked with Prof. Stubblebine in 1981-83.) Known as S.J. Res 56 back then, it passed one chamber only to be shot down in the other chamber with much sleight of hand. They tried again later to get the amendment passed by attaching it to the Gramm Rudman Hollings bill, which Gramm at least supported including the constitutional provisions. But it missed a two-thirds passage by a single vote and was not included, and fervor died with passage of GRH.

(I'll note the spending limitation amendment now proposed -- SLA for short -- is not the same as what was tried thirty years ago. A balanced budget amendment was included in it, waivable by a 60% vote in each chamber. Taxes were limited as a share of national income. In some ways, that bill was closer to the Taxpayer Bill of Rights than is SLA, as its authors admit.)

While I doubt this bill will see the light of day in this Congress, the possibility that Republicans could take over the House of Representatives may make SLA a part of that party's platform for the elections. That will be a cheerful thing, but the 2/3 provision for constitutional change may make this not much more than advertising that that party is taking its spending problem more seriously. It's a good start, but it needs to do more to convince voters it has forsworn its past profligacy.

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Budget fun starts soon; questions abound 

The news that the budget deficit has dropped about $200 million starts a new process in the Capitol, giving both the executive and legislative branches some room for maneuver. I don't know that it will be enough. Don't expect much until they get through the unallotment appeal.

OK, that's all the politics I'll do. Here's two more detailed parts of it if you want to get your hands dirty.

There's the ongoing GAMC fight, and the full forecast tries to add some instruction on this issue. If you read the full report, much of the benefit to the budget was foreseeable from a federal program that eases Minnesota's cost of Medicare and Medicaid. You will not get that money next time around, so it will make the 2012-13 deficit look a bit worse. As we knew would be true, unallotment doesn't help you at all with the out-year estimates.
The $2.5 billion in spending reductions made through unallotment do not
become permanent reductions that continue in FY 2012-13. The planning estimates include complete repayment of K-12 school aids deferred in FY 2010-11 ($1.163 billion) and no repayment of the K-12 property tax recognition shift ($564 million). The projections do not include reinstatement of funding for the General Assistance Medical Care (GAMC) program that was line-item vetoed in FY 2011. If continuation of the program at current levels were assumed, an additional $928 million would be required in the 2012-13 biennium.
MMB's report says the entire amount of MinnCare needed to take care of those moved from GAMC is reflected in the budget at p. 53-54. Wonkier types should read that page very carefully. I am not positive this is right, but it makes some statements, like that of Rep. Larry Haws, look like it's working with incomplete information :
The Legislative GAMC solution is more cost-effective and efficient than the Governor�s auto-enrollment plan that will drain the Health Care Access Fund to the point of bankruptcy and exacerbate the state�s budget deficit. Minnesotans can�t afford the Governor�s plan or his veto pen. The clock is ticking and the poorest of the poor and sickest of the sick need us to breathe parliamentary live back into the GAMC solution. I will encourage House leadership to bring people back to the table.
Here's the problem, based on discussion with sources and on documents we can see. One reason this was vetoed was that the Legislature's solution, according to Gov. Pawlenty's veto letter, used $170 million of money that he had already designated to close off the deficit in the current biennium. It also cuts provider reimbursements (at least until the hospital lobby gets around to pressuring for that money in later legislation.) Then there's this $928 million in the budget document. I'm still working on other leads to see if someone can get this explained to me better, but that appears to be an extra billion in deficits over the next three years plus change. The transition to MinnCare appears to add $766 million between current and next biennium, so that's a savings. It looks like two gross figures to me, and the MinnCare one looks smaller. I'm open to being persuaded differently about that, but I think I'm right.

Revenues are a little down from November forecast because, while GDP growth has been adjusted up to 3% from 2.2% for 2010, they've cut just a bit the wage projection. Take a look at this passage from page 38:
Global Insight expects growth in U.S. wages and payroll employment in 2010 to be stronger than they factored into their November baseline forecast, while MMB�s outlook for Minnesota employment and wage growth in 2010 has weakened modestly.
Lower wages drive a lower income tax forecast which makes the deficit larger. Tom Stinson is up here tomorrow for Winter Institute, and I intend to ask him about this sentence to get it clarified. Why would Minnesota's wage growth lag the nation's? I have some ideas why it might be true, but it's not my sentence and I'm not sure I would write something that strong. And they wrote this before data revisions from BLS and DEED came out yesterday. They note that the revisions might change their view. If the answer is at all interesting, I'll tell you Friday.

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Tuesday, March 02, 2010

You want credits with that? 

Via James Taranto, here's a story that should surprise me, but doesn't.
San Francisco high school students, just months out of middle school, can start earning San Francisco State college credit this fall through a ninth-grade ethnic studies course.

At a school board meeting last week, the head of the university's Ethnic Studies program also promised that students would earn up to six college course credits for the high school freshman course - a rare opportunity for a 14-year-old.

The courses will become part of the California State University's Step to College program, which has offered college credit for high school students across the state since 1985. Most of those courses require students to be juniors or seniors.

The program is designed for students who might not otherwise be considering college as an option, said Jacob Perea, dean of the School of Education, who runs the Step to College program at San Francisco State.

"We're not really looking for the 4.4 (grade point average) students," he said. "We're looking for the 2.1 or 2.2 students."

The course is taught as pass/drop -- if you don't look like you'll pass the class, you are withdrawn from the class. I wonder if it appears on the transcript if you are withdrawn?
The ethnic studies course "encourages students to explore specific aspects of identity on personal, interpersonal and institutional levels and provides students with interdisciplinary reading, writing and analytical skills," district officials said in a news release about the expanded pilot program.
The students interviewed here appear to be minority students. My question is whether this class is intended for students of pallor? When you say a class is "designed for students who might not otherwise be considering college as an option," is that somehow a code for trying to draw minority students to university through a head start of six college credits? And the low GPA target is even more bizarre, as if the designers wanted to twit the concept of "the soft bigotry of low expectations." If this story of this teacher-in-training is any indication, I think a 9th grader could figure out how to pass the class:
I went to a neighborhood party last night and talked with a 50-year-old woman who is preparing to reenter the workforce after rearing three children and two step-children. She has always loved English ... and is getting a master�s degree in teaching English so that she can look for a union/government job as a high school English teacher. She is required to take only six classes over one year to get her degree. One required course out of the six is called �diversity�. She is not doing well in the class. �We aren�t learning any specific techniques that could help us teach people of different races or backgrounds. There is only one correct answer to every question posed by the professor and at first I wasn�t giving it. The professor was pigeonholing me as an �old white woman� who couldn�t adapt, but eventually I figured out what was expected and now I�m saying stuff that I don�t believe just so that I can get a good grade in the class.�
If a 50-year-old can figure out what the magic words are to pass a class, I bet the 14-year-old can too.


We'll have to keep score ourselves 

Everyone in the Armenian community that I know was abuzz late last week on word that 60 Minutes would show a segment on the Armenian genocide. The teaser for it had Peter Balakian, whom I've written about before, visiting a mass grave at Deir El Zor. Below is the segment they showed Sunday night:

As I would have expected, my family was ambivalent about the documentary. There is of course joy that our ancestors' history is being told on American TV -- and I don't think we've ever had a prime time showing quite like this, at least in my memory -- and we encourage each other and send this clip to all our friends, Twitter it and Facebook it. But soon comes the pessimism that nothing will happen. I got those letters from my family over the last 36 hours. Last night I sent an answer back to them. I've edited it to share with you, removing references to particular things my parents or aunts said while I think retaining what I wanted to say:

We all seem to believe politicians promise things they don't believe and will not follow through on, yet we believe them when they promise us something we really want. And when they disappoint us -- as they invariably do -- we somehow act surprised. When we want to sound smart we call this cognitive dissonance. But in our private moments, we realize we've just been snookered, that we're the saps. And four years later, we do it all over again. It's just us being human.

Nobody ever won an election for upholding someone ELSE'S history. They don't have skin in the game. The only way this ever happens is to run an Armenian for president, have them win. And won't THAT be a glorious day!

But the last guy wasn't Bushian, and this guy isn't Obamaian. So let's get real. I don't think even Dole would have signed a recognition law. He'd do the same calculation every other president has done, and he'd arrive at the same conclusion. He's the president of the USA, not of Armenia.

The reason the Turkish government will never admit it is, whomever does so will be killed by Islamist fanatics. Their leaders aren't going to die for our history, either. We'll have to do the remembering ourselves and don't trust anyone else to do it for us.

And if you find this email depressing, well, it is and I am.
The reference to Bob Dole is to his long support for the Armenian community after an Armenian doctor, Dr. Hampar Kelikian, healed Dole's broken body after his plane crashed in WW2.

Because we have to keep score ourselves, we continue to have debates about that history that approaches 100 years ago. We have to somehow agree to a panel to decide if our history qualifies as a genocide, as if someone owns that word and decides whether we get to use it. That's the reality that the video won't change. So we'll have to keep our own score.


Monday, March 01, 2010

Guacamole and overhead bins 

This story is hilarious, and it reminds me of something I saw on the airplane last week. After years of faithfulness to Northwest (often undeserved except that they flew to St. Cloud airport and thus I had free airport parking and short drive times), I was willing to be moved by price on the trip to Vegas last week, even if I'm not paying the full price of the ticket myself. Orbitz kicked up a low combination air-plus-hotel package at the conference hotel which used Frontier Airlines. I had never flown them before, with their reputation of being cheap and being, well, cheap. But since Delta had badly underperformed for me recently I thought at least I could save some money while being treated like merde. So I booked the ticket.

I can say it was an OK experience. Particularly given my recent trips with Delta, the seats were the same, the delays not too out of line (someone apparently "soiled" a carpet in the aisle, so they needed an extra 45 minutes to clean it) and the service passable. I would fly them again.

But there was one interesting part of the gateside experience. You are quite hassled about bringing bags on the plane, but we know that there's a tragedy of the commons problem there too (like Donald Marron's story linked above with guacamole) so you are limited in how much to take. But Frontier tries to get you down to just one bag that will go under the seat, where my legs like to go instead. So two or three times they ask for your bags, which go with all the other bags to the claims area when you land rather than picked up in skyway. This I do not like because I don't like waiting in baggage claim, and there's a greater likelihood (I think -- how do I know?) that it gets lost. So I decline.

After seating first class and their loyalty program fliers, they then invite those who only have a bag to go under the seat to board next. Basically you're mini-royalty. And at least on casual inspection, I think more people responded to the incentive to get on the plane before those like me who insisted on using the overhead bins. This did not upset me at all -- I am benefited by having their bags not compete for space with mine, and if letting them on first is the cost of this, so be it. And it appears that Frontier had found a margin along which it could change people's behavior.

Perhaps it would work -- I will let you have all the chips you want first, if you don't touch the guacamole. But maybe not because it's guac and guac is good.

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How much stimulus was it? 

This seems quite plausible to me (quote below from the paper itself, not publicly available, so link goes to an abstract):
We show that, statistically, the federal expenditure stimulus compensated for the fifty states� negative stimulus due to collapsing state expenditures. The sum of the federal (positive) and states (negative) fiscal expenditure stimulus, however, is close to zero.

...The figures reveal that during the crisis, state and local fiscal expenditures dropped from USD 1547 billion in real terms in 2008Q3 to USD 1545.5 billion in 2009Q3 while the federal fiscal expenditures rose from USD 991.6 billion to USD 1043.3 billion over the same period. The consolidated fiscal expenditures therefore rose from USD 2536.6 billion in real terms in 2008Q3 to USD 2585.5 billion in 2009Q3. Moreover, all the three series fell before rising � as the economy was in a tailspin in the first quarter of 2009, both federal and state fiscal expenditures were falling with it.
So the stimulus didn't work because the states had to cut spending because they couldn't borrow like the Federal government can. Because fiscal policy ground to a halt as administrations changed at the end of 2008, you had a short period in 2009 where pure fiscal policy (the discretionary part, and not related to transfer payments) was mildly contractionary. It's unclear what anyone could have done to prevent that, but it may have set up the early poor results of the stimulus package, whose effects couldn't have been expected to work until the second half of 2009.

Taken in conjunction with these graphs, it may explain some. I think the note is good insofar as it makes the point without much in the way of judgment (one might think they would argue the stimulus was too small, but they close the paper instead with a caution about the effect of the debt overhang, which limits the size of fiscal expansion. I am still of the opinion that in the short run the stimulus was responsible for 500,000 jobs saved or created, give or take a million jobs. The long-run effects are even murkier.


One eye on work, other on budget 

I'm going to be busy with two talks this week, including the annual Winter Institute Economic Outlook presentation. The new Quarterly Business Report goes to the editor this week too. Posting will be light. However, I am watching carefully the budget forecast due out tomorrow. State economist Tom Stinson is quoted in this morning's paper:

State economist Tom Stinson warns, however, that the state is still losing jobs. The Twin Cities and St. Cloud experienced the worst job losses, while Rochester and southwestern Minnesota have fared better, he said.

Since the recession began, the state has lost 45,000 manufacturing jobs and 25 percent of construction employment.

"If you look at manufacturing and construction, you see some pretty dismal situations," Stinson said.

The state will begin adding jobs by March or April, he said.

So why St. Cloud? That's the subject of my talks this week. I'll have some notes posted over the next week or so on this question, so please stop back., but a fuller talk on this will have to wait until the St. Cloud MSA gets released in the 2007 Economic Census of Manufacturing, which is on rolling release through May -- Minnesota data is not yet up as of last night.


Medals per million 

I was listening to David Strom Show yesterday and he and Margaret were talking about the Olympics. He reminded us that Canada has 20 million people and yet manages to pull off a pretty nice event and win a world record of gold medals. The USA won the most medals (of all types) by a single country in a single Olympic games.

Canada is quite justifiably proud. But I was intrigued -- is it true that adjusted for population the Canadians had pulled off quite a feat? The population of Canada is actually closer to 33 million, for one thing (I was doing the math in my head and 20 million just felt small, so I went to look it up.) There are other countries in the medal table that are smaller. What if we adjusted medals for population?

Norway has a population of about 4.5 million (2009 levels), or less than 14% of Canada's. And yet it manages to win 23 medals compared to Canada's 26. Doesn't that count for something? China has a huge population, so that competition for the Olympic team is likely to be very strong. The US has a high per capita GDP. These smaller countries of Europe, however, with small populations, do very well. I tried the same graphs with just gold medals or with GDP rather than population, and you get approximately the same results. Also note I just looked at the top ten countries in the medals table. If you go down further you may find a small country that won one or two medals and would finish on this list.

BTW, that gold medal record the Canadians broke? It was shared between Russia and ... Norway. Matthew Futterman shows that even using historical models, Norway did very well this year.

(And if this post does not get a link from noted NARN Norgephile Mitch Berg, he has seen his last cigar.)

UPDATE: Prof. David Wall of the Geography Dept. here at SCSU sends along this graphic too:

A map of medals since the beginning of the Winter Olympics is similar.

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