Thursday, June 30, 2011

Smoking bans and casinos

Dave Nicklaus has an interesting discussion about a new study claiming that Illinois's smoking ban didn't hurt Illinois casinos. I am dubious of the study because, like most of the research on this question, it was funded by people with an interest in its outcome. In terms of its substance, the study seems to have addressed only a very narrow part of the claimed effect of the smoking ban: that people would go to casinos in neighboring states that allow smoking. More importantly, the discussion didn't mention the solid and independent research by Tom Garrett and Mike Pakko, which they summarize here. Garrett and Pakko found "that revenue and admissions at Illinois casinos declined by more than 20 percent ($400 million) and 12 percent, respectively. Calculations reveal that casino tax revenue to state and local governments declined by approximately $200 million."

Personally, I'm in favor of smoking bans, but I have no doubt that they hurt the business that they are imposed on. Research studies finding otherwise tend to be statistically inept (Pakko describes a hilarious case of this), so I discount them almost entirely. (Note that I'm too cheap to pay to read the new study discussed above, so I remain neutral on its statistical soundness.) Solid and honest arguments can be made that smoking bans are good ideas despite the cost they impose on some businesses. These should be the foci of the debate, not dubious claims that business owners don't know how their own businesses operate.

We're in the best of hands

President Obama's press conference yesterday was pretty disappointing, yet again. I think he's mistaken to believe that his very unpresidential pettiness will do anyone any good, including himself. Not that anyone should be surprised, but he's talking though his hat about taxes:  The tax break for corporate jets that he kept railing on about was his own idea, and the tax break for oil companies is nothing but a change in the way that all businesses can calculate depreciation.

For balance, I should say that the balanced-budget amendment that the Republicans are putting forward is a pretty wrongheaded policy. There's nothing terribly wrong with a budget deficit itself, it's the reasons for the deficit that matter. I'm all for imposing restrictions on the government, but this one is too ham-fisted. Although they were full of holes, the pay-go schemes of the 1990s were superior in that they at least made Congress think about the tradeoffs they had to make.  At any rate, I think it's pretty obvious that the Republicans know that the balanced-budget amendment has no chance of passing and that their actions are purely symbolic. But, unlike Obama's symbolic gestures, they at least symbolize the right thing.

Tuesday, June 28, 2011

Flying saucer sighted!

The hot new debate in St. Louis concerns the planned demolition of the saucer-shaped Del Taco on South Grand Boulevard. This story has at least three overlapping issues:

The first issue is the large number of people who want to save this "classic midcentury building" from the wrecking ball. In economics jargon, their claim is that the building has a positive externality; i.e., its classic midcentury architectural significance provides benefits to the community that are not captured by the market. The building has always been a bit of an eyesore to me, but I lived through the heyday of this architectural style so I've had my fill of it.

It doesn't yet appear that any of the building's facebook friends are going to pony up the money to buy it, so they're appealling to the city government, which might oblige them. This brings up the second issue, which is whether the government should interfere with the property owner's right to do what he wants with his property. Would the owner be compensated for this taking, or would his property (or at least part of its value) be taken without compensation.

Finally, as outlined by Audrey Spalding, the whole episode began when the building was declared blighted to make its redevelopment eligible for tax increment financing. Legally, a blighted property is "[...] an area which, by reason of the predominance of defective or inadequate street layout, unsanitary or unsafe conditions, deterioration of site improvements, improper subdivision or obsolete platting, or the existence of conditions which endanger life or property by fire and other causes, or any combination of such factors, retards the provision of housing accommodations or constitutes an economic or social liability or a menace to the public health, safety, morals, or welfare in its present condition and use." Wow, a building like that hardly sounds worth saving.

Monday, June 27, 2011

How they see us

From the perches of the NY Times, Missouri is a land of "low-sloping foreheads." A gaffe is when you accidently say what you really believe.

U.S. states in perspective

I just came across an interesting post by Mark Perry at Carpe Diem.  He presents a table that ranks the per capita incomes of U.S. states and the richest countries in the world for 2010.  Highlights include:
  • Average income in the poorest state, Mississippi, was about the same as in the European Union as a whole.
  • Only Norway and Luxembourg would rank among the top half of U.S. states.
  • The United Kingdom, Finland, France, and Japan were ranked between South Carolina and West Virginia, our second and third poorest states.
  • Canada, our friendly northern neighbor, was ranked just below the 40th richest state, New Mexico.

Saturday, June 25, 2011

Ethanol lunacy

Maybe the tide is finally turning on what is among the most misguided government programs currently in place.  Here are two takes on ethanol subsidies by Dave Nicklaus in the St Louis Post-Dispatch and Steven Rattner in the NY Times.

Friday, June 24, 2011

Economics research in Missouri

According to these rankings of Missouri's research economists and economics-research departments, my own Lindenwood University fares pretty well against some big players. Unsurprisingly, more than half of Missouri's top economists work at Washington University in St. Louis, and two of the top departments are there. Some of my former colleagues at the St. Louis Fed also make the list.

Because they can contain major flaws and biases, rankings of this sort are not to be taken too seriously or literally. But it's still nice when your own institution does well, as mine does here, also.

Anti-demagogue demagogues

Without a hint of ironic awareness, today's Post-Dispatch has an editorial praising Republican presidential candidate Jon Huntsman for his pledge to take the "high-road" by campaigning with civility. The editors then proceed immediately along the low road they travel so often, referring to the "anti-Obama, anti-government and no-new-taxes demagoguery that dominate GOP arguments today."

The editorial concludes that "(t)here will be plenty of time for voters and editorial writers to examine records and determine which of the various candidates has the best vision for America. But for now, we welcome Mr. Huntsman's civil tone and hope that his candidacy contributes to a hearty debate about our nation's future."

But this "hearty debate" must exclude (purely in the name of civility, of course) the many millions of Americans who would not vote to re-elect Obama, do not want to see the government become more powerful, and think that taxes are high enough. Within polite societies like the Post-Dispatch offices, such views are simply beyond the pale.

Thursday, June 23, 2011

Aerotropolis and economic-impact nonsense

Patrick Ishmael blogs about the ever-changing job-creation claims for the proposed tax credits for the so-called Aerotropolis warehouse project at Lambert Airport.  The current claim from the St. Louis Regional Chamber and Growth Association (RCGA) is that the tax credits would lead to the creation of 29,000 or so jobs. 

The RCGA's analysis makes just about every classic error typical of this variety of economic impact study.  For one, it assumes that the project will be a roaring success: Not only would the credits be fully subscribed, but the resulting warehouse space would be pretty much fully utilized, despite the glut of warehouse space in the area already.  That assumption at least has the virtue of being a theoretical possibility, even if it is extremely remote.

The most egregious error the study makes, which cannot possibly be true, is that the resources used to construct and staff the warehouses would not have been used to do anything else (i.e., the project has no opportunity costs).  But all of the capital, land, steel, manpower, equipment, etc. that would be involved in the project needs to come from somewhere.  Specifically, these resources would be drawn from other projects and activities elsewhere in the local economy, thereby reducing employment in other sectors.  It is the existence of these opportunity costs that make it very unlikely that the Aerotropolis credits would have anything like their projected impact.  In fact, nearly every independent study on state tax credits finds a zero or negligible impact on local employment.

Tuesday, June 21, 2011

Why I like living here

St. Louis has been ranked among the top cities for families.  I don't put that much stock in rankings like this, but it's nice to be reminded about all the great things the St. Louis area has to offer.

The Fed's impotence

Back when the Fed was debating whether to embark on a second round of quantitative easing (QE2), I was one of many who argued that QE2 would not have the intended effect of stimulating the economy and/or staving off deflation.  My arguments were deceptively simple: (1) the weakness in the economy had nothing to do with monetary policy not being loose enough and (2) deflationary risk was very small.  In short, QE2 was a solution in search of a problem.  These simple arguments did not win the day, however, as the Fed came up with some inventive theory-twisting and data-torturing to justify further monetary loosening.

John Cochrane outlines how the doubters (Dan Thornton of the St. Louis Fed was especially prescient) have turned out to be right:  "All QE2 does is to slightly restructure the maturity of U.S. government debt in private hands," without lowering interest rates (hat tip: Greg Mankiw).  That's not to say that large-scale quantitative easing is never appropriate.  After all, strong arguments can be made that QE1,which was launched in March 2009, was vital in preventing an even worse economic meltdown. In a nice roundup by Dave Nicklaus of the St. Louis Post-Dispatch, Rick Hafer points out that QE1 and QE2 were very different animals: "QE1 bought mortgage-backed securities at a time when the mortgage market was deeply troubled, while QE2 bought only U.S. Treasury securities." 

From my standpoint, QE2 was implemented only because the Fed was too arrogant to accept its own impotence.  Although current Fed decision makers don't appear to have been humbled by this episode, let's hope that future ones have learned something about the limits to their influence on the economy.

Friday, June 17, 2011

Tolstoy and recessions

My post from yesterday outlined the data showing that the St. Louis economy was hit harder by the Great Recession than the country as a whole. Naturally, this leads one to wonder why this is so and if there are any policies that might prevent it from happening next time. In other words, although the occurrence of recessions is out of our hands, what can we do to ameliorate their effects when they hit? There’s not a great deal of research on this question and economists have little to say about it. Actually, they have a lot to say if you ask them, but it’s usually not based on actual research.

Three colleagues and I wrote a paper a couple of years ago that tried to explain cross-MSA differences in the effects of recessions. We found that the things that help MSAs grow during good times (such as education) don’t have much to do with how badly MSAs do during recessions. In fact, of the many things that are usually thought to affect growth, only the prevalence of manufacturing seemed to matter, and it didn’t explain very much. We concluded with a “Tolstoy theorem of urban growth: Happy cities are all alike; every unhappy city is unhappy in its own way.”

Thursday, June 16, 2011

Worse than we thought

Welcome to my new blog focusing on the economy of the St. Louis metro area. I had hoped that my first post would point out the silver lining on the economy’s gray cloud, but I was unable to find one. Instead, my inaugural post is about how the local economy is doing even worse than we thought.

According to the most-current payroll employment data, St. Louis job losses during the Great Recession were more or less in line with those of the country as a whole, although St. Louis was hit a little less hard and is now slightly ahead of the rest of the country in its recovery of lost employment. This story is illustrated by Figure 1, which uses payroll employment data from the Current Employment Statistics (CES) and measures U.S. and St. Louis employment relative to their January 2008 levels.

According to these data, U.S. employment bottomed out in February 2010, 6.3 percent below its January 2008 level. For the St. Louis MSA, the bottom had been reached two months earlier, with a net employment loss of about 6.1 percent (83,900 jobs). For the most recent month available, April 2011, U.S. and St. Louis employment were, respectively, 5.1 percent and 4.5 percent (61,900 jobs) below their January 2008 levels. Thus, by April 2011, St. Louis had recovered about 26 percent (22,000) of its job losses, while the U.S. had recovered about 20 percent of its losses.

The picture painted by Figure 1 is by no means rosy, but perhaps there is grim solace in seeing that the local experience has not been quite as bad as the national one. More-accurate employment data show, however, that the actual picture is even less rosy than the one painted by Figure 1. According to the Quarterly Census of Employment and Wages (QCEW), St. Louis employment bottomed out in December 2009 at 7.3 percent below its January 2008 level. In other words, the QCEW data show that St. Louis had a net loss of 96,300 jobs at the bottom of the recession, 12,400 more than CES data suggest. On the other hand, the picture for U.S. employment over the period is roughly the same whether one looks at the CES or the QCEW data.

The QCEW data are more accurate than the CES data because of the ways they are constructed. The CES data are from a survey of about 140,000 non-farm businesses and government agencies across the country, while the QCEW is an actual count of employment at all establishments in the country whose employees are covered by unemployment insurance (of which there are about 9 million). The CES data are compiled relatively quickly, which is why we currently have CES data through April 2011, but QCEW data only through September 2010.

Figure 2 compares the U.S. and St. Louis employment experiences through April 2011 using the QCEW data.

The solid portions of the lines are the actual data. The dashed portions are projections applying trends from the CES data to the QCEW data. According to these projections, St. Louis employment in April 2011 was about 6.3 percent (83,000) below its January 2008 level, meaning that only about 13.8 percent (13,300) of the recession-induced job loss had been recovered. So, not only was the recession in St. Louis deeper than previously thought, but the recovery has been even weaker than the CES data indicate.