Mode-Hot 2011

The U of O's Oregon Index of Economic Indicators rose 2.7 percent in December, continuing a rise that began in September.  This is a sign that the economy is picking up some momentum (and momentum is an appropriate word as feedback loops are very important in this process) which can be sustained with any luck.



But spare a thought for poor Tim Duy, author of the index: whenever I speak to reporters my first thought is to at all costs avoid saying something dumb that shall be memorialized for all posterity in print.  I don't always succeed.  But I have never suffered the ignominy of having a dumb quote put in bold type and placed above the article as the Oregonian did to poor Tim.



"I'm much more optimistic than I would have been three months ago."





It is too bad he wasn't alive three months ago to know his optimism level!  I assume he meant either that his is more optimistic now than three months ago, or that he is more optimistic now than he would have been if the index had shown a 2.7% improvement three months ago.  This could easily be the fault of a reporter taking a quote out of context (for example the real quote could have continued "...if the index had risen 2.7% then") but the cringe inducing result is the same.    



Of course I blog which means that I have now made a hobby of making public and preserving my words for all the world to dissect and make fun of - which has been one of the hardest things to adjust to.  I am used to crafting research papers for months and even years so that every sentence is precise and correct.  Blogging is the complete opposite and has forced me to become comfortable with thinking aloud in public.



Not an easy thing for an academic to do.

One thing I like to check on from time to time to get a sense of the direction of the Oregon economy is the Port of Portland marine statistics.  What a recent glance reveals is that 2010 is showing a very healthy improvement over 2009.  In fact in terms of total tonnage through the first nine months of 2010, the Port is 36% higher than last year and in just about every other metric the Port is experiencing strong gains.  Thanks, China.

Went the Oregon general fund.  The Office of Economic Analysis blog has a nice picture that does a good job describing the torpedo they good ship Oregon took to her hull.

This is net receipts from February though April for the last 14 years.  Note how Oregon is $400,000 in the red in 2010, meaning we refunded $400,000 more than we took in during that period, and this is with 66 and 67.



What is going on?

...preliminary numbers show that the biggest culprit was capital gains. Following a 60 percent decline in capital gains income from the 2007 tax year to the 2008 tax year, we were expecting an additional 10 percent decline for the 2009 tax year. This was in line with what many other states were projecting (5 percent to -20 percent) based on an informal survey conducted early last winter. Unfortunately, preliminary estimates show that capital gains income likely dropped at least another 50 percent for the 2009 tax year. Going forward we believe that we will see an uptick in capital gains income, but carry forward losses and low levels of business transactions will limit growth.

Sigh.



Which brings me to another topic. Polictical football is being made of the decision not to call a special session and institute a 9% across-the-board cut. But, of course, as OPBs Chris Lehman reported lots of agencies only rely partly on general fund monies.  In fact K-12 education makes up more than 40% of general fund spending thanks to Measure 5.  Higher ed. another 10%. Mandated Medicaid about another 12%.  After that the only other significant portion is corrections and we see what a 9% cut will do there.   Given the dire state of K-12 in particular it seems difficult to understand why we wouldn't want to try and protect it.  But the reality of the numbers is stark: there just isn't a way to protect K-12 without totally gutting other state programs.  So while I like the idea of being more nuanced about cuts, there just aren't many degrees of freedom here.



Which of course brings me back to kicker reform and a rainy-day fund.  Yes, it does not fix long run trends that Tim Duy has very clearly explained, but a substantial rainy-day fund would allow us to avoid these types of draconian cuts to basic services in recessions.

My Op-Ed in The Oregonian today:

A rather depressing sense of complacency seems to have settled over the state Democratic leadership after the passage of Measures 66 and 67. But celebrating their passage as a major political victory -- and allowing their passage to become an excuse not to immediately address the fiscal instability that necessitated the new taxes -- is a serious mistake.The taxes were not a victory to celebrate but a disheartening sign of the dysfunction of the state's fiscal system. The fact that we had to pass them should be seen as a defeat, not a victory, and as a condemnation of our stewardship of the state's finances. Letting these new taxes take our eyes off of real reform is to squander an opportunity to permanently fix what's wrong with the state's revenues......................

Read the rest at the Os web site.

Mike Rogoway in The Oregonian has a great piece today on the current state of Oregon's exports. Overall the news is dismal, echoing the astonishing decline in world trade that has resulted from the global recession.Here is WTO data on global trade volume:

Don't get me wrong, any investment in the state is great, especially now, and especially for a community like Prineville. But the amount of attention that the decision by Facebook to build their first data center in Prineville is receiving is a little out of whack. For example, the Oregonian editorial board cheers this as a major statewide success story - but then these are the same folks that urged a no vote on 66 and 67, and I see a clear connection between the two.You see, this type of investment is indicative of where Oregon has arrived in terms of its investment in human capital and in research and innovation. What comparative advantage the state has at the moment is in cheap power, cheap land and cheap labor. This is not a success story this is a failure story. What the state needs to be is a place where we have a comparative advantage in human capital and technology, and that means investments in education and in research in partnership with research universities. What we are is a poor and poorly educated state that is like a domestic developing country that will do the low value-added work because it is all we can get.So the real story should not be how wonderful this investment is, but what does it signal in terms of the future of the state's economy? The fact that The Oregonian's editorial board didn't ask this question is a clear signal that they just don't understand the fundamentals of economic growth. Because if you think this is a good path we are on, I got news for you: As much cheap land, power and labor we have, there are many, many more countries that have much cheaper land, labor and even power. I don't know the technology too well, but I suspect that the only reason this data center is here (as well as the Google data center in the Dalles) and not in China is due to some specific costs involved with distance and the provision of bandwidth. More and more manufacturing, even in high-tech, is leaving the state and the forces of globalization are only getting stronger, which means our competitive edge has to be that we are on the technological frontier or we will be competed away. Without hugely increasing our commitment to education in this state, it is hard to see how that could happen.