Friday, June 26, 2009

It's all about Passenger Occupancy

One of the arguments for public transportation systems is that they are both cleaner and cheaper than the automobile. It's pretty clear that they aren't cheaper, but what about cleaner. I've seen a few studies but a new one out of UC Berkley makes a significant point. What really matters is the passenger occupancy rate. From the Next 100 Blog:

The worst energy hogs shown in the paper's charts--and the worst greenhouse gas emitters--are urban diesel buses running off peak, with only a few passengers. But the most energy-efficient and generally cleanest vehicles are also urban diesel buses, running full at peak periods. (All comparisons are per passenger-mile traveled.)

HT: Knowledge Problem


Wednesday, June 24, 2009

Marketing and Economists

This pretty much speaks for itself.

HT: Donald Marron




In class today we talked about the differences in AD multipliers. In theory, the tax cut multiplier is less than the government expenditure multiplier. The empirical evidence is somewhat different. As part of their economic research, the San Francisco Fed published an Economic Letter on June 19th that look at the research into the size of the multipliers. The results are interesting.

Regarding the impact of tax cuts on the level of real GDP one year after the change in taxes, the three studies predict a multiplier of roughly 1.2, as shown in Table 1. Moreover, Table 2 shows that, in contrast to theoretical predictions from the simple Keynesian framework, the analyses found that government spending had less bang for the buck than tax cuts. For instance, one year after the increase in spending, the impact on the level of real GDP is less than one-for-one, partly reflecting a decline in investment.

What this says is that our model is at odds with the observed data and hence needs to be changed. It also says that from a policy perspective, tax cuts work better than spending increases.

HT: Sonoran Alliance


Monday, June 22, 2009

Housing and Structural Unemployment

If most of the unemployment we are seeing is really structural in nature, then the housing problem is going to make it a slow recovery. From Megan McArdle at The Atlantic:

A recession like this is the worst time to lose your labor mobility. I am quite convinced by the argument that since the 1980s, recessions have been characterized by structural, rather than cyclical, unemployment. Rather than temporary layoffs of workers during periods of slack demand, modern recession-driven unemployment tends to result from the destruction of jobs, firms, even industries. That's why long-term unemployment creeps up, and skilled workers are having a harder time than they used to during downturns: it takes longer to match a skilled worker with an appropriate position than to slot body into a low-skilled place.

In those conditions, workers need geographic mobility to offer them a wider variety of potentially appropriate jobs. But this time around, they're tied down by overpriced real estate and underwater mortgages.

(Summer macro students - note that she links to the same article you got to read for assignment 2.)


Saturday, June 20, 2009

Re-Running the Numbers on Housing

I teach economics and one of the recurring questions I get from students is, "When will home construction come back?" My basic answer is, "When we consume the excess inventory of housing," but people want a date not an event. So here's my best estimate.

Last December, I Ran the Numbers on Housing. It was quick and dirty, and some might call it a SWAG, but there are some real numbers out there that you can use. For example, the Census Bureau just released the May numbers for housing completions - we're running at an annual rate of 811K units. (Table 5)

In my previous post I thought that a fairly normal number should be about 1.6 M per year and that we had an overhang of about that many homes from the peak at the end of 2006. 2007 showed completions of 1.5 M and the 2008 number was 1.1 M. So for a gross estimate, I'd say we burned through about 600 K of the 1.6 M overhang leaving us with 1 M excess homes. If we run the rest of the year at the current 800K rate, we should burn through most of the rest of the inventory by next spring.

At this point, I'll go out on a limb and make a prediction. Housing completions should recover early next year. It will happen later in the states with the biggest problems - California, Nevada, Arizona, Florida and Michigan. It will happen a bit sooner in the rest of the country. Since that is based on completions and it takes a while to plan, permit and actually build a house, activity should see an up tick late this summer or in the fall.

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Saturday, June 13, 2009

Making FDR's Mistake - Uncertainty Reduces Investment

Uncertainty Reduces Investment

Next week we start into economic growth and investment. One of the things that decreases investment is uncertainty. In an uncertain economy, investment demand shifts left. In addition, the government can add to that uncertainty. That seems to be what is happening here.

In addition to the economy, hospital officials also cited "the unpredictability of the national health care policy debate."

The Obama administration has announced its intention to enact sweeping health care reform this year.

"The only certainty is that reimbursements for Medicare and Medicaid are going to go down," Askew said.

Mercy Health has also put on hold any future capital expenditures at all of its campuses other than what has already been started.

This is also one of the points that Amity Shlaes makes in The Forgotten Man: A New History of the Great Depression. FDR's constant tinkering with the economy increased uncertainty, reducing private investment and prolonging the depression. We seem to be getting a bit of that today.

HT Instapundit.


Sunday, June 07, 2009

The Microeconomic Foundations of Macroeconomic Policy

My preference has always been to have students take micro prior to macro. The reason is that I find most macro issues to be rooted in the microeconomics. The recent activity around health care reform is an example.

On June 2nd, the CEA released their report on The Economic Case for Health Care Reform. Economic bloggers and others actually read the report and commented on it. Virginia Postrel at the Dynamist blog has several posts related to the report.

In one she notes that the CEA assumes a reduction in health care expenditures without showing how this would come about. Indeed in an interview with Ezra Klein, CEA Chair Dr. Christina Romer says that she is coming at this from a macroeconomic standpoint - but BTW there are lots of things we could do to lower health care costs, without talking about or advocating any of them specifically.

Ms. Postrel opined that we ought to try all of this with Medicare first which apparently got a response from Peter Orszag at OMB. A couple of his points were:

1) The administration does have big Medicare changes planned, both immediate cuts in reimbursements and "game changers" to impose more scientific management, potentially realizing savings down the road.

2) "I hope I’m not making anything sound like they’re painless." There are going to be "hard, CBO-scored cuts" in Medicare, "mostly involving provider payments." The administration is proposing cutbacks in home-health care and Medicare Advantage payments, for instance. It isn't expecting to get its initial savings from better management.

What this tells me is that the wonderful macro stuff that may happen if we slow the growth in health care spending is dependent upon the micro stuff like lowering individual prices (reducing reimbursements) and rationing care (scientific management.)

Said another way, you can't do the macro stuff without first doing the micro stuff.

(Summer I Macro Students - as they say, read the whole thing. There will be a quiz on where the phrase "assume a can opener" comes from.)

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Friday, June 05, 2009

Regulation in the Global Economy

When I worked at Honeywell Industrial Control, we made products that were sold around the world. Many of the products required various safety certifications in order to comply local regulations. Often, we could ship the product in the US, but had to wait on paperwork in order to ship to Europe.

Looks like BMW is running into the same problem with their new electric mini.

The automaker has hit a glitch in distribution of high-voltage charging cables. As a result, up to 300 of the 450 customers who have taken a one-year lease on the Mini E may only be able recharge them with a standard household 110-volt wall-socket cord. That means the cars will be required to stay plugged in for 23 hours to get a full charge...

The problem isn't a shortage of high-voltage cables, but rather the red-tape that goes with the program. The cables are certified as safe by a European safety agency, but their certification by Underwriters Laboratories for the U.S. is pending. Some of the city or county safety inspectors who have to sign off on the charging unit installations in customers' homes may insist on UL approval...

Regulation compliance is costly. Complying with multiple regulatory bodies in multiple regions is even more expensive. I doubt that anything is really any safer just because it has passed both US and European certifications.

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