At 11 percent unemployment, Oregon is tied with Alabama for having the ninth highest unemployment in the U.S.  Some politicians and policy makers are cheering the fact that Oregon is not tied for first or second place, as it was a few months ago. Even so, Oregon has occupied a spot in the top ten highest unemployment states in 18 of the past 34 years.

Oregon’s chronic high employment has been a source of bafflement for many observers and economists.

Businesses note that Oregon has an anti-business attitude that treats business as a problem to be dealt with rather than an endeavor to foster.  In contrast, others point to surveys that rank Oregon as having one of the lowest business tax burdens in the country [1, 2] or being one of the most “business friendly” states in the country. In the face of these studies, Oregon’s persistent high employment rate suggests (1) Oregon is not employment friendly, and/or (2) the various tax burden and business friendly reports are fundamentally flawed and, therefore, meaningless.

Since so many Oregonian’s do not like to discuss the state’s business environment, observers have tried other explanations for Oregon’s moribund jobs environment, including:

1. Education.  If Oregon just spent more money on education, employment in the state would improve.
2. Climate.  Analysts at the Oregon Employment Department have a theory that states with milder climates have higher unemployment rates and (believe it or not) Oregon is considered to have a relatively mild climate.
3. High minimum wage.  Although minimum wage workers (and potential workers) make up a relatively small portion of the workforce, Oregon’s unemployment rate among those most likely to earn minimum wage is substantially higher than if Oregon’s minimum wage was the same as the Federal rate.

Ultimately, many observers, reporters, and politicians throw up their hands and blame manufacturing.  The story goes like this …

Oregon relies heavily on heavy manufacturing. Heavy manufacturing is highly cyclical: Employment soars during boom times and plummets during down times.  Thus, during recessions Oregon’s employment suffers worse than the rest of the country.  The story falls apart for several reasons:

1. Oregon’s unemployment rate is high even during boom times.  If the manufacturing story were true, during economic booms Oregon’s unemployment rate should drop faster and/or be lower than the rest of the country’s.
2. Oregon does not rely that heavily on heavy manufacturing.  According to the Oregon Employment Department, throughout the U.S. heavy manufacturing accounts for approximately 6.1 percent of employment.  In Oregon, it accounts for 8.3 percent. It not clear that this is enough of a difference to explain the state’s persistently high unemployment.
3. Other states that rely more heavily on heavy manufacturing do not have persistently high unemployment.  According to the Oregon Employment Department, Wisconsin, Iowa, and New Hampshire have a greater share of their employment in heavy manufacturing, yet these states have much lower unemployment than Oregon.  In fact, the Oregon Employment Department produced the following graph that concludes that “there seem to be other factors that have a stronger correlation to the unemployment rate than the concentration of durable goods employment.”

I recently rediscovered Yahoo Pipes and found that it can interact with Twitter in a way that does not require any coding on my part and does not require that the application be served on my own website.

The result is TweetEcon, an experimental retweeting economics Twitterbot.  Here is a sample of the tweets TweetEcon has retweeted:

How to build your own retweeting Twitterbot

1.  Get a Yahoo Pipes account and create a new pipe.

2.  Get the tweets to be retweeted.  Under Sources, grab Fetch Feed.  Go to Twitter Search and enter a search term, such as economics.  On the results page, click the link that says Feed for this query.  This will take you to the RSS feed.  Notice that there are a lot of worthless tweets that use the word economics.  That is why the next step is necessary.

3. Filter the tweets retrieved.  Under Operators, grab Filter.

First, filter out any retweets.  This serves two purposes: (a) it prevents retweet looping in which the pipe retweets its own tweets, and (b) most retweets are editorial rather than informative.  The swear words are blocked for obvious reasons.  Also, a huge portion of economics tweets say something like “My boyfriend’s cousin just lost his job at Best Buy. This economy sucks!”  Also another huge portion of tweets are from economics students griping about having to wake up at 9:00 a.m. so they can make it to their 10:15 a.m. class, which is why school related terms are blocked.

Unfortunately, tweets with #hashtags have a massive noise-to-signal ratio.  Here is one example:

RINO Marco Rubio speech demanding amnesty for illegals http://youtu.be/3xIgN51XxD4 #teaparty #economy @gopleader #gop #tcot

See, no economics in the tweet, but this twit decided to use the #economy hashtag.

The most important filter is the filter that keeps only those tweets that have a link in it.  Tweets without links tend to provide observations or opinions, rather than useful information.  I decided that I will only retweet posts that have a link.

The filter is probably where most of the future tweaking will be.

4. Form the retweet.  Under Operators, grab Loop.  The first field puts the author’s Twitter user name at the beginning of what will be my retweet.  The second field is a single space.  The third field is the tweet that is being retweeted.

5.  Form the retweet, part 2.  Under Operators, grab Regex. This step replaces the Twitter username URL (e.g., http://twitter.com/ericfruits) with the username used by Twitter (e.g. @ericfruits) and adds “RT” in front.  Note, that the “RT @username” must go at the beginning of the tweet.  Otherwise, the tweet may be too long and cut off the RT.  If that happens, you run the risk of getting into a retweet loop.

6.  (Optional) Sort the retweets from most recent to oldest. Under Operators, grab Sort.

7.  Test the pipe.  You may get some error messages (especially those that end in “420″).  Do not worry.  That means that Twitter and Yahoo Pipes are having a temporary spat.  Wait a few minutes and try again.  If it still does not work, save the pipe, go back to the My Pipes page, then click on the pipe and/or click on the RSS feed for the pipe.  This step will drive you crazy because you will not know if you have done something wrong.

8.  Tweet the pipe’s results.  Go to My Pipes, click on the pipe, then click on Get as RSS.  Now that you have the RSS, you can use Twitterfeed and/or Feedburner to convert the RSS output to tweets.  Twitterfeed is fairly self-explanatory.  To have Feedburner tweet the RSS, click on Publicize, then click on Socialize and follow the steps.

I use both Twitterfeed and Feedburner.  Because of the time and tweeting limits of both services, there is no real overlap of tweets.  For example, my pipe retrieves approximately 50 tweets an hour.  Twitterfeed will send out a maximum of 10 tweets an hour and Feedburner sends out a maximum of 16 tweets an hour (maybe).  So far, Twitterfeed is a much more reliable tweeter than Feedburner.

Happy pipe-tweeting!

The Portland City Council unanimously approved the nation’s most ambitious bike-projects initiative Thursday, with Mayor Sam Adams promising to submit a $20 million “kickstart” funding plan within 30 days.

At the heart of the proposal is nearly 700 miles of new bikeways that would make up a “safer and more comfortable” two-wheeled urban network for new cyclists.

The figure above shows that as Portland had added to its bikeways, the motoring majority has suffered a deterioration of the the City’s roads.

However, Portland is notorious for its road paving backlog. Many streets of the City are entirely unpaved and some streets have potholes so big they could damage a Hummer and almost swallow an Aveo. The City’s current road paving backlog could pave a two-lane road from Portland to San Francisco, California (yes, really).

As Oregonians mull their ballots for Measures 66 and 67, proponents remind them of the Doonesbury year.  The year was 2003 and Oregonians overwhelmingly rejected an increase in income taxes to fund what legislators call “vital services,” namely K–12 education. That year and the next, many Oregon schools cut spending. The result was a temporary increase in class sizes in some schools.  The Doonesbury comic strip picked up on the theme and ran a week-long series highlighting Oregon’s situation.

Tax proponents were insulted, fearing that Oregon had become a “laughing stock.”  Other’s were more sanguine.  One school obtained a signed copy of one of the strips and auctioned it at a school fund raiser.  When life gives you lemons, make lemonade.

Fast forward to today and the fear of Doonesbury returns.  One economist/blogger opines:

When your taxes and public services are among the lowest in the country, the benefits from improving poor public services—especially education—are likely to outweigh the costs of modest increases in taxes.

Missing from the discussion is the most important question of all: Do temporary cuts in public education spending affect outcomes?

Information from the U.S. Department of Education says no.  As the figure above shows, Oregon graduation rates were no different from U.S. graduation rates—even during the Doonesbury years.

That makes sense.  Education outcomes are developed over years. Temporary spending cuts have the same impact as having a bad teacher for a year or two.  It’s painful at the time, but has no noticeable long-run impact.

Roth IRA: “One of the best deals in retirement planning”

With a Roth IRA, virtually all income growth and withdrawals are tax-free.  Because retirees don’t pay taxes on their withdrawals, the Roth IRA has been called one of the best deals in retirement planning.

With the turn of the New Year, the income limits that have prevented many individuals from converting a traditional IRA or employer-sponsored retirement plan to a Roth have been eliminated.   The loosening of the rules is particularly well-timed for a period when workers are losing their jobs and are no longer employed with the company that holds their retirement account.

There is a catch, though.  If you convert your traditional IRA or employer-sponsored retirement plan to a Roth IRA, you must pay taxes on the converted money as if it was earned income.

Even so, the Federal government has made this part less painful in 2010. You can report the amount you convert in 2010 on your tax return for that year. Or, you can spread the amount converted equally across your 2011 and 2012 tax returns, paying any resulting tax in those years. For example, if you convert $50,000 next year and choose not to declare the conversion on your 2010 return, you must declare $25,000 on your tax return for 2011 and $25,000 on you return for 2012. The two-year option is a one-time offer for 2010 conversions.

Many Roth IRA conversions may be subject to Measure 66’s higher rates

While most of the attention on Measure 66 has been directed at the impacts on entrepreneurs and investors, the increased taxes will also affect the thousands of middle class households that are considering a Roth IRA conversion.  Oregon’s Measure 66 will make such conversions especially painful because some or all of the money that investors have saved over the years may be subject to Measure 66’s highest tax rates.

Measure 66 imposes two new tax brackets affecting 2010 income:

• A new marginal tax rate of 10.8 percent would be levied for taxable income between $250,000 and $500,000 for joint filers and $125,000 and $250,000 for single filers.

• A new 11 percent marginal tax bracket would be created for taxable income above $500,000 for joint filers and $250,000 for single filers.

More than 40 percent of all families in the U.S. participate in some type of employment-based retirement plan.  These plans include defined benefit (pension) plans and defined contribution plans such as a 401(k) or 403(b).  In addition, approximately 1 in 3 families has an IRA or Keogh account.

Among those with either a defined contribution plan or an IRA/Keogh account, the average account balance is $148,440.  For those age 55 and older, the average account balance is more than $250,000.  More than 1 in 10 families have account balances in excess of $500,000.

A family converting $300,000 in retirement funds would have to come up with another $900 in Oregon taxes if subject to Measure 66.  A family converting a $600,000 retirement account would have to find another $6,500 in cash to pay additional Measure 66 taxes.

As an unintended consequence, Measure 66 may deny many Oregonians the chance to participate in a once-in-a-lifetime opportunity to get into what has been called one of the best deals in retirement planning.

The Wall Street Journal provides a summary of the provisions of the Roth IRA conversion program.  The Employee Benefit Research Institute provides statistics on retirement plans and balances in the plans.

Oregon’s legislators are quick to complain that they had to find $2 billion in state budget cuts in the last legislative session. These  complaints are a bit disingenuous when, in fact, as the figure above shows, the legislatively approved budget has increased by $7.6 billion since the last budget.

Whenever one writes about state budgets, the more wonkish among us will argue that “total” state spending is the wrong number to look at. They argue that much of the funding and spending sits in dedicated accounts and that the Legislature has no discretion over much of the state’s spending.

This is what is known as the “colors of money” argument: Every dollar has a color—blue dollars can only be spent on roads, red dollars can only be spent on health services, green dollars are in the general fund, and so on. It is said that the colors cannot be mixed and the rules cannot be changed. But they can and the Legislature can change them.

An example of this this “colors of money” fallacy is the massive expansion of Oregon’s state-provided and state-subsidized health insurance. The expansion was championed by the Governor and approved by the Legislature. The expansion was entirely within discretion of Oregon’s elected officials.

Over the next four years, the program will impose $1.2 billion in new and increased taxes on hospitals and health insurance—taxes that will be passed down to taxpayer/consumers. Oregon hopes that the Federal government will match Oregon’s increased spending so that new and expanded programs would spend at least $2.8 billion over the next four years. [This is what is known as the "Coupon Fallacy," which is a topic for a future post.]

The Legislature, however, has painted all this money with its own color. In this way, politicians can complain about spending fewer green dollars while spending more red dollars and increasing total state spending.

The Oregon Employment department reports (pdf) that the state’s unemployment rate for October 2009 was 11.3 percent. That is unchanged from September.

Oregon is now has the 6th highest unemployment in the U.S.

The increase in unemployment rate is due to an decrease in the number of people working. Offsetting this decline was that 1,080 people have left Oregon’s workforce.

Most of the “improvements” in Oregon’s unemployment can be explained by a shrinking work force as people give up looking for work in the state or move out of the state.

Oregon’s Employment Department seems mystified by Oregon persistently high unemployment. In this memo (pdf), they provide a mishmash of reasons for Oregon’s high unemployment rate, including:

• Oregon’s labor force is small (but other “small” states have very low unemployment);

• Oregon has nice weather;

• More seasonality in employment (which suggests that Oregon has nice weather, but only part of the time).

As noted in earlier posts, Oregon’s unemployment problems are largely the result of policies that discourage hiring and employment:

• Oregon’s persistent unemployment problem explains Oregon’s unemployment problem.

• Oregon’s unemployment: Why is it always so high? follows up on the previous post.

• Impact of minimum wage indexing demonstrates that Oregon’s high minimum wage contributes to reduced employment, especially among younger workers.

Phil Keisling served as Oregon Secretary of State from 1991 to 1999 and is most famous for having championed the state’s vote-by-mail system. Now, he is turning his attention to the impending crisis in Oregon’s Public Employee Retirement System, known as PERS. His 54-page memo is called PERS in Crisis: The Sequel.

PERS impending crisis is driven by rules that mandate that PERS accounts earn at least 8 percent per year.  Even if PERS investments have double digit losses, the accounts must earn at least 8 percent. The gap between the mandated earnings and what is actually earned is filled with increased taxes and fees imposed by state and local governments or reduced spending on government programs.

The PERS crisis is well-documented.  An crisis earlier in decade prompted a set of reforms, many of which were rejected by the Oregon Supreme Court. As noted in a recent op-ed, despite efforts by some state and local governments to slow the impacts of the crisis on their own budgets, the crisis continues, even though the PERS Board touted Oregon’s system as the best funded in the country (pdf).

Some of Kieslings findings:

• An estimated $1.5 billion of additional tax dollars will be required by state, K-12, and local government employers in 2011-13 to meet PERS-related obligations.

• By 2013-15 PERS obligations will require $2.5 billion in new, additional money that could otherwise be used to provide government services and/or reduce taxes.

• By early 2009, leaders and financial officials in Oregon governments were keenly aware—or should have been, based on available public documents produced by PERS, its staff, and hired experts—that PERS’ problems were going to cause significant budget pressures on state and local governments. Nonetheless, no widely visible, public debate of the enormous implications of this scenario occurred in key arenas—especially during the 2009 Oregon legislature—foreclosing the possibility of certain actions that could have been taken ameliorate the current crisis.

The following provides an economist’s view of selected portions of the Pew report.  While most of the study is more reportage than analysis, some of the facts and analysis would have benefited from a more rigorous review.

[The recession has] prompted lawmakers to respond with $2 billion in spending cuts, aggressive use of federal stimulus dollars and more than $1 billion in new taxes, including $733 million in proposed income tax hikes that will be challenged at the polls in January 2010.

Oregon’s Legislative Fiscal Office reports (pdf) that the state budget has increased by 9.3 percent (enlarge figure).  The Legislature increased spending by $4.8 billion.

Between the second quarter of 2008 and the second quarter of 2009, Oregon’s unemployment rate more than doubled, outpacing California’s job loss increases and surging faster than that of any other state. … To understand Oregon’s soaring unemployment rate and its corresponding decline in tax revenue, look no further than the goods the state produces—many of which are going unsold. Oregon’s once-mighty wood products industry, whose workforce has been shrinking due to automation and technology advances, is projected to lose a jarring 21 percent of its jobs in 2009. Driving the collapse is the nation’s housing bust: When new homes are not being built, timber sales slump.

Oregon almost always has some of the highest unemployment in the U.S., whether or not the country is in boom or recession. While the decline in the timber industry and the housing bust may explain Oregon’s chronic high employment, eventually a time comes to ask whether the state’s policies are contributing to the unemployment.

Some policy makers, including the governor, believe that one sector of Oregon’s economy, clean energy, offers hope. Oregon had a bigger share of its jobs in clean energy than any other state as of 2007, according to a Pew report. Kulongoski has worked hard to build a green legacy—insisting on generous tax credits for renewable-energy firms even as other Democrats sought to reduce them, for example, and publicly test-driving electric cars in an effort to lure their manufacturers to Oregon. … But some experts question whether the sector can lead Oregon out of its economic doldrums. “There are worries that we’re getting in a little late, especially with all the investment that China is doing,” said Jessica Nelson, an economist with the Oregon Employment Division.

It is becoming more and more clear that the “generous tax credit” could more accurately be described as a money grab bordering on scandalous.

Confronted with a staggering loss of jobs and tax revenue that accompanied the state’s economic nosedive, Oregon Democrats seized upon the supermajorities they won in last year’s legislative elections. On February 5, less than a month after the session began and about two weeks before President Obama signed the federal stimulus package into law, Kulongoski signed Oregon’s own, state-level stimulus initiative, a $175 million borrowing plan that promised to create jobs while making improvements to the state’s roads and schools. At the same time, lawmakers made about $2 billion in cuts ….

Again, these “cuts” were actually an increase of $4.8 billion.

But the more than $1 billion in tax increases that Democrats pushed through to balance the budget and pay for major new initiatives in transportation and health care have proven most controversial. To help fund a massive road-improvement plan they said would create thousands of jobs, lawmakers raised the gas tax from 24 to 30 cents per gallon and hiked the cost of vehicle registration from $54 to $86. To expand health care for to up to 115,000 uninsured children, they created a new 1 percent tax on health insurance premiums and raised hospital taxes.  … The vast majority of new tax revenue, $733 million, came in the form of new personal and corporate income tax rates that have drawn national attention and will go before the voters in a crucial special election in 2010.

As noted on this blog, over the next four years, increased taxes on hospitals and health insurance will be as large as the increased personal and corporate income taxes.  All of these new taxes amount to $2.6 billion in new taxes.

Oregon’s minimum wage is another line of demarcation. The $8.40 hourly rate is the second- highest in the nation, and while liberals see it as helpful to the poor, fiscal conservatives claim that it hurts businesses and even some low-wage workers who might not get jobs because of it.

Actually, this has nothing to do with “liberals” and “conservatives.”  Empirical research demonstrates that Oregon’s minimum wage is associated with an unemployment among young workers that is 5 to 10 percentage points higher than it would be if the state’s minimum wage was the same as the federal minimum wage.

The state-level stimulus has provided its own controversy, similar to the national debate over the federal stimulus. The Oregon Legislative Fiscal Office credits the program with having “created or retained a total of 3,236 jobs” in its first three months.201 But an Associated Press investigation questioned the way the state counted those jobs and found that each job lasted a total of 35 hours, or less than a week of full-time employment.

Oregon is quickly reaching the point where employment impacts published by state agencies cannot be trusted [1, 2, 3].

PERS: Oregon’s 800-pound gorilla that the Pew report missed

It is well known that Oregon’s Public Employee Retirement System (PERS) has been a major driver of Oregon’s high state and local government spending.  It is a system of generous promises that shifts to taxpayers nearly all of the risks of investing in asset markets.  The PERS crisis earlier this decade pushed the state to the edge of insolvency.  There is still a risk of another crisis in the future.

At the end of 2007, Pew published a report that said Oregon had THE BEST funded pension system in the U.S. (pdf). Even though the PERS Board knew of the flaws in Pew’s study, it promoted the report as proof of the system’s soundness (pdf).

Pew seemed unaware that the state and many local governments issued pension obligation bonds to plug the huge deficits in their accounts.  This practice shifted money out of the pension system and onto the books of the individual government entities.  It did not solve the problem, it simply made a pension problem into a bond problem.  Pew missed this crucial fact of Oregon’s pension system, which means that Pew’s conclusions are meaningless.  The PERS Board should have known this and flagged it for Pew.  Instead, the PERS Board trumpeted the flawed findings.

California—and Oregon’s—fiscal problems are spending problems not revenue problems

The Pew report focuses almost exclusively on states’ challenges to find new or additional revenues.  Much of the fiscal problem facing states are spending problems: Misdirected tax credits, ambitious programs, and skyrocketing public employee expenditures.

The Pew report does not describe how much is spent on Oregon’s Business Energy Tax Credits.  The Pew report only briefly mentions the massive expansion of state-run and state-subsidized health care in the state.  These new programs will cost as much or more than the amount returned to taxpayers with the last Kicker payment.

A number of Oregon companies, nonprofits and government agencies in Oregon have benefited from the Business Energy Tax Credit, known as BETC, or “Betsy.”

Critics of the BETC say that program is too generous and that it does not deliver on its promises of economic development.

Oregon Governor Kulongoski’s spokeswoman Anna Richter Taylor said the governor is focused on improving the program, as evidenced by new rules governing the program. “The governor agrees that it’s time to review the program and its economic benefit to the state,” she said.

For proof of that benefit, BETC supporters point to a February 2009 study done for the energy department by the Portland consulting firm ECONorthwest. Among its conclusions: that $73 million of tax credits in 2007 created 900 more jobs than if the money had been spent on other state-funded programs.

But Eric Fruits, a conservative economist who teaches at Portland State University, is not impressed. Using Oregon’s public records law earlier this year, he obtained an earlier draft of the report that did not paint the same picture of unblemished success.

Instead, the draft ECONorthwest report showed that for some types of BETC spending, the money would have produced more jobs if invested in other state programs.

Fruits also obtained a Jan. 16 e-mail from the study’s author, Stephen Grover, noting the mixed results, and asking the Energy Department’s then-assistant director whether he should change the report. He offered to combine categories in the final draft, thus making the negative results go away.

In the end, that’s what happened. The final report showed only positive impacts of the program.

Asked about the e-mail, Grover said the changes were intended to correct for potential inaccuracies. He said that such changes are common in presenting a report.

But when directed to Fruits’ blog, which details the changes to the draft, Sen. Chris Telfer, R-Bend, called it “disappointing.” “You’ve got my blood boiling now,” she said.

Read the full story in the Bend Bulletin (registration required).