A recent New York Fed suggests that real estate “investors” (a/k/a “flippers”) played a big role in the enormous increase and subsequent collapse in housing prices during the 2000s.
The study notes that these investors used financial leverage in the form of mortgage credit to purchase multiple residential properties. As down payments on the properties are reduced, the upside benefits accrue to the investor/flipper, but the downside risks increase for the lender.
The study concludes that real estate investors likely helped push prices up during 2004-06. Then, when prices turned down in early 2006, investors defaulted in large numbers and thereby contributed importantly to the intensity of the housing cycle’s downward leg.
The study is Haughwout, A., Lee, D., Tracy, J., and van der Klaauw, W. . Staff Report No. 514, Federal Reserve Bank of New York.
A of the study is available from the New York Fed.
Agricultural co-operatives have a limited exemption from U.S. antitrust laws. It seems that the exemption turns, in part, on whether members of the cooperative are exempt “producers” or non-exempt “processors.” Thus, a question arises when the line is not so clear: When does a “producer” mutate into a non-exempt “processor”? , an attorney at SheppardMullin, :
The law also has been relatively straightforward that agricultural immunity is forfeited where the cooperative, or its members, engages in “predatory” acts directed at third-parties. …
An issue of significance in In re Fresh and Process Potatoes, however, is whether Capper-Volstead immunity extends beyond the setting of sales prices through “collectively processing, preparing for market, handling, and marketing” to efforts to augment the sales price of the commodity through agreements to restrict output. Surprisingly, in the 90 years of the Act’s existence, this issue has remained unresolved.
Mr. Hibner continues:
Nevertheless, the legality of output restriction agreements among agricultural cooperatives and their members seems to be an issue who’s time has finally come. In In re Fresh and Process Potatoes, the court concluded, in denying the cooperatives’ motion to dismiss, that it could not determine whether the Capper-Volstead exemption applied without a fact-intensive inquiry into two issues. The first was whether vertically-integrated members of the cooperatives included “non-producers”, such that Capper-Volstead immunity would be forfeited. Second, was whether the Capper-Volstead Act included, within the concept of “marketing”, agreements to collectively implement production controls, in order to raise prices.
Some economics of agricultural cartels, from a pioneering published in the Journal of Law and Economics.
The Capper-Volsted Act of 1922 awarded both tax-exempt status and antitrust immunity to agricultural cooperatives. Likewise, since its passage in 1937, the Agricultural Marketing Agreement Act (the AMA Act) has enabled growers of fruits, nuts, and vegetables to decide how much and what quality of their produce to sell on the fresh market. Whenever a two-thirds majority of growers within a region, by number or by volume, can agree to a set of marketing restrictions, the AMA Act authorizes the secretary of agriculture to declare these restrictions legally binding on all distributors of the crop within the region. As formal agreements designed to reduce competition, marketing orders operate as government-enforced cartels.
An agricultural cartel operates like a dominant firm facing a competitive fringe: the cartel can adjust the amount it ships to the fresh market to influence price, while growers outside the region covered by the marketing order are price takers.
The finds that growers can restrict quantity by restricting quality. For example, output can be reduced if the growers agree that only fruit or vegetables of a certain size are to be sold fresh.
It is not clear In re Fresh and Process Potatoes is affected by quality restricts. Nevertheless, it will be case worth following.
The Oregon Employment Department’s 2010 to 2020 industry employment predicts:
Total payroll employment will grow by 18 percent over the decade, adding 298,000 jobs to Oregon’s economy.
Oregon’s private sector will grow by 20 percent between 2010 to 2020. Oregon’s private-sector employers are expected to increase their payrolls by 275,600 jobs over the next 10 years, accounting for 92 percent of all new jobs in the state.
Government payrolls will expand by only 7 percent over the decade.
James Langenfeld and Christopher Alexander examined cases in which challenges were made to antitrust economist expert testimony since 2000 to see how Daubert and related rulings may have affected testifying economists. Here’s a brief summary of their findings:
Economists appear to be challenged more frequently in antitrust cases than in many other types of cases.
Daubert challenges of economic experts have a fair chance of succeeding, and some data suggest that economists testifying in antitrust matters are more likely to have testimony excluded than in other types of cases.
Plaintiffs’ experts are much more likely to be challenged than are defendants’ experts, suggesting that Daubert challenges by defendants have become a routine litigation tool.
Fourth, there are indications that there is a greater chance of excluding plaintiffs’ economic experts from providing testimony in antitrust cases compared to defendants’ experts.
The complete article is Langenfeld, J. and Alexander, C. (2011). Daubert and other gatekeeping challenges of antitrust experts. , 25(3). (subscription required)
A technical appendix is available at Langenfeld, J. and Alexander, C. (2011). . ABA: Antitrust Source, 25(3).
Labor mobility is a key condition for a well-functioning labor market. If workers can’t move from place to place, then they can’t adequately respond to changes in the job market. Some observers have been concerned that homeownership can be a drag on a worker’s ability to respond to changes in the job market. At the same time, reduced mobility can contribute to a sticky housing market with reduced turnover and the potential for depressed prices.
A from the New York Fed takes a look at how three issues facing homeowners affect the ability of homeowners to move as economic conditions change.
Being “underwater” reduces household mobility. Negative equity reduces household mobility by 30 percent
Property tax increases and/or increased mortgage costs reduce mobility. The study finds that $1,000 of additional mortgage or property tax costs reduces household mobility by 10 to 16 percent.
For the complete study, see Ferreira, F., Gyourko, J., and Tracy, J. (2011) . Staff Report No. 526, Federal Reserve Bank of New York.
One of the many criticisms of the Bush Administration was what was perceived to be relatively lax antitrust enforcement. Whirlpool’s acquisition of Maytag in 2006 has been used by critics as Exhibit A to highlight the administration’s laxity.
“Underenforcement” was the term applied to the administration’s actions or lack of actions on mergers and other areas of antitrust oversight, as by two well known antitrust experts:
These decision makers appear overly willing to accept defense arguments about entry, expansion, and efficiencies, while downplaying the loss of competition inherent in the proposed merger.
These two experts cited the March 2006 decision by the DOJ not to challenge Whirlpool’s acquisition of Maytag as a key example of antitrust “underenforcement” under the Bush Administration. To be fair to critics of the merger, the DOJ the merging parties’ arguments about entry and expansion.
The Division found that, despite the two companies’ relatively high share of laundry product sales in the United States, any attempt to raise prices likely would be unsuccessful. Whirlpool and Maytag represent two well-known brands in the industry, but rival appliance brands such as Kenmore, General Electric and Frigidaire are also well established, and newer brands such as LG and Samsung have quickly established themselves in recent years. LG, Samsung, and other foreign manufacturers could increase their imports into the U.S.
Keep those names—LG and Samsung—in mind. You’ll see them again in this post.
The , however, did not buy into the merging parties’ arguments:
Of particular concern … is the market for top-loading washers—a unique “American” product for which there is no foreign competition. That market is dominated by Whirlpool and Maytag with only GE and Electrolux the remaining small rivals. No existing or prospective competition—domestic or foreign—the AAI argues, would discipline a post-merger price increase.
Who was right?
A seems to suggest that the DOJ got it right.
Last week, Whirlpool Corp. asked the U.S. government to impose duties on imports of residential washing machines made by South Korean rivals Samsung Electronics Co. and LG Electronics Inc. This is the second time since the merger that Whirlpool has sought to use U.S. trade laws to protect itself from imports. In March, the company asked for duties on imported refrigerators.
What is particularly interesting is Whirlpool’s entry into the front-washer market, as reported by the Wall Street Journal:
Whirlpool makes washers at a plant in Clyde, Ohio, and said it recently began bringing back to that plant some front-load washers it had been producing in Germany and Mexico. But, in its petition to the government, the company said that unfairly priced imports have wiped out profits on that production in Clyde, “to the point where Whirlpool’s ability to maintain its commitment to expanded U.S. production is very much at risk.”
LG and Samsung sold tens of thousands of washers at deep discounts, sometimes as much as 50%, during the recent Black Friday sales period, Whirlpool said. Whirlpool tried to limit its Black Friday promotions this year and ended up losing market share, it said.
Imports of all makes of residential washers, excluding the smallest models, accounted for about 34% of units sold in the U.S. in the first nine months of 2011, up from 28% for 2008 as a whole.
Eight states will begin the New Year with a higher minimum wage under state laws that mandate minimum wages increase with inflation. Washington State will become the first state in the nation to set its minimum wage above $9 an hour. Oregon’s minimum wage will follow closely behind with an increase to $8.80 an hour.
The minimum wage is a textbook example of a price floor resulting in too many workers chasing too few jobs, especially among those applicants with the fewest skills. The result is higher wages for those who get a job, but no jobs for many who are seeking employment.
on Oregon and Washington’s minimum wage increases finds that the states’ higher minimum wages have, on net, a negative impact on employment and wages.
Higher minimum wages in Oregon and Washington are associated with reduced employment: Oregon and Washington’s higher minimum wages are associated with a statistically significant reduced probability of being employed.
Younger members of the labor force are more likely to be adversely affected by increases in the minimum wage: Oregon and Washington indexing policies produce annual increases in the minimum wage that, in turn, are likely to increase unemployment, especially among the young. The table below shows the impacts of higher minimum wages on youth unemployment over time. As Oregon and Washington’s minimum wages increased over time relative to the federal minimum, the states’ youth unemployment increased relative to what it would have been otherwise.
Higher minimum wages have no statistically significant impact on wages of Oregon and Washington hourly wage earners: Some proponents of higher minimum wages argue that the increases have a “” for employees just above them on the pay scale. However, statistical analysis of Oregon and Washington does not find any “ripple effect.” Indeed, controlling for employment impacts, increasing minimum wages has no statistically or economically significant impact on incomes.
Bottom line: Minimum wage indexing seems to impose employment costs with no measurable income benefits.
For more information on data and statistics, please see Fruits, E. (2009). . Employment Policies Institute.
If you have ever visited Portland, it’s fairly certain that someone will proclaim that the city has more strip clubs per capita than any other city. Indeed, Portland’s reputation is international. Earlier this year, the UK’s newspaper dropped the factoid in its review of .
More recently (in an article that doesn’t seem to have much of a point), magazine paints a scene in which progressives bike side-by-side with the prurient:
Peaceful, green, and liberal, Portland has a reputation for being unusually socially conscious. So visitors are sometimes surprised to learn that it is a plausible contender for the title of lewdest place in America. It has more strip clubs per head than any other city; in its compact downtown, sex shops are scattered amid the bookstores, coffee bars and social services.
Aside from that fact that there is hardly a scattering of sex shops and—truth be told—downtown is somewhat of bookstores, The Economist article repeats Portland’s most famous statistic that it has more strip clubs per person than any other city.
Is it true?
Ask a Portlander if the statistic is true and he or she will say, “Sure it’s true, just ask anyone!”
It’s not a statistic that the Census Bureau collects. The Chamber of Commerce does not spend any energy counting its members who own strip clubs.
So where did the statistic come from?
The oldest article I could find online came from a 1995 article which suggests the newspaper conducted its own survey:
And what of that “most strip clubs” boast? Our Internet survey of Las Vegas, the gold standard of urban debauchery, reveals 30 clubs, which works out to 5.85 strip joints per 100,000 residents. San Francisco, that legendarily libidinous burg, is estimated by SF’s adult weekly, The Spectator, to have 17 strip clubs, or 2.2 per 100,000 residents. By comparison, Uncovered and Exotic list 41 strip clubs within the Portland city limits. With a whopping 7.74 clubs per 100,000 residents, Portland solidly trounces these two centers of vice in number of brass poles per citizen. In your face, San Francisco!
Bottom line: A local paper began with the assumption that only Las Vegas and San Francisco could possibly beat Portland in the metric of strip clubs per person. The paper counted clubs, divided by population, and—voilà!—a legend was born. The methodology is pretty shaky, so you should take a generous grain of salt next time you’re told Portland has the most strips per person of any city. If this were PolitiFact, the claim would be rated “Barely True.”
The is just one piece of Portland’s plan to become the . Building backers hope it will be a jewel in the crown of a sustainability showpiece. Critics fear it will be more famous for its jaw-dropping construction costs and the inflated rents necessary to make the project break even.
Enter Tom Kelly. Mr. Kelly knows buildings and building costs. He is president of , which is one of Portland’s top remodeling firms. This year he was named , a national award.
Today’s Oregonian gave Mr. Kelly a to the editor as a follow-up to its own .
Mr. Kelly’s letter addresses the costs of building the Oregon Sustainability Center by pointing to other Portland projects that also have jaw-dropping construction costs.
Each of the projects mentioned are in the public sector. One is the Port of Portland’s new headquarters and the other is Oregon Health and Science University’s Life Sciences building.
With the economic downturn, office construction in downtown Portland has been at much of a standstill. The most recent private sector office building completed is called , a class A building with LEED Platinum certification. Although construction cost have not been made publicly available, the building recently changed hands at a price per square foot that is 26 percent lower than the costs of constructing the public buildings.
The US Third Circuit that participation in a profit sharing agreement is not sufficient for a business to be considered a competitor in the relevant market for antitrust purposes.
In the case, the Plaintiff, SigmaPharm did not market or manufacture the good in question, a generic version of the muscle relaxant, Skelaxin. Instead, SigmaPharm develops generic pharmaceuticals and enters into agreements with other entities to commercialize them. The Defendants, Mutual Pharmaceuticals Company and United Research Laboratories, develop, manufacture, market, sell, and distribute pharmaceutical drugs. Plaintiff and Defendants entered into a “development agreement,” also characterized as a profit-sharing agreement, in which Plaintiff granted Defendants certain rights in future “innovations” developed by Plaintiff in exchange for payments from Defendant.
The court seemed to indicate that for party to be considered a participant in the relevant market, it is necessary for that party to provide a good or service that is “reasonably interchangeable” with what is offered by those in the relevant market. Because Plaintiff did not market or manufacture the good in question, it did not satisfy this criterion.
To be or not to be a market participant
The court seemed to recognize that a fine line exists between being “in” the relevant market and being “out” of the relevant market. Although Plaintiff did not did not market or manufacture the good in question, it did provide a key input. The court explains its thinking this way:
Although not a competitor in the market for SKELAXIN-equivalent products, SigmaPharm provided an input into what could have been Mutual’s entrée into that market. This input—the formulation for a drug that is bioequivalent to SKELAXIN—is certainly a crucial one, but this does not transform SigmaPharm into a competitor in that market for purposes of our antitrust-standing analysis. See Asahi Glass Co. v. Pentech Pharm., Inc., , 990 (N.D. Ill. 2003) (finding supplier of active ingredient for drug lacked antitrust standing to allege anticompetitive agreement to apportion market for the drug). Consumers in the market could not have “abandoned [King] in favor of [SigmaPharm] alone. Doing so would [leave] [such consumers] without the most important part of the package of goods and services [that could have been] offered by [SigmaPharm and Mutual] together: the [SKELAXIN-equivalent product] itself.” See Barton & Pittinos, 118 F.3d at 182-83. Therefore, we agree with the District Court that SigmaPharm was neither a consumer nor a competitor in the relevant market.
