Comments on economics, mystery fiction, drama, and art.

Friday, April 30, 2010

And just how is the recovery going?

Data for the first quarter of 2010 was released today (and will be revised as new data comes in, so let's not get too excited one way or the other). It shows 3.2% growth, at an annual rate, in real GDP. This works out to about 0.8% growth from the fourth quarter of 2009 to the first quarter of 2010. Based on our experience with recoveries from recessions, are we recovering rapidly or slowly from this one? I've put together a table showing the quarter-over-quarter growth for the first three quarters following the troughs of recessions, beginning with the 1960/61 recession (trough in February 1961, or the first quarter of 1961 for GDP purposes). For the purposes of this table, I'm assuming that we'll eventually conclude that the trough of the 2007/09 recession occurred in June 2009 (or the second quarter of 2009).

Trough.............Q1.............Q2.............Q3.............3 Quarter Growth
Feb 61..........+1.82%.....+1.62%......+2.04%...............+5.57%
Nov 70.........+0.87%.....-1.11%.......+2.85%................+5.57%
Feb 75..........+0.77%.....+1.73%......+1.46%................+4.00%
Jul 80...........-0.26%.....+1.59%... ...+2.12%.................+2.87%
Nov 82.........+1.22%......+2.29%... ..+1.97%................+5.58%
Mar 91.........+0.48%......+0.36%.....+0.52%........... .....+1.37%
Nov 01.........+0.48%......+0.36%..... +0.63%............. ....+1.48%
Jun 09..........+0.75%.....+1.24%.... .+0.80%.................+2.81%

Well, we have 8 recessions here. Three of them (troughs in 2/61, 11/70, and 11/82) had fairly robust growth over the first three quarters of recovery, around 5.5% to 5.6% over those 3 quarters, a little more than a 7% annual rate of growth. In another (2/75 trough), the recovery's first three querters saw 4.0% growth, a little more than 5% on an annual basis. This recovery has been fairly similar (albeit with a very different quarterly growth pattern) to the recovery beginning in 7/80--about 2.8% over the three quarters (or about 3.7% or so on an annual basis).

The current recovery is about twice as robust as the recoveries from the two immediately preceeding recessions (ending in 3/91 and 11/01), but those recoveries were barely worthy of the term.

Overall, this has not been, so far, a robust recovery (5.5% or so growth over the first three quarters of recovery). It has not been even an "average" recovery, which would require three quarters of growth totalling about 4%. But things could be, I suppose, worse....

The detailed BEA news release is here.

Friday, April 23, 2010

A simple financial reform

Proposed by Richard Green; I like this a lot.

Thursday, April 22, 2010

Athletic department salaries

I probably shouldn't make too much of this, but in 2008, Purdue University paid salaries of $100,000 or more (the maximum was $322,600) to 22 people working in "Intercollegiate Athletics Administration." (The database apparently does not include Indiana University.)

Addendum (3 hours later): Having found the data elsewhere, I can now tell you that Indiana University has 29 athletic department staffers making more than $100K in the 2009-10 academic year.

Hat tip to Phil Miller at The Sports Economist.

Tuesday, April 20, 2010

Casinos and Crime Rates

William Reece has published* an extraordinarily detailed analysis of the relationship between the opening of casinos and crime rates, using a unique data set for Indiana, much of which (especially the data on hotel rooms by county) he constructed. As he notes, determining what we would expect the relationship between casinos and crime rates is difficult to determine:

"Following the economis model of crime, new casinos could either increase or decrease local crime rates. If introducing new casinos creates job opportunities in the area, new casinos could, by increasing the opportunity cost of crime, reduce crime rates. Also, increasing activity within existing casinos could have the same effect...The economic model of crime [also] suggests that colser proximity of potential criminals and potential victims would increase local crime rates...lowering transportation costs between potential criminals and victims...increases crime rates..." (p. 146)

What he finds may be disconcerting for advocates of casinos as a tool for economic development. For several classes of property crimes (larceny, burglary, and robbery), crime rates rise significantly over the five years following the opening of a casino. Thefts of motor vehicles apparently rise in the first year, but then experience no significant change in the following years. So it appears that casinos do, on balance, lead to increaed rates of property crimes.

On a more hopeful note, assault rates apparently fall in the five years following the opening of casinos, and the incidence of rape is apparently unchanged. (These results are derived from his Table 2, on p. 153, and Table 3, on p. 155.)

But--and, casino supporters, take note--he also finds that greater casino activity (not openings), as measured by the number of casino patrons (using turnstile counts) is associated with lower crime rates. This suggests that, as the economic activity associated with casinos increases, crime falls.

There are many ways to view this, including the classic economist's call for additional research. My own take is that, at present, it's hard to conclude that casinos have a significant effect, either as factors leading to increases in crime rates, or as opportunities leading to reduced incentives for crime.

*William S. Reece, "Casinos, Hotels, and Crimes," Contemporary Economic Policy, V. 28, N. 2, April 2010, pp. 145-161.

Tuesday, April 06, 2010

Disaster and death

Another disaster in another coal mine, and it is again the miners and their families who bear the immediate price.

I spent five years in West Virginia, in graduate school, from 1970 to 1975. Each year, there were coal mine disasters, deaths, communities shattered. Each year, in one way or another, someone in the coal mining industry reminded us that mining is dangerous. It is, but it does not have to be.

In 2008, 40,500 workers were employed in underground and surface mining in the US. There were over 2,600 reported cases of injury (including death); 26 of those injuries were fatal (apparently, according to the NY Times, 35 died in 2009). 2010 will almost certainly be worse. But in Germany, where, in 2009, over 30,000 workers were employed in mining coal, only about 1,200 workers were injured and only 4 fatalities occurred.* High injury and fatality rates are not a necessary consequence of coal mining in an advanced, industrial country.

And it's happening again. At least 25 miners are dead and at least four are missing and presumed dead in an explosion in a coal mine near Montcoal, West Virginia (about 40 mines south of Charleston).

This makes two things clear. First, that safety regulation in coal mining is not optional. It is essential if we want to regard ourselves as a civilized country. Second, that the system is broken. The New York Times, reporting the current disaster, tells us:

"For at least six of the last 10 years, Federal records indicate, the Upper Big Branch mine has recorded an injury rate worse than the national average for similar operations. The records also show the mine had 458 violations in 2009, with $897,325 in safety penalties assessed against it, of which it has paid $168,393."

This is, according to the Times, a company that took safety, if not casually, then not as a priority. 458 safety violations discovered in a single year--and inspections are not a daily event. Fines of less than $2,000 per violation, of which only 18% were even paid? Human life? Less important than coal. Unless we, as citizens and voters, decide we care more about the lives of coal miners than we do about cheap energy, unless we press our Representatives and Senators to enact more stringent regulations, and unless the US Mine Safety and Health Administration has the power and the will to enforce those regulations, then, in another two years or less, another mining disaster will occur. More people will die, needlessly. Another community will be shattered.

*To be fair, things are worse--a lot worse--in China.

Monday, April 05, 2010

As the Baseball Season Begins

It's time to take a brief look at the payroll numbers, as reported by USA Today.

Not surprisingly, the Yankees had the highest team payroll, both in 2010 ($206.3 million) and in 2009 ($201.4 million). In 2010, the Pittsburgh Pirates seem poised to begin the season with the lowest team payroll ($34.9 million, down 28% from 2009). The Pirates' payroll decline is MLB's largest (14 teams enter this season with lower payrolls than last, and 11 of these teams have cut their payrolls by 10% or more; Toronto, at -23%, and Cleveland,at -25%, were fairly close to the Pirates; the largest dollar reduction: Cleveland, -$20 million; Toronto, -$18 million, and the Mets, -$15 million).

If 14 teams cut their payrolls, then 16 teams increased them. Boston (+$40 million), Minnesota (+$32 million, partly on the basis of Joe Mauer's large salary increase), and Philadelphia (+$28 million; winning two consecutive pennants will do that to you) led the way in dollar terms, with Florida (+55%), Minnesota (+49%), and Boston (+33%) having the largest percentage increases. And Boston managed the third largest payroll increase from the third largest base ($121 million, behind only the Yankees and the Mets--$149 million--in 2008).

Overall, the average team payroll is up 2%, from about $88.9 million to about $90.6 million. In 2008, the largest team payroll was 5.47 times as large as the smallest (again, that's the Yankees and the Marlins); this year, it's 5.9 times as large (Yankees and Pirates).

There's a fair amount of stability at least in the rank order of team payrolls; the correlation between 2010 payrolls and 2009 payrolls is 0.91 (1.0 is the maximum correlation).

How well does payroll correlate with winning? Here, the answer may depend on what your expectations are. Payroll clearly does not determine team wins, although it is fairly strongly related. The correlation between team's payrolls in 2009 and their wins was 0.48. Perhaps not surprisingly, the correlation between 2010 payroll and 2009 wins is stronger, and significantly stronger, than that: 0.59. Clearly, teams pay a price for winning. The correlation between 2010 payroll and a team's change in wins from 2008 to 2009 was also 0.59--so getting better also has a (future) cost. And the correlation between a team's change in payroll from 2009 to 2010 with its change in wins from 2008 to 2009 is also relatively robust, 0.42. (the correlation between the percentage change in a team's payroll and its change in wins is somewhat smaller, only 0.38).

Oh. And were the best teams in 2008 and in 2009 the same? Well, yes and no. The Phillies and the Dodgers both repeated as division champs, and the Phillies made the World Series in both years. Only the Angels repeated as division champs in the AL, and the Yankees, who won the Series in 2009, were not in the playoffs at all in 2008. More concretely, the correlation between wins in 2008 and wins in 2009 was a significant, but not huge, 0.48.

Let the games--and the arguments about whether you can buy a pennant/World Series--begin!