We are proud to announce that former graduate student Taylor McKenzie received the 2017 Transportation and Public Utilities Group (TPUG) dissertation award. TPUG is an international forum for researchers in the economics and public policies in the transportation and public utilities industries. It is one of the oldest associations within the American Economics Associations. Taylor’s dissertation used Bayesian techniques to estimate firm specific and time varying markups, scale elasticities, productivity and technological efficiency in the railroad markets. He received his degree in 2017 and took a job at Sandia National Laboratories in Albuquerque, New Mexico.
Though it doesn’t always feel like it, the U.S. economy has hit the “sweet spot” and is on track to be one of the longest recovery periods on record, said economists Tim Duy and Bruce McCain on Thursday at the 14th annual Oregon Economic Forum in Portland.
“After eight long years, we’ve finally reached a full-employment economy,” said Duy, director of the Oregon Economic Forum and UO professor of practice in economics. “It will feel tighter. There will be more traffic and longer lines at Starbucks. Companies will have a harder time recruiting new employees and job growth will be slow. It will feel like a loss of momentum, because companies can’t grow as fast, but that’s more related to supply-side constraints rather than moving into a recession.”
Both Duy and McCain expected the economy to continue at the current pace for another two to three years and did not see the signs of a “bubble.”
Read more at Around the O.
Can the UO cut air travel—and polluting jet emissions?
The ubiquity of flying for business and pleasure has made the airline industry a major contributor to climate change, according to organizations such as the Environmental Protection Agency.
With an eye toward becoming more eco-friendly, some businesses and universities have responded by taxing air travel in an effort to curb the number of flights taken by employees, thereby cutting polluting jet engine emissions.
Can it work at the University of Oregon? Probably not.
That’s the conclusion of Haiming Kuang and Kathryn Sternberger, economics students who analyzed this question for a project that earned them honors distinctions when they graduated in June.
Read more on the Cascade website.
Oregon’s legalization quickly cut Washington border pot sales – featuring UO Economics faculty Benjamin Hansen, Keaton Miller and Caroline Weber
Also taking a dip was the amount of legally sold marijuana leaving Washington, UO economists Benjamin Hansen, Keaton Miller and Caroline Weber noted in their findings, which were published online this week in the working paper series of the National Bureau of Economic Research.
“We found that the majority of marijuana sold in Washington is actually staying there,” said Hansen, the UO’s W.E. Miner Professor of Economics. “We found that prior to Oregon’s legalization 11.9 percent was potentially being diverted out of Washington overall, and it dropped to 7.5 percent after Oregon’s legalization.”
Read more about this study by Economics faculty at Around the O.
CASCADE article featuring EC faculty members Anca Cristea, Mark Thoma, & Tim Duy
Those were Donald J. Trump’s words in July, when he became the Republican nominee for president at the party’s national convention in Cleveland. Now the Trump presidency is well under way, with an ambitious lineup of policies and proposals that trigger broad questions about the future of America.
Social scientists in the College of Arts and Sciences—three from political science, three from economics—were asked to dissect issues in play under the new administration: immigration, trade, the economy, health care and political movements. They explored the key elements underpinning these topics and what’s at stake.
Associate professor, Department of Economics
Interests: international trade, industrial organization, applied econometrics
Which is the better path: making international trade as open and fluid as possible? Or protecting US industries by raising the cost of imports? What happens to the average worker under either scenario?
Cristea is an empirical trade economist who assesses trends through statistical analysis. She studies the global benefits of easy movement of goods, services and people and the impact of trade on the environment and workers.
Trade generally lowers the cost to make goods and services, but it creates winners and losers when production is moved to locales with lower labor costs.
It’s better for business to have easy access to the global playing field, Cristea said—but that can come at the expense of workers whose jobs are outsourced to non-US competitors.
RECENT HISTORY: For decades, the US has generally not taxed imports or taxed them minimally—say, 2 percent on manufactured goods. Manufacturers who ship a $20,000 car from Japan pay about $400 in import taxes, for example.
The theory, Cristea said, is that making trade free or inexpensive encourages countries to play to their strengths. Businesses stick to producing what they do best, export the surplus, make a profit and grow; they save money by importing what would be expensive to produce or procure domestically.
But the US has shed about five million manufacturing jobs since 2000, which critics blame on free trade.
CHANGING THE JOB POOL: The new administration is trying to reverse this trend; proponents of trade protectionism believe it will restore a substantial number of manufacturing jobs. But research indicates that advances in technology are more important than trade in explaining the decline in manufacturing employment.
“Protecting trade is not going to preserve jobs lost to increased automation and technological development, both of which tend to be cheaper than human labor,” Cristea said. “These jobs are not going to come back.”
As US employers have moved all or part of their operations abroad, manufacturing jobs have dropped. But some firms relocate only part of their business and the savings allow them to retain and expand higher-paying jobs in the US, Cristea said—jobs in research and development, marketing and sales, for example.
In fact, at the same time that the US was losing manufacturing jobs, it was adding 53 million jobs in services, Forbes magazine reported—in sales, housekeeping, nursing and teaching, for example. Of these new jobs, about 60 percent were in higher-paying occupations than the jobs lost.
TRADE DEFICITS: The new administration wants to correct trade imbalances with countries such as China and Mexico, Cristea said, but it’s important to understand the nuances of this issue.
A trade deficit means that the value of a country’s exports is lower than the value of imports. There are two kinds of trade deficits: bilateral and global. The former refers to trade between two countries; the latter, to the total value of a country’s exports minus the total value of imports.
It’s misguided to focus on bilateral trade deficits as a measure of economic health because those figures don’t factor in trade with third parties. Consider Mexico: In 2015, the US used almost 70 percent of that country’s imports for its own exports, although that’s not reflected in the $50 billion US trade deficit with Mexico.
It’s better to focus on global trade deficits and to keep them from growing in the US. The current figure—$500 billion—is about 2.5 percent of the value of all US goods and services. This is the important deficit to watch, Cristea said—countries continue to invest in the US economy but the global trade deficit could eventually raise concerns that they won’t get a return on that investment.
Mark Thoma—Health Care
Professor, Department of Economics
Interests: debt, unemployment, interest rates, economic policy, health care
The difficulties Republicans have had replacing former President Obama’s Affordable Care Act leave the country with the same question that has persisted for years: How to control health care costs while ensuring or expanding coverage?
Millions of Americans get coverage under Obama’s signature health law—a record 6.4 million signed up in 2017, for example. But premiums for users and costs to government are rising significantly—the Congressional Budget Office warns that at the current pace, spending on federal health care programs will drive budget deficits and debt to record levels over the next 30 years.
Thoma is a macroeconomist who studies both monetary and fiscal policy, with a focus on the US economy. One of the most important issues for the economy is health care—and Thoma has followed it closely.
Thoma is well-known for his column in The Fiscal Times and his blog Economist’s View, which Nobel Prize winner and New York Times columnist Paul Krugman called “the best place by far to keep up with the latest in economic discourse.” Science Magazine listed Thoma as one of the 100 most-followed scientists on Twitter and he is a regular source for the national press.
The health care debate will ultimately hinge on a philosophical question rather than an economic one, Thoma said: Is health care a commodity or a right?
If the country decides that health care is no different from any other good, Congress could choose to give the health insurance industry more latitude in determining who receives coverage. However, if health care is seen as a right, that could impose a moral obligation on lawmakers to ensure that those who can afford it help pay for those who cannot.
In such a system, Thoma said, the government—not private insurers—would be a logical authority to oversee coverage.
THE ACA AND BEYOND: Regardless of whether the Affordable Care Act continues or is eventually replaced by a Republican alternative, Thoma said the underlying principle is the same. For government-run health insurance markets to work, people must be required to participate. If healthier people don’t have to buy insurance, Thoma said, everyone is in trouble.
Health care isn’t like other goods and services. The costs to individuals can be astronomical, arising without warning—costs to treat a serious illness or an injury. Most people can’t save enough to prepare for these expenses or afford them when they happen.
The solution is to pool money in an insurance fund—everyone pays and that money covers major expenses for the unfortunate. The snag, Thoma said, is the cost, or premium, to join. It’s an average of the expected costs for both healthy and unhealthy members, so it’s automatically a bad deal for the healthy—it’s more than their expected costs, so why not skip the expense and gamble on not getting sick or injured?
To avoid this scenario, the ACA forces people to buy health insurance by charging those who would otherwise go without. But it doesn’t charge enough, Thoma said—too many healthy people still leave the pool.
Without a mandate that everyone buy health insurance, or a steep penalty for going without, the downward spiral begins: As those in good health leave the pool, premiums rise among those remaining, more people leave and eventually only those with high health-care costs remain, facing premiums that they can’t pay.
That’s bad for everybody, Thoma said, because we’ll all end up paying more for health care. Those who can’t pay for insurance will get care in emergency rooms or through other costly means, and insurers will cover those costs by raising everyone’s premiums.
SWITCH TO SINGLE-PAYER? An alternative to people buying (or not buying) health care is the “single payer” approach—residents pay taxes to the state and it becomes the single payer, providing health care or contracting for it with private organizations. This approach could become popular, Thoma said, as more people join Medicare, a single-payer program that provides health insurance for older Americans who have paid for it through a payroll tax.
But regardless of the plan, Thoma said people need help making informed choices about treatment.
Say the issue is cancer—is surgery the answer? What about radiation or chemotherapy? Which hospital? Health insurers must provide guidance. With private insurance, insurers decide what procedures they will cover depending on how high a premium the client is willing to pay. Alternatively, government can regulate health care and determine which procedures are appropriate.
BENDING THE COST CURVE: Be wary of lawmakers arguing that a looming fiscal crisis makes urgent the need for a health care overhaul, Thoma said—rising costs must be slowed but we haven’t arrived at a budgetary crisis.
Rising health care costs drive increases in the national debt. But interest rates for loans remain relatively low and foreign stakeholders continue to buy up our debt—both suggest that the economy is sound and that there is no looming budgetary crisis.
Tim Duy—The Economy
Professor of practice, Department of Economics, and director, Oregon Economic Forum
Interests: macroeconomics, monetary policy, local and regional economics
The US economy grew 1.6 percent in 2016, down from 2.6 percent the year before. Forecasts are for around 2 percent growth for the next 10 years.
Is that too fast? Too slow? Or just right?
Economic growth is the increase in the amount of goods and services produced over time, and it relates directly to the number of jobs available. If growth is too slow, jobs vanish; if it’s too fast, there aren’t enough workers to keep up, and that causes rising prices and inflation.
What’s a president to do?
The Trump administration is acting on several fronts as it manages the economy—but that’s a delicate dance, economist Tim Duy said, and the wrong move can cause the nation to stumble.
Administration officials are weighing increased spending and tax cuts as they debate the proper rate of economic growth. Were Duy privy to that discussion, he’d be counseling caution regarding any major moves.
FIRST, DO NO HARM: Despite job losses in manufacturing, President Trump inherited, overall, a healthy economy, Duy said—low unemployment, solid wage and job growth, rising workforce participation, low inflation and low interest rates.
Stealing a page from the Hippocratic Oath, he said the best policy for the new administration would have been to “do nothing,” for fear of harming economic momentum.
Trump officials have other plans. The president has made tax reform a priority and has proposed broad-based personal tax cuts. Tax cuts that favor the wealthy might temporarily boost the economy, Duy said, but it would be more effective if those tax cuts went to the middle and lower classes.
Infrastructure spending—which Trump has also proposed—helps the economy if it raises productivity. Road projects, for example, can reduce shipping costs, which benefits producers and consumers, Duy said.
But other moves could slow growth, he added—restricting immigration, for example, hurts the labor supply in many sectors.
THE “D” WORDS: Some people fear that a slowdown in economic growth could cause deficits and debt to grow.
Duy doesn’t share this worry. Annual deficits of $400 billion have pushed US debt to $20 trillion. But economists haven’t identified the amount of debt that is problematic for a country such as the United States, Duy said, which doesn’t truly face the prospect of bankruptcy. As a last resort, he noted, the country can pay off debt by printing more money—although that can trigger inflation.
Duy is more concerned that the administration will trigger excessive economic growth—that is, more than the workforce can accommodate. Because that can cause inflation, officials will likely try to avoid that scenario by raising interest rates, making it more difficult for businesses to borrow money and grow.
WHITHER THE FEDERAL RESERVE: Those officials are with the Federal Reserve—they set US monetary policy, and the makeup of their board is one of the most intriguing questions under the new administration, Duy said.
The Reserve’s job is to maximize employment and keep prices stable, and they do this by adjusting interest rates to keep the economy growing at a steady-but-sustainable rate. The current board would likely raise interest rates in response to a surge in the economy, to keep that growth in check, Duy said.
The operative term is “current”: Given upcoming departures from the Reserve board, Trump could appoint as many as seven members over the next two years, dramatically swinging fiscal policy from controlling growth with high interest rates to more likely freeing it with low ones.
“If you’re worried about the Federal Reserve offsetting your efforts to stimulate the economy,” Duy said, “you stack it with people who favor lower interest rates.”
He favors the appointment of “run-of-the-mill centrists” less likely to tip the economy into recession through extreme swings in interest rates.
Featuring Bill Harbaugh – Spring 2017 Issue of CASCADE
Your answer should indicate whether you’re more concerned about others or yourself. But it doesn’t, necessarily. You might lie just to look good: “Charity, of course!” Even if you truly would donate the money, you might do it out of self-interest—say, to appear compassionate. In fact, you might not even know why you’d give up the $20 in that situation.
Given human nature, it’s hard for scientists to get at the truth of a seemingly straightforward question: Is it possible to care wholly and completely for the welfare of others—or is self-interest always involved?
Ulrich Mayr found an answer, by asking a source that doesn’t mislead: the human brain.
The head of the psychology department (above right) teamed with economics professor Bill Harbaugh and psychology graduate student Jason Hubbard to test whether there is such a thing as “pure altruism”: acts of kindness done not for our own benefit but only for the benefit of others. The tests included MRI imaging that showed—at the neural level—whether subjects’ brain pathways were excited more by charity or self-interest.
The result was a resounding “yes”—some people give solely to help others. Even better, Mayr said, is the possibility that this kindness can be learned.
Q: You could study any number of human behaviors. Why altruism?
Ulrich Mayr: Well, it touches on a very basic question, doesn’t it? Mainly, whether people are good or bad. Scientists have historically tried to answer that question through a more specific one—the willingness of people to share their hard-earned resources with others in need. But that’s a tough nut to crack. People give away money for all sorts of reasons—to get their name on a building or get something in return or just to make people think that they have great character. You can’t get a good answer by simply asking people, “Why do you give?” You have to trust your subjects to tell you the truth, but they don’t always do so, so you’re in a bind there.
Q: Your tests involved real money. Walk us through them.
UM: First, we asked people repeated questions about how much money they wanted to give to charities and how much they wanted to keep. This was actual money paid to them for being in the study, so every dollar they didn’t give away they could take home. We kept a tally of how much money they were willing to give away over the course of the experiment.
Next, we ran them through personality questionnaires—how nice they are to others, how often they give to charity, how much they volunteer, that sort of thing. We wanted a broad understanding of their tendencies to be selfless or altruistic.
Q: Why would someone tell you if they’re actually selfish and greedy?
UM: That’s exactly the problem. Both the personality questionnaire and the giving-away-money exercise are subject to lying—you don’t really know what’s driving people’s responses, altruism or self-interest.
But the brain doesn’t lie. So for the third piece, we placed people in an MRI scanner and honed in on the “reward” areas of the brain that respond whenever something good happens to you—it could be money, good food or sex, for example. On a monitor, they watched transfers of $20 going to charities or to themselves. But they had no control over whether the money went to them or the charity. That’s important. In this situation, all of the non-altruistic motives fall away—you can’t influence anything, so you can’t engage in self-interest.
We observed that for some people, the reward areas respond when money comes to them—no big surprise there. But for some people, it responds more strongly when money goes to the charities. This is a measure of pure altruism—it cannot be easily faked.
Q: Why did you measure altruism three ways? Why not just rely on the brain imaging?
UM: The questionnaires and behavior tests are the traditional ways that we have tried to measure altruism, but we didn’t know whether they were actually getting at that behavior. By adding brain imaging, we found that all three are truly measuring altruism—there was consistency among the scores indicating a person’s level of altruism, across the three methods.
UM: This was an interesting little tidbit. We asked people to make decisions whether to give to charity under two different conditions—one in which their setting was completely private and they knew no one was watching, and one where they were watched by people in a control room in white lab coats. People in the latter condition gave considerably more.
This shows that those self-interest motivations are also there, even in the people who are also very benevolent. But these reactions can be isolated and they don’t
affect the assessment of pure altruism.
Q: What did you find regarding older subjects?
UM: We found that a 60-year-old is about twice as likely to give money away to charity as a 25-year-old.
It’s always been known that older people give quite a bit more money, although psychologists are still trying to figure out why. Our study confirms that older people give more but it’s not because they have more money, or feel more pressure to give, or are more inclined to follow expected social norms. There is a “strengthening” of this general tendency to be benevolent.
Q: Why do you think older people are more charitable?
UM: One possibility is that it’s purely biological—something switches on in the brain that makes us more altruistic. I find that very implausible.
If you assume that’s unlikely, it has to be something that people experience—something about the way that older people construe the world that is different in younger adults. If that is the case then it’s something, in principle, that can be learned.
It’s important to note that the purpose of the reward areas in the brain is not to make us happy—that’s not their evolutionary purpose. Their purpose is to signal to the brain an action that is worth repeating. It’s a learning mechanism—it drives what the brain needs to encode, to memorize, so it can repeat it in the future to get that root sense of reward again.
Q: Do you think it’s possible to teach altruism?
UM: Well, we have shown here that by engaging in altruistic behavior, you get a reward in part of the brain. That should actually strengthen future altruistic behavior. I think it provides a key toward thinking about educational measures that could really drive this reward-related mechanism and strengthen altruistic behavior.
It suggests that it should be possible, maybe through a mild coercion, to get people to actually do good deeds. You could ask your kids to spend a portion of their allowance for a good cause of their choosing, for example. They may experience something they wouldn’t have experienced if you didn’t coerce them, and that’s a way to get that sense of reward. Then, if you’re somewhat lucky, it becomes a self-driving force and you don’t have to coerce them anymore. It becomes a habit.