Wednesday, July 4, 2018

A Lake Woebegone Problem

Back in 2001, when we were colleagues in the Economics Department at the University of Montana, Tom Power and I wrote a book - Post Cowboy Economics - in which we tried to pick apart the relationships between environmental protection, natural resource exploitation and family incomes in the Mountain West. One of the troubling questions that we had to confront was why incomes in places like Missoula were so much lower than they were in the rest of the United States. And the answer, at least in part, lay in geographical differences in the cost of living (COL for short).

The simple fact was that when we compared the incomes of Missoula families to the incomes of other  Americans, those other Americans were living predominately in pretty large cities.  And while they typically took home bigger pay checks than Missoulians, they also had higher living costs, particularly when it came to housing. In fact, when Tom and I did the math, to a pretty substantial degree, the earnings disadvantage from living in Missoula and not, say, Los Angeles, was offset by the lower cost of living in the Garden City.

Now flash forward to today’s Missoulian, which reports that the Missoula Economic Partnership has just released a study of the city’s competitiveness in attracting new business, which includes, among its findings, that while Missoula families have incomes below the national average, their living costs, rather than being low, are above the national average. Evidently, what worked for Tom and me a couple of decades ago just isn’t working any more.

Or is it? After all, don’t most American still live in big, expensive cities and pull down wages commensurate with those high living costs?

Well, yes they do, but here’s the problem: when we talk about average earnings and the average cost of living, we’re talking about different kinds of averages. US average family earnings are calculated across all the families in the nation, while average cost of living is calculated across all the cities in the nation, regardless of each city’s population. That means that New York City, with a COL index of 166, and Missoula, with a COL index of 103, count equally in computing the US average COL (100), even though New Yorkers outnumber Missoulians by about 100 to 1. If big, high COL cities carried more weight in computing the national average, that average would be higher, and Missoula would come in below, not above it.

Here’s an entirely hypothetical numerical example of the problem. Suppose we have three cities; call them Big, Medium and Small.  There are 300,000 families in Big that earn an average of $57,150 per year and face a COL index of 120.  There are 30,000 families in Medium, with an average income of $50,000 and a COL index of 105, and 20,000 families in Small, with average incomes of $35,700 and a COL index of 75.

Now the first thing to notice here is that real incomes (that is, income adjusted for the cost of living) are the same in all three of these communities. $35,700 goes just as far at the store in Small as $50,000 does in Medium and $57,150 does in Big. 

The next thing to notice is that the average COL index for these three cities is 100 (that’s the average of 120, 105 and 75). So by that calculation Medium has a cost of living 5 percent above the national average and Big's COL is 20 percent above the average. Viewed in terms of families instead of cities, the situation is a little like Lake Woebegone's. When it comes to cost of living, nearly all families - 330 out of 350 thousand - are above average.

The last thing to notice is that if we average the incomes of all 350,000 families living in the three cities, the result is $55,790, so income in Medium is below the national average.*  And there you have it. Medium, like Missoula, has below average income and above average living costs. That sounds like there’s a significant economic disadvantage to living in Medium. But there’s not. In this example, at any rate, real incomes in Medium are the same as real incomes anywhere else.

To be clear, I am not claiming here that the difference between average income in Missoula and the rest of the country can be entirely accounted for by differences in living costs.  But there is a sort of Lake Woebegone problem with the way the MEP report measures COL. The fact is that for most Americans, who inhabit places like San Francisco or Chicago or Seattle or New York, Missoula would be a relatively cheap place to live, and if they were contemplating coming to Missoula to take a job in some spanking new startup, the cost of living here would be the least of their worries.

*To calculate average family income for the 350,000 families, you need to compute the total income they earn and divide by 350,000. The total income earned by families in any city equals (average income) x (number of families), so for Big, for example, total income is 300,000 x $57,150. For all three cities the total is (300,000 x $57,150) + (30,000 x $50,000) + (20,000 x $$35,700). Divide that number by 350,000 and you get $55,790.

Thursday, May 31, 2018

Reefer, Crashes and Boatloads of Cash

Given Montana's relatively bad traffic fatality statistics, it seems to me that we can't promote legal recreational marijuana use without at least understanding what impact it might have on public safety on the highways. And in that regard the statistics cited by Pew in a new report might give us pause. But I have my doubts about how useful they are.
Essentially, what Colorado, Washington and other states that have legalized recreational use are reporting is a pretty big increase in the number of drivers who were using (or had recently used) marijuana when they got killed in an accident. That's suggestive, but it doesn't prove much. What we really want to know is whether, when you smoke a joint or pop an edible and get behind the wheel, you’re more likely than you otherwise would be to end up killing yourself or somebody else. And the way to answer that question is to compare the fatal accident rate for all the drivers who are under the influence of marijuana with that of all the drivers who aren't under the influence of anything. Even that comparison could be misleading, of course, because the universes of using and non-using drivers may differ from one another in some relevant respect, such as age. That's a typical confounding variable problem, and it needs to be accounted for, but in any case, we don't have the data needed to make the comparison in the first place. 
That doesn't mean that the question can be ignored. Pew reports that in 2016, of all the fatally injured drivers tested, 38 percent tested positive for marijuana use alone (the issue gets a lot more complicated when you have to take into account cases where the driver was using marijuana and drinking, or using other drugs, at the same time). On the assumption that drivers are usually tested when there is some reason to suspect they were impaired, the rate of marijuana use among all fatally injured drivers is probably less than 38 percent. That may yet sound pretty high, but whatever it is, we still don't know how it compares to the rate of use among drivers who don't have fatal accidents. It would surprise me if 38 percent of all the drivers out on the road tested positive, but what do I know? And as Pew points out, coming up with the right data is further complicated by the fact that drivers can "test positive" for marijuana long after any effects that would affect driving have worn off.
I doubt that in what remains of my political career (one more session in the Montana Senate) I will ever have the opportunity to vote on legalization, so my opinion doesn't count for much. But for what it's worth, it seems to me that decriminalization is a no-brainer. It's a monumental waste of time and resources to pursue, arrest, convict and incarcerate people for smoking a little reefer. When it comes to full on, Colorado style legalization, however, and particularly the promotion of recreational use, I have some some concerns - about public safety, for one thing, and about the health impacts of the very powerful marijuana available in the shops, for another. And the last thing in the world I think we should do is legalize because we can then collect a boatload of tax dollars. We shouldn't make ourselves financially dependent on the sale of a product that may turn out to be a stone around our necks. We did that with coal, and you can see how that worked out.

Monday, April 30, 2018

Ships in the Night

Talk about ships passing in the night!

The Missoulian today reports on the Republican US Senate candidates’ positions on the perennial question of the choice between economic health and environmental protection.  And in the same issue, there’s a piece out of the Flathead explaining just how important access to a high quality environment and outdoor recreation is to the health of Montana’s rural  economies.

As politicians of all stripes usually do, the Republican candidates (Rosendale, Fagg, Downing and Olszewski) want you to know they can give you whatever you want. Reconciling the competing demands of the economy and the environment is simply a matter of striking the right balance between protecting natural areas and outdoor recreation, on the one hand, and providing jobs in extractive natural resource industries on the other. To see it any other way, they tell you, is to embrace a false dichotomy.

Now there is a false dichotomy here, but it’s not what they think it is. It resides, rather, in comparing the benefits created by protecting the environment with the labor costs of exploiting it for commodity production. Those benefits and costs are apples and oranges.

If politicians want to fret about the jobs that will be created by using natural resources in different ways - and it seems that that’s about all politicians want to fret about - they can have at it.  Maximizing job creation and labor costs is not really a very sound basis for managing resources - it’s a far cry from finding their highest and best use - but if you are going to do it, you ought to look at the jobs created by every use, not just resource extraction. And as the Flathead article makes clear, protecting the environment and the opportunity to recreate creates lots of jobs. Not because of commercial activity associated with recreation - guiding, fishing gear sales, snowmobile rentals and so forth - but because people want to live and work and do business in nice places where they can have fun outdoors. It simply isn’t true that protecting the environment means people will have to go without jobs. On the contrary, they gravitate toward high quality environments and bring their jobs with them.

Another way of comparing alternative natural resource uses is by weighing the benefit each use provides. In the case of extractive uses, that’s pretty straight forward: the benefit is the market value  - or better yet, the market value net of production cost - of the commodities extracted (coal, for example, or timber). In the case of conservation, the benefits - again, best measured net of production costs - are the streams of environmental services (clean water, wildlife habitat, recreational opportunities, and so forth) that are preserved. Those services may not have a market price, but they do have substantial economic value. 

This comparison of net benefits, if policy makers were willing to engage in it, would drive resources to their highest and best use. But as long as they insist on comparing the benefits of doing one thing with the costs of doing another, we are going to get resource management decisions that are all wrong.

Tuesday, March 27, 2018

Implement the Clean Power Plan

While the President and EPA Administrator Scott Pruitt have made no secret of their hostility to the Paris Accords, the Clean Power Plan, or for that matter just about any other initiative to address the climate change crisis, the EPA is required by law to hold public hearings before its scraps or alters the rules, promulgated under the Obama administration, that created the Clean Power Plan. The following is a text of a letter to Director Pruitt in support of the CPP from 32 Montana legislators, submitted as written testimony at the EPA hearing in Gillette, Wyoming today. 

March 27, 2018

E. Scott Pruitt, Administrator
Environmental Protection Agency
1200 Pennsylvania Ave. NW
Washington, DC 20004

Dear Administrator Pruitt:

As elected members of the Montana State Legislature, we write in response to your request for comment on the proposed repeal and replacement of the Clean Power Plan (CPP). In our opinion, any weakening of the CPP would be a grave mistake and would seriously threaten the health and wellbeing of Americans and indeed our neighbors throughout the world.

Since the CPP was first proposed by the prior administration, evidence of the extent of climate change, its relationship to carbon emissions, and the severity of its effects has grown rapidly. In the state of Montana, climate change is adversely affecting our agricultural and recreational economies and eroding the quality of the natural environment and ecosystems, which are the heritage of not just Montanans, but all Americans. The disappearance of glaciers in Glacier National Park and the increasing frequency of catastrophic wildfires on national forests are two outstanding examples.

Globally, climate change is now clearly implicated in rising sea levels, species loss, increasing food insecurity, compromised health, and other deleterious effects that threaten the viability of the world economy and the stability of the political order. American military analysts have identified these effects of climate change as a serious national security threat.

Since it became apparent that the current administration did not intend to move forward with the CPP, several states have taken it upon themselves to impose firm, quantifiable and verifiable reductions on their carbon emissions. We applaud the effort of those states, but we are concerned that leaving control of carbon emissions to individual states acting in isolation is unlikely to result in adequate emission reductions. The reason in clear: while the benefits of emissions reductions demonstrably outweigh the costs, those benefits accrue nationally and internationally, while the costs are born locally. It is not reasonable to expect any one state to incur the costs of providing substantial benefits outside its borders unless it is acting in concert with other states and benefiting in turn from those states’ efforts. Achieving such concerted action clearly requires direction in the form of a national policy such as the CPP.

There are several economic aspects of the CPP that we urge you to consider. One is that while efforts (such as the CPP) to control emissions are often perceived to be costly and accordingly, economically inefficient, the fact is that there is now extensive research that demonstrates that the economic magnitude of the damages avoided when emissions are reduced far outweighs the costs of achieving the reductions in the first place. It is clear that in Montana, for example, failing to arrest climate change will seriously damage both the agricultural and outdoor recreation industries which are significant contributors to the state’s economy.

When the CPP was first proposed, several national opposition studies predicted that its implementation would impose unacceptably high costs on the national economy. Since that time, however, emissions from the electric power sector have dropped at a rate comparable to that contemplated in the CPP, strictly as a result of the cost advantage conferred by switching from coal to natural gas for thermal generation and replacing fossil fuel generation with renewables. This suggests that implementing the CPP would be far less costly than critics predicted, and greater reductions could be achieved at acceptable cost.

As legislators in a coal producing state, we are aware of the potential impacts of the CPP on communities that depend on coal for their livelihoods. We believe that the country and energy companies have an obligation to assist such communities in transitioning to a lower carbon and less coal dependent energy system.  Indeed, this is an issue which we already face in Montana and which we have confronted and will continue to confront in the legislative arena. But we also believe that we have an equally compelling obligation to address the very serious threat of climate change, which we cannot do without Federal direction such as that provided for in the Clean Power Plan.


Senator Dick Barrett, Missoula
Senator Carlie Boland, Great Falls
Senator Jill Cohenour, East Helena
Senator Tom Facey, Missoula
Senator Jen Gross, Billings
Senator Margaret MacDonald, Billings
Senator Sue Malek, Missoula
Senator Nate McConnell, Missoula
Senator Mike Phillips, Bozeman
Senator JP Pomnichowski, Bozeman
Senator Diane Sands, Missoula
Senator Frank Smith, Poplar
Senator Lea Whitford, Cut Bank
Rep. Kim Abbott, Helena
Rep. Bryce Bennett , Missoula
Rep. Laurie Bishop, Livingston
Rep. Ellie Hill Smith, Missoula
Rep. Willis Curdy, Missoula
Rep. Amanda Curtis, Butte
Rep. Mary Ann Dunwell, Helena
Rep. Jenny Eck, Helena
Rep. Janet Ellis, Helena
Rep. Dave Fern, Whitefish
Rep. Moffie Funk, Helena
Rep. Jim Hamilton, Bozeman
Rep. Denise Hayman, Bozeman
Rep. Shane Morigeau, Missoula
Rep. Andrea Olsen, Missoula
Rep. Rae Peppers, Lame Deer
Rep. Jean Price, Great Falls
Rep. Marilyn Ryan, Missoula
Rep. Tom Woods, Bozeman

Tuesday, February 13, 2018

Silver Linings

Rep. Wendy McKamey is obviously on the right track when she urges Congress, in today’s Missoulian, to address the critical backlog of deferred maintenance in the nation’s national parks.  And folks down the Bitterroot are right to be alarmed by the President’s intention, in the budget he sent to Congress yesterday, to zero out an EPA program which restores degraded waterways and improves water quality. But as critical as these efforts are, the arguments that McKamey and the Bitterrooters are making for them are really pretty perverse.  For McKamey, the “silver lining” in the enormous task of restoring national parks is that it will create jobs - lots of jobs. For clean water advocates and activists in the Bitterroot, it’s the flow of dollars to contractors who repair roads that are sloughing off into creeks, or the nurseries that provide the plant stock for revegetating stream banks.

Now those are obviously good things. Construction workers need jobs, contractors need contracts, and nurseries need to sell plants. But in the final analysis, what the argument boils down to is this: these programs are a good thing because they will cost a lot.  The implication is that if we could somehow contrive to maintain parks and rivers without creating jobs or letting contracts or buying supplies, that is, without cost, these programs would be less worthwhile. 

What’s going on here is, of course, nothing new and it would be unfair to suggest that McKamey or the water advocates invented this fallacy. On the contrary, it’s standard operating procedure, when making decisions about the use of public resources, to choose the use that has the greatest economic impact. It’s far more politically astute and makes you sound far more hard headed and fiscally prudent to defend expensive programs because they will create jobs and sales, than to claim that they will have ephemeral benefits like historical preservation or access to wildlife viewing or healthier riparian habitat. 

But advocating for a public program because it has a fat economic footprint can take you down a blind alley.  There are a lot of environmental activists in Montana, for example, who argue that our stake in combatting climate change is the damage that will otherwise be done to our outdoor, agricultural and tourism economies. Obviously, they know that there is much, much more a stake than the jobs of fishing guides or motel workers or farmers, but it’s those jobs that they hope will get the attention of legislators and editorial writers. But walk down that alley and anyone can follow you. Once jobs become the only thing that counts, the loss of jobs for coal miners or oil rig workers becomes a perfectly plausible and appropriate reason for opposing any effort to arrest climate change.  

Indeed, if we’re going to arrest climate change, what’s to stop us from worrying about the loss of jobs for the construction workers who will move Miami to higher ground if sea levels keep on rising? That may sound crazy, but isn’t it something like what McKamey is implying? One of the “benefits” of neglecting maintenance and letting our national parks go to rack and ruin is the jobs that will be created cleaning the mess up!

What gets lost in this obsession with jobs is the fact that what both McKamey and the Bitterroot water folks are really talking about is the provision and maintenance of infrastructure. Not in tthe limited sense of bridges or roads or airports, but in the expansive sense of the stock of created and natural public capital. It’s stuff that contributes to our wellbeing just like bridges and roads do, and it needs to be attended to for that reason. But it’s not being attended to; it’s being abandoned, at least by the President. And he’s abandoning it at a time when he says, not very convincingly, that he wants to rebuild the national infrastructure. 

Ah well, looking for consistency in the intentions of Donald Trump, now that is a job.

Friday, February 9, 2018

A Parting of the Ways on Guns

I like all the candidates who are running for Congress in the Democratic primary. On almost every issue their hearts and brains are in the right places. I’ve worked closely with a couple of them in the legislature and respect their abilities.  Some are personal friends on whom I wouldn’t wish the onerous task of raising money, campaigning tirelessly, winning a primary, and taking on and beating Greg Gianforte.

But when it comes to the issue of guns, we reach a parting of the ways.

At a candidate forum in Missoula last night, when they were asked whether they would support expanded background checks for gun sales, all five Democratic candidates said that they would not.  All of them expressed appropriate alarm about gun violence and advocated for better enforcement of gun laws already on the books. But when it came to background checks for the thousands and thousands of guns sold privately or at gun shows, no deal.  As far as I am concerned, that’s an utterly indefensible position.

There’s no mystery, of course, about what’s going on here. I was sitting next to a veteran and venerable Montana political reporter at the forum, and when I began to gnash my teeth and mutter as one candidate after another caved in on the question, she looked at me like I had lost my mind. Never, in her experience, had a Montana Democrat been willing to risk challenging the NRA. There was nothing new to see here folks, so move along.

She’s probably right and I get that, but I am not convinced that what the NRA wants, and what the public thinks is needed, are the same thing. I’m guessing that for most people it is painfully obvious that tougher enforcement of existing background check laws, which apply to sales by licensed dealers, is going to do absolutely nothing to prevent people who we all agree shouldn’t have them from buying guns on-line, or through a classified ad in the newspaper, or at a gun show. In fact, stricter enforcement of existing laws will only lead to greater resort to those loopholes.

Part of the problem here is that we tend to view the issue of effective background checks through the lens of the terrible mass killings that have become a regular part of our national life. Every time some madman or abuser or deranged high school student shoots and kills churchgoers, or fires into a crowd at a concert or club, or murders  a classroom full of kids, we ask where the guns came from, and too often the answer is that they were purchased legally, or taken from the family gun closet, or bought on the street. And from this we shake our heads and sadly conclude, once again, that expanded background checks couldn’t have prevented this most recent mass shooting.

And it’s true: expanded background checks will not eradicate mass shootings. But that’s not the point. Mass shootings, as terrible and visible as they are, are the tip of the iceberg. There are about 30,000 gun deaths in the United States every year, including suicides. We have far and away the highest incidence of gun violence in the world, except for countries being run by drug gangs or torn apart by civil wars. It’s those countries whose company we keep when it comes to killing people with guns. And killing is just part of the story; there’s also armed robbery, drive-by shootings, road rage, intimidation, and the list goes on.

The fact is that the United States is awash in guns and there is a well documented and well understood process by which those guns flow from the hands of legitimate, law abiding owners into the hands of people who shouldn’t have them and will use them to commit crimes. Comprehensive background checks obviously can’t prevent gun crimes, but they can staunch that flow of guns into the wrong hands and reduce the astronomical rate of gun violence in this country. 

And that’s something I would hope any Democrat running for Congress could get behind.