Sunday, August 30, 2009

Fairy Shrimp and Delta Smelt

I did a fair amount of work on the Endangered Species Act before moving to the Valley. My Ph.D. dissertation was the first study to empirically test the theory of "preemptive habitat destruction" caused by the threat of ESA restrictions on private land. Indeed, there was evidence of habitat destruction, and the study has become one of the most widely cited sources by conservative voices (like the Pacific Legal Foundation) who want to reform the ESA. I did that work a decade ago, but it is still frequently cited. Last year, Rush Limbaugh himself even said my name and cited the research in a segment on his radio show on the ESA.

This article in today's Stockton Record reminds me of the many problems of the ESA as applied to private lands. Brad Goehring has had numerous problems with various federal wildlife authorities, because he owns land that is Fairy Shrimp habitat. The frustrations have motivated Goehring to run for Congress. I don't know all the details of his case, but I have a lot of sympathy for Goehring on this issue.

In my opinion, the ESA often fails when it comes to protecting habitat on private lands. I also think that we must consider costs when preserving endangered species, and that it doesn't make sense to try and protect everything.

With that background, it is surprising to some people that I have been supportive of Delta pumping restrictions to protect the endangered Delta Smelt. I must admit, I never thought I would write declarations in support of Earth Justice on an ESA case, but a few months ago I did just that.

In the case of the Delta, the endangered species habitat are public water resources, not private property like Goehring's farm, so the problem with the ESA creating perverse incentives for private landowners doesn't exist. The Delta water is provided to private interests with generous taxpayer subsidies, especially the Central Valley Project. In this case, it is the artificially cheap water that is creating the incentive problem and inefficientl use of the resource. Although both the Fairy Shrimp and Delta Smelt are ESA cases affecting Central Valley farmers, they are very, very different.

Thursday, August 27, 2009

It's official. NUMMI to close

Toyota's Board officially decided to end production at NUMMI in March 2010 this morning.

This is an absolutely huge blow for the East Bay and Northern San Joaquin Valley, and will come just as job growth was expected to resume again in the region.

Although, I question the 50,000 job claim in the previous post, the impacts are still very, very large.

Monday, August 24, 2009

Job Loss Exagerration: NUMMI edition

The Friends of NUMMI are claiming that closing the Toyota plant (called NUMMI from its days of joint operation with GM) will cost 50,000 jobs. The plant itself employees 4,500, so this would be a multiplier in excess of 10. I find that a bit hard to believe. [Addendum: I see the source is NUMMI itself, see comment for link. I would be interested in seeing the report the tabulated this to know all that is included.]

I'm not downplaying the significance of this potential plant closure. I think this closure would be significant enough to derail the economic recovery in the East Bay and Northern San Joaquin Valley. It is the most important looming risk to the regional economy, and auto manufacturing has just about the largest ripple/multiplier effects of anything. And this would be a permanent loss of high-paying jobs. At this point, I haven't done any detailed research on this plant, but my educated guess is that the total employment impact would be closer to 20,000.

Of course, the big 50,000 lost job figure will prove to be much more effective in wringing incentives out of state government, and reports suggest the state is pulling out all the stops to keep them building Toyotas in California. No sales tax on new equipment (similar to farmers' tax break on farm machinery), reduced electricity costs, investment in new infrastructure for shipping, offsets of losses against future taxes on profits, etc.

After so many posts beating up on the Agriculture community for exagerrating water job losses in an effort to get the Federal and State government to waive environmental restrictions and invest in increased water supply; it seems fair for me to point out that they are not alone in using very large lost job estimates to push for favorable action from government.

Friday, August 21, 2009

Unemployment Friday

The July 2009 report shows the CA unemployment rate at 11.9% and total non-farm jobs are now down 950,000 from its peak exactly 2 years ago in July 2007. Our forecast is that we have about another 1/2 % point increase in unemployment and about 70,000 more lost jobs to go before bottoming out.

Although terrible by any normal standard, this report followed the national report for August in showing a significant decline in the level of employment declines consistent with a bottom in the fall. That is good news, because the 2nd quarter employment reports for California remained stubbornly high while the U.S. reports showed gradual improvement.

One thing that makes it hard to conclude too much from this report is the seasonal decline in education employment. As we enter the last stage of the recession, we anticipate losses in public schools and local government will be among the more significant changes here. However, July and August data is always very noisy in these sectors and it will be 2 months before we can get a real read on the net impacts.

Total farm jobs in the Valley continue to show a normal seasonal pattern and be up slightly from a year ago.

Tuesday, August 18, 2009

California: The Physical Education State

Yesterday was the first day of school for my kids, so I spent last night looking over their schedules and school materials such as staff directories.

We moved to California 1.5 years ago, and we love everything about it except for the schools. Maybe the high pressure, high achivement schools my kids were previously enrolled in were too much. I do like that my kids don't cry about homework anymore, and they generally like school better here, have nice teachers, and are learning. I also like that my kids are getting exposed to a lot more diversity, making friends from a wide variety of backgrounds, and they play outside more. But, I must admit the schools are easier and have lower standards.

And I can't help but notice that art, music, and foreign languages seem to barely exist while PE seems to be well funded. With a body builder Governor, I suppose this is to be expected.

Last night, I noticed that my daughters middle school has 6 PE teachers, 6 English teachers, 6 math teachers, 1 music teacher, 1 world language teacher, 1 art teacher.

I looked up the middle school she would be attending if we hadn't moved (it was larger and was 6-8 as opposed to 7-8): 4 PE teachers, 4 music, 4 art, 4 world language, 12 math, 12 english.

I looked up the middle school I attended as a kid (small, 7-8): 1.5 PE, 3 world language, 3.5 music, 4 math.

Toyota NUMMI plant at risk

Everyone in economic development in Northern California has their eyes on what is now a Toyota plant in Fremont. A Japanese paper printed an unnamed Toyota source saying the plant was going to be closed, but Toyota is denying it and saying no decision has been made.

The ripple effects of this across the Altamont pass into San Joaquin and Stanislaus county will be enormous. I have heard half of the 4500 employees work in San Joaquin and Stanislaus, and I know a large number of their suppliers do as well.

Let's hope this is just a rumor and Toyota stays in California.

Sunday, August 16, 2009

Marginal Changes: A comment on farm job estimates

I have received several comments from environmentalists about our recently released Fish or Foreclosure study that wonder why I say the drought has cost 6,000 farm jobs, when total farm jobs have increased. I understand this, because I was the one who initially brought the fact that farm jobs in the Valley were increasing to public attention, and this fact has been repeated by many in the environmental community since. It's true, and there is nothing wrong with pointing out the total change, especially when someone is blaming 40,000 lost jobs on the Delta Smelt as Congressman Nunes did in yesterday's Wall Street Journal.

The 6,000 lost jobs are a marginal effect of drought AND include all the multiplier effects (about 3,000 of these lost jobs are agriculture jobs). Total agricultural jobs can increase by 3,000 and the drought can eliminate 3,000. It means that we feel agricultural jobs would be up by 6,000 if there were no drought, but increased by a smaller amount because of water shortages. We believe farm jobs would be increasing substantially without a drought because the recession has boosted labor supply.

Another comment on marginal effects. I believe the marginal employment effects of water supply will increase if water deliveries are cut even more than they are this year. The farm labor shortage is gone now, the ability to use even more groundwater is limited, and the water issue will progressively impact higher and higher value crops. So, our study estimated the $600-700 million in lost revenue only cut 6,000 jobs (a little less than 10 jobs per $1 million in revenue). My rough estimate is that any further losses could impact jobs at 15-20 per $1 million in lost revenue.

Temperance Flat Dam Cost-Benefit Analysis

When, I saw a news report that the preliminary cost-benefit analysis on Temperance Flat Dam found a benefit-cost ratio of 1 to 1, my inner church lady thought "Isn't that convenient?"

When an agency full of engineers who really, really want to build dams finds a 1 to 1 benefit-cost ratio in their own analysis, it is natural to be suspicious that they might have stretched things to get the benefits up to the magic 1:1 line.

So, my 20 minute skim of the over 200 page report revealed the following:

It looks like they assume that value of water is over $600 af. I didn't see the value listed anywhere (might be hidden), I calculated it myself from charts. That is mighty expensive water, especially for ag.

Some other little gems were tucked into the other benefit categories, such as recreation benefit values being increased by 25% to "account for uncertainty." Water quality benefits increased by 50% "based on willingness to pay."

There was a large number of emergency supply benefits included to account for the chance of a Delta island collapse that cuts Delta deliveries. A peripheral canal is supposed to protect us from this risk, so I guess these benefits disapear if we build the PC. Put another way, I guess the need for a PC is lower if Reclamation goes ahead and builds Temperance Flat dam.

Bottom line is that this is an important analysis that needs a serious review. No doubt, I am missing a lot in my quick skim. Let's hope it is getting an independent review and revision.

Thursday, August 13, 2009

California Water Issues Forum

I went to the California Water Issues Forum on Wednesday to learn and to ask questions.

I wrote my questions on a card as directed, and waited through the 3 hour long program. When the public had it's turn to speak, they changed the rules and said no questions, just comments. They said they wanted people to be able to speak, so they wouldn't recognize specific questions (like mine). Lester Snow gave the impression that they will get back to us with answers to our specific questions. When (if?) I get a response, I will post it here.

I understand wanting to let the people speak instead of the panelists answer questions. That would have been really great if the panelists hung around to actually listen to the comments other than Leter Snow and David Hayes (I'm sure they will all watch the archived webcast.) I thought the point of the event was for the decision makers to listen to the people's concerns. Jeff Mount, Tom Birmingham (Westlands Water District), Karla Nemeth (BDCP) and others have had plenty of opportunities to give their point of view. Maybe they should have made it questions, because then the panelists would have been forced to stick around and listen.

For what it's worth, I will post the 3 specific questions I put on my card here.

1. Lester Snow (DWR) and Karla Nemeth (BDCP): Are you going to fund a cost-benefit analysis for the peripheral canal? If not, why? If yes, are you going to have an open RFP (Request for Proposal) or just hire Dr. Mount (i.e. UC-Davis)?

2. Dr. Mount: You discussed sensitivity analysis and the robustness of your results in your presentation of why it isn't cost effective for us to fix certain Delta islands after they flood. That's good. What about the more controversial part of the PPIC study in which you endorsed a peripheral canal? As a good scientist, no doubt you have done a sensitivity analysis to your assumptions. Is your conclusion about the peripheral canal robust? Specifically, does it stand up to: a) lower earthquake risk (you said yours were too high), b) lower economic multipliers (your co-authors admit they are too high), c) lower assumptions about population growth (your studies assumptions are based on huge projections justified with fake references), d) lower assumptions about water recycling cost ($1500af, proven to be nearly 3x too high today, let alone 2050), e) incorporate a 20% per capita reduction in water use which is easily attainable and a state initiative, f) lower desalination costs, g) lower costs for levee upgrades (I don't know about this, but Delta engineers say it is true), h) putting an explicit value on improving fish stocks.

3. Dr. Mount: If you flood those Delta islands as you suggest, are you aware that it will cost 80,000 jobs and the social impact will be devastating? Just kidding about the number of jobs (comment intended to be a joke about the exagerrated claims of unemployment in the Valley caused by the Smelt). My question is why such a cold treatment of Delta farming, ignoring social impacts, recreation and other values. When your study looked at a scenario that would take South Valley farms out of production, the PPIC study explicitly calculated "social impacts" such as lost jobs. When modeling a scenario that takes out Delta farms, you do not. Why the inconsistency?

[Post slightly edited by on 8/16 to tone down the rhetoric a little. I should also point out that I like much of what Dr. Mount has done, don't have a problem with him speaking on this program, and he is asking many of the right questions. His statements that we need to prioritize our investments and can't save everything are right on target, as is the focus on peer reviewed science boards. However, I suggest they broaden their perspective of what we might not save.]

Wednesday, August 12, 2009

Bill Jennings needs to simmer down

I'm not surprised that Bill Jennings of the California Sport Fishing Protection Alliance is a fan of the report we released yesterday on unemployment in the Valley, Fish or Foreclosure?

Unfortunately, he is getting a little carried away saying that we are "exposing the lies of Congressman Nunes and Cardoza" Nobody is lieing, they are getting information from bad sources, and we are providing them with a better source. They are guilty of listening too much to one point of view, but I think they believe what they are saying is the truth.

This is especially unfair to Cardoza, who has consistently stated that it is both foreclosure and water.

Tuesday, August 11, 2009

Lunch with Almond Growers

Today, I was the luncheon speaker at a meeting of Specialty Crop Trade Council. It was a group of about 40 growers and marketers, mostly of nuts, from Chico to Bakersfield, including a large representation from the Fresno Area. I generally do about 2 talks like this a month to various business groups, and it is a good way to learn about business issues.

The talk was about our general economic forecast, not the water issue, which didn't come up at all. At my lunch table, they were discussing the thousands of acres of 20 year old almond orchards being ripped out because of low prices. I asked "what about water? Isn't that the reason we are losing almonds?" The response was that there was some of that too, and I was also advised not to believe everything you hear out of Westlands.

I also noted that the salmon was a more popular lunch choice than the chicken. I should have asked them how they felt about eating the imported salmon (pacific coast salmon fishery closed again this year), if they felt safe eating that imported stuff, and if they cared about the California salmon fishery being closed. Oh well, at least I saw first hand that almond growers recognize that salmon is food:)

This was a great group. Great questions, very smart.

Sunday, August 9, 2009

Manufacturing Jobs

An interesting pair of viewpoints on manufacturing jobs in the Sunday Sacramento Bee.

Chris Thornburg and Jon Haveman of Beacon Economics shred a recent Milken Institute report on manufacturing jobs promoted by Jack Stewart in the other forum article.

Beacon (Thornburg and Haveman) are very good at what they do. You have to respect private consulting economists who have the guts to criticize the "chamber of commerce" point of view, because that usually isn't good for business.

Although there are serious issues with costs in California, I am cautiously optimistic about manufacturing in the state after we emerge from the recession.

Thursday, August 6, 2009

Buy One Anyway

As someone who subscribes to several newspapers even though I mostly read them on-line, this video made me feel warm and fuzzy inside. I can now view this behavior as a humanitarian act instead of economically irrational. Maybe I should subscribe to a few more and sponsor another reporter.

In all honesty, I encourage everyone to do this. Society needs newspapers. Maybe the editorial pages should start lobbying for public subsidies. After all, other industries lobby for handouts in their stories every day. On second thought, that is the stupidest thing I ever typed on this blog. Government influence over the press is not good!

Tuesday, August 4, 2009

Mother Jones Magazine on Water Footprints

Some interesting comments from some of the hard hit Westside drought farmers in this Mother Jones article (No I don't normally read Mother Jones, the link was sent to me). Jim Dietrich has a multi-million dollar water-sipping irrigation system, but no water to put in it.
On a recent afternoon, he climbed into his Dodge Laramie with his golden retriever, Joey, and drove through his fallowed fields. He passed a jumble of blue pipes, part of his $20 million drip irrigation system, which uses a third of the water of his old furrow system. "We paid more for that drip system than we paid for the goddamn ground," he grumbled. It didn't seem fair that he'd been cut off from his carefully allotted supply while nearby farmers with grandfathered water claims were still flooding their fields. "We're trying to be the most efficient as we can, and now we get no water."

I agree that this is ridiculously inefficient, but it is less the fault of "wacko environmentalists," than the lack of well-functioning water markets and higher prices for water. With higher prices and markets, those who have not invested in efficient irrigation will sell water to those who have made the investment. The flood irrigation next door stops, and Dietrich's system is using the same water efficiently. See David Zetland's Aguanomics blog for many posts on this concept that explain it far better than I.

The Mother Jones article goes on to describe ideas for allocating water to the most efficient through some elaborate process of grading farm's efficiency that is social engineering at its worst. Amazingly, it makes no mention of how markets allocate resources to the most efficient users without all the people and politics involved in rating and choosing the most deserving. It even fails to mention markets as an option, even as it compares it to cap-and-trade (market) programs for greenhouse gas emissions. That reminds me why I don't read Mother Jones regularly.

Sunday, August 2, 2009

Cash for Clunkers

Damn, I knew I should have bought a used SUV 5 years ago instead of a used VW. If I had made that bad environmental choice in the past, I could now be rewarded in the Cash for Clunkers program.

My old VW Passat is a borderline clunker, and I would love to replace it with an even more fuel efficient and reliable vehicle (maybe a hybrid). My Passat has $1850 trade-in value according to the Blue Book, so a $4500 rebate could be just the incentive to get me in the door to buy a new car. Too bad, the Passat doesn't have bad enough gas mileage to qualify as a "clunker." Even if the clunker program was expanded to accept my car, it would still be wasteful because the program would require my car to be junked, even though it is a useful car with above average gas milage.

If we want subsidies to create a more fuel efficient fleet, we should just subsidize the purchase of fuel efficient vehicles period and not link it to what you are trading in.

Yes, I'm annoyed that I don't qualify for the program, and that make me quicker to complain. I also am in favor of government stimulus for the economy, but not this kind.

Update: While driving down 99 this morning, I was noticing all the "clunkers" being used for work. I saw several dinged up Ford F150s and vans loaded up with tools and supplies, and on the way to a job. If this program gets too big, it will become more difficult and expensive for many lower-income people to find affordable work vehicles in the future (because the program requires these vehicles to be scrapped, as opposed to resold when they are traded in now). In other words, this "stimulus" program hurts poor people who benefit from used vehicles. It's an unintended consequence that is not mentioned in most of the articles about it that only mention positives.

New Downtown Stockton Hotel to Close

The Lexington Hotel is set to close next week due to foreclosure proceedings after being open less than 20 months.

This is a shame, because it may be the nicest hotel in the Valley (not that the competition for that honor is real tough). They say the hotel is viable and I think that is credible. The problem is the condos. The top 3 floors of the 7 story structure are condos, not the hotel. Not a single condo was sold. Zip. And all the extra debt to build those luxury lofts is putting them under. They should have stopped building after 4 floors!

In a grand statement of how screwed up finance and real estate lending was a few years ago, designing the structure to be nearly 1/2 condos was key to financing. There was zero market for those condos even during the boom, but there was a tremendous appetite for lending to residential development.

I suppose it could be worse. In Fort Myers, FL (which now has higher foreclosure rates than Stockton), this 32 story condominium high-rise has only 1 tenant.