Tuesday, December 23, 2008

Latest Population Estimates

Yesterday, the U.S. Census released its latest population estimates for 2008.

Census estimates the state's 2008 population at 36.75 million with annual growth below 400,000 for six consecutive years.

The California Department of Finance (DOF) recently released a 2008 estimate of 38.15 million.

I trust the Census estimates more than DOF, but the truth may be somewhere in between. I wonder if this 1.4 million population estimate gap is part of the reason the state is continuously surprised by how little tax revenue is coming in.

Of course, I can't resist pointing out that the PPIC/UC-Davis Delta research team is standing by their 39 million estimate of the state's 2008 population.

Fresno Falcons Fold Due to Recession


The damage is spreading. I have noticed attendance at Pacific basketball (despite a good team), and the Sacramento Kings (not such a good team) is lagging as well.

I wonder if Laura King Moon of the SWC will blame this on the Delta Smelt too?

Sunday, December 21, 2008

Who's Being Unscientific?

Some snips from the PPIC's Ellen Hanak in Alex Breitler's Record article about my challenge of the PPIC's infamous peripheral canal study.
"He's done back-of-the-envelope (calculations) and is touting that as some great science," said Ellen Hanak, director of research with the San Francisco-based PPIC.

She said the PPIC did not plan to rerun its analysis using Michael's numbers. That would be time-consuming.
Which one of us is touting bad research as great science?

They had a press conference for their study's release, and promoted it around the state. They didn't release the full study (including the appendices that described their methodology) until months after the press releases. I am told people who asked critical questions were dismissed and told to look in the (then unpublished) appendices. Lots of touting themselves, but can't say much for scientific integrity.

I posted a review of their study on the web, and gave copies to 4 people (non-press) who I thought might be interested. I never presented this until invited last week, and that presentation led to the lone media article in the Record. The review spread on it's own, not because of any PR by me.

They made up a fake reference for a key variable (population) in their study. They provided no references for recycling and desalination costs, and when pressed admit they are using their judgement over volumes of published studies. In other words, they are making stuff up. Their remedy for their errors is to personally attack me, and say they don't have time to consider alternative model runs. So much for academic integrity and the scientific quest for truth.

I cite reliable sources for everything.


People keep asking me how/why I wrote this. In September, two people asked me on different occasions (Bob Ferguson, a Delta farmer; Margit Aramburu, Director of the Natural Resources Institute at Pacific) if I would be interested and able to do a study that placed a dollar value on the numerous Delta environmental and other benefits that were uncalculated in the PPIC report. I told them I would give the PPIC report a detailed read to identify exactly what had been omitted, and get back to them.

I read the details of their report and recognized the false population forecast due to my familiarity with this issue. I emailed Ellen Hanak and Jay Lund (principal PPIC authors) to express concern about the population number, and I was told that it might be high, but wouldn't affect their results. After that I got suspicious about the way they calculated desalination cost, did some research, and made some back-of-the-envelope calculations to see if it was a big error. I sent them another message with concerns and calculations to show the error was potentially large. After another very unsatifactory response, I posted my review on the web, emailed a copy to Margit and Bob, and distributed a few hard copies on-campus. A few weeks (and many downloads off our website) later, I emailed a copy to David Zetland, because I enjoy his Aguanomics blog and thought he might be interested.

That's the big PR campaign Ellen Hanak calls "touting." Comparing this to the PPIC media campaign, I guess Ellen must be touting herself for the Nobel prize.

Sunday papers

This certainly caught my eye in the Record. Alex Breitler did a good job capturing the essence of the issue. More on this article later.

The water contractors give their Delta point of view in the Sacramento Bee Forum. This article is unbelievable. Apparantly, she thinks the recession was caused by reducing Delta water exports. I guess she missed the whole sub-prime loan thing.

Jim Wasserman convenes a good housing panel in the Sac Bee Business section. I don't agree with every little detail, but overall this is one of the best discussions from people in the business I have seen.

Update 12/22: I just sent this letter to the editor to the Bee regarding the water contractors piece:

Much like the Bush administration used the tragedy of 911 (perpetrated by Al-Qaeda in Afghanistan) to justify the invasion of Iraq, Laura King Moon (Many Delta regulations miss the mark, 12/21/2008) is using the hardships of the recession (caused by sub-prime lending and the housing collapse) to justify environmentally destructive water exports from the Delta.

Ms. Moon implies that this year’s water export reductions to farms is increasing unemployment in Mendota (outside Fresno) and driving families to the food bank. However, a look at the data reveals a very different story.

The most recent employment report released by the state EDD shows the farm sector in Fresno County actually added 200 jobs over the past year, while non-farm jobs in Fresno County declined by 4,000. Construction, real estate and wholesale/retail trade account for 3,600 lost jobs in the past year, directly tied to the sub-prime mortgage crisis and resulting recession.

Since the housing peak, about 5,000 construction jobs have been lost in Fresno County, devastating communities like Mendota. Meanwhile, farming has been the 2nd fastest growing sector in the County, trailing only healthcare.

Friday, December 19, 2008

Unemployment Friday

The latest numbers from EDD are out today. They are predictably dismal.

Seasonally adjusted non-farm payrolls decline 42,000 statewide in one month, led by a much smaller than usual holiday, retail hiring surge. Losses are also seen further back up the supply chain, and that hurts places like Stockton, a metro area that is seeing recent good news in the transportation sector evaporate quickly in a broader recession.

In the Bay Area, Silicon Valley is starting to slide, job losses are hitting in computer manufacturing and related tech fields. This is the beginning of a trend we see continuing through 2009. San Jose dodged the worst of the housing recession, but the 2nd half of the recession will definitely be felt.

The Sacramento area posts another weak report. Like everywhere, retail is weaker than expected, construction continues to decline, as is leisure/hospitality. This metro includes Lake Tahoe, and we should be seeing seasonal growth in hospitality. This is the number to watch for next months, December report. Sacramento also posted a big decline in professional and business services, with a significant part of the decline showing up in the higher end professional fields, rather than declines in clerical/temp type positions. If this becomes a trend, that is bad news. Of course, everyone is watching the state budget standoff. We have not seen large scale govt job losses yet, and may not see them if furloughs (temporary pay cuts) are widespread. Thus, the job losses may be limited but the income effects and agency budget cuts will have significant ripple effects through the capital region's private sector.

Still looking for good news in these reports, but haven't found any yet (unless, not being any worse than we expected counts as good news these days).

Tuesday, December 16, 2008

Peripheral Canal PPIC Review: New and Improved

A revision to my review of PPIC peripheral canal economics is now posted.

It includes water recycling costs, new references, and a few edits and comments in response to the PPICs rebuttal.

In Delta news, the judges continue to cut water exports.

South of Delta users need to start adapting to life with reduced Delta exports now. If they do, the costs will be manageable. If they don't, we shouldn't have too much sympathy for their future problems.

Monday, December 15, 2008

San Joaquin County Housing Report

Our report on San Joaquin County Housing is out.

Given the current real estate turmoil, I think it is worthwhile to take a moment to look at the long-range view.

The early comments are interesting. Mostly positive, but some people think we are in the pocket of the building industry. Quite the opposite, now that I have bought in the area, I would personally benefit if building stays low for a long time. However, no building would be a bad result for non-homeowners and the overall economy (harming all of our incomes). High housing costs absorb people's income and leave less for other things (harming quality of life, and non-housing business sectors). They drive up business costs and discourage investment.

Remember, foreclosures are driven by people with mortgages they can't afford or have no incentive to pay (because they have large negative equity).

Sometimes, high foreclosure rates are said to indicate an excess supply of unwanted housing. However (dusting off econ 101 here), excess supply is defined at a given price. At a median price of $440,000, SJ County has more houses than people want to buy. As we are seeing now, when prices drop, people want those homes and the market clears.

Friday, December 12, 2008

Cost of California Greenhouse Gas Plan

Sacramento Bee story

The analysis of costs has been rightly questioned by many after seeing a unanimously critical peer review from a very solid group of economists. See UCLA professor Matt Kahn's blog for a good discussion, and a link to the actual economist reviews for real econonerds.

It is interesting to me to compare this to the water (peripheral canal) issue. In the peripheral canal case, the economic costs of cutting Delta exports are being overstated, and the environmental benefits are right in our backyard. In the air case, the state seems to be more willing to undertake the costs (which are being understated), when the environmental benefits are more global (meaning shared with people outside the state).

It will be interesting to follow the details of AB32s implementation. In the long-run, it might be incorporated into a national climate-change cap and trade plan. If this is the case, there could be some real advantages to California being an "early mover" in this direction.

(Personal tangent: Prof. Kahn and I were both econ majors at little Hamilton College years ago. I worked with another reviewer, Dallas Burtraw of RFF, on a similar project in Maryland in the recent past and he is top notch. I have been critical of some of Gary Yohe's power industry funded sea-level rise research in the past, but he is still a solid reviewer here.)

Thursday, December 11, 2008

UCLA says ...

According to the just released UCLA Anderson forecast, the state's unemployment rate will peak at 8.7% at the end of next year.

Our forecast says it will peak at 9.6%.

For the sake of thousands of workers, I hope they are right and we are wrong. We will check back a year from now and see.

Tuesday, December 9, 2008

Latest Forecast is Released

December 2008 California and Metro Forecast

Streamlined Mortgage Modifications = Welfare?

Streamlined Mortgage Modifications = Welfare says University of Chicago economist.

I agree with this. I should also state that I agree with a government loan modification plan - but it should focus on reducing principal and eliminating foreclosures - not reducing monthly payments which only delays foreclosure.

Both the Treasury and FDIC plans have the common flaw that they are focused on setting loan payments as a % of income - regardless of the value of the underlying asset and the principal value of the loan.

For example, two people both paid $500,000 for an identical house with an identical loan in 2005. Suppose the house is now worth $250,000 and they are both deeply underwater, and have a strong incentive to default - regardless of their income. If they are offerred different government backed mortgage modifications based on their current income, then it can be argued that the mortgage plan is a hidden welfare program or tax.

If the policy goal is to stop preventable foreclosures, both homeowners should be offerred the same deal - a new $250,000 mortgage at a fixed market rate with any gain from a future sale shared between the homeowner, the lender who forgives the principal, and taxpayers who insure the new loan. The % of income should only be used to determine if they qualify for this new loan, and afford their house at current market prices. If they can't, foreclosure should proceed.

See previous posts for more, here and here.

More than housing

Diamond Foods is a good example of how Stockton's growth over the past decade was deeper than just a housing boom. Today's Sacramento Bee has a story that describes how Diamond Foods is adding more value to locally grown nuts today than they were a decade ago.

See our economic impact of agriculture report for more on the importance of value-added food processing in San Joaquin County.

Thursday, December 4, 2008

Treasury floats another bad idea

January 20 can't come soon enough for the Treasury department.

This new proposal is great for Realtors and homebuilders, as you only get the low rates for new purchases. To get a 4.5% mortgage, my neighbor and I will have to buy each other's houses and move next door, since we can't get this rate by refinancing and staying put. Not surprisingly, this proposal is heavily backed by the Realtors.

It is also a homebuying subsidy that will be politically very hard to take away once it is in place.

The real impact of this proposal will be to put a chill on home sales for a few weeks while buyers wait to see if they can cash in on this new goodie. Like the original TARP, Paulson will eventually change his mind and avoid doing the wrong thing in the long-run. Yet another flip-flop that produces uncertainty and undermines trust in the Treasury. I look forward to a Treasury secretary that gets things right the first time.

Please give us a foreclosure prevention plan that encourages principal write-downs for owner-occupants who can qualify for a mortgage at their homes' current market value. That will stabilize the housing market and protect neighborhoods, but it won't generate Realtor commisions.

Recessions are bad for the arts

Stockton Symphony Cancels Spring Concerts

Wednesday, December 3, 2008

Weston Ranch gets a "mini" Wal-mart

At least they finally have some shopping in Weston Ranch.

Thank goodness they didn't build that Wal-Mart 101,000 square feet. It would be terrible if people had more selection of products in the store, more room in the aisles, or a few more cash registers to shorten check-out lines.

When it comes to big-box bans, it seems that the real issues that concern folks have nothing to do with the size of the store. It is better for policy to address those issues directly (whether they are aesthetic, labor, environmental, etc.). This also exposes whether proponents motives are protection from competition rather than protecting citizens from harm.

Monday, December 1, 2008

Revising the bet

So far, I have had no takers from the PPIC team on my offer of a $10,000 bet.

Maybe, I'll have better luck if I bet on water recycling costs instead of desalination. The PPIC report assumes reclaimed (recycled) water in 2050 will cost $1480 acre foot (in 2008$).

Like desalination, I offer to bet them $10,000 that water recycling costs will reach 1/2 their assumed value ($740), before California's population reaches 46 million.

I guess I shouldn't expect them to accept it, since I would immediately win. A new Orange County facility has been recycling wastewater into drinking water for $550 per acre foot for the past year.

Maybe the PPIC peripheral canal team will take it if it is 1/3 their assumed costs. Perhaps I should offer to give my winnings back to them if they fix their study and reestimate the models under better assumptions.

[The point is that this inflated cost assumption also inflates the PPIC's estimated cost of eliminating Delta exports by several hundred million dollars. It isn't included in my earlier review, but will be part of the update coming in a few weeks.]

Peripheral Canal - Aguanomics endorsement

David Zetland's aguanomics blog is excellent. This morning he changed his mind on the peripheral canal.