Cost-Benefit Analysis of Excel Beyond the Bell San Antonio Partner Agencies

I had the honor to speak yesterday at the Excel Beyond the Bell San Antonio Annual Summit on the results of a study I did with Eddie Molina on the net benefits or return on investment that this network of out-of-school time agencies contribute to the local community. In short, for every dollar invested in these programs, the valuable services they provide to the youth of San Antonio returns $3.66 in benefits to the community.

These agencies serve 55,000 youth, which is a staggering number in and of itself, and they make a profound impact on many of these kids’ lives. Additionally, while this study did not look directly at their potential impact on economic development, these programs are vital to the future development of San Antonio’s economy, since they are playing such a big role in developing the future workforce and enhancing the quality of life of the community.

The slides I used for my speech can be found here, and the full report can be found here.

Steve

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Economic Scholars Program

I was fortunate enough to be able to attend the Economic Scholars Program at the Federal Reserve Bank of Dallas a couple of weeks ago. It was such a wonderful conference that I felt compelled to post something on the blog about it.

The really cool thing about the conference is that it is run entirely by undergraduate students. This means that the students review the papers for acceptance into the conference, present their research in the sessions, serve as discussants of the papers, and chair each of the sessions. Of course, there are faculty in attendance, but we were there as much for moral support as anything (and also because of the small detail that our universities and colleges required a faculty member to attend with their respective students). The faculty would ask some questions, but probably 95% or more of the questions came from students. And the questions they asked were outstanding, as were the responses to their questions.

Since coming back to St. Mary’s University where I teach, I have told my students that this was the best academic conference I have attended. I have certainly been to professional conferences where the quality of some of the papers was not nearly as high, the discussants were not nearly as prepared, and it was not run as well as this one was.

I should also mention that there was also a poster session that was very highly attended. They served food during the session, so when I walked into the room, I expected to see most of the students hovering around the food because what college students doesn’t want to indulge in good food (and the food at the Fed is always exceptional). However, I saw just the opposite. The students surely ate well, but they were all engaged around the various posters talking about the research that was being presented. They were very, very engaged.  As a professor, it was awesome to observe.

It was such a great experience for the students, and if you are a college professor in economics or other social sciences, I would highly encourage you to consider taking your students to this conference.

The conference is co-hosted by the Federal Reserve Bank of Dallas and Austin College – my alma mater (he states with great pride). The hospitality provided by the Fed staff was amazing. I greatly appreciate all of the effort that the Fed staff and faculty at Austin College put forth to organize and host this conference.

On a personal note, the faculty member from Austin College who was responsible for their part of the organization effort, Danny Nuckols, was my mentor and main economics professor when I was at AC. It was his passion, keen insights, and encouragement, along with being one of the best professors I have ever had, that lead me to follow in his footsteps and become an economics professor.

As always, it was great to see him, but to add to that, I also got to meet two more of his former students who also went onto to become economics professors. One is at the University of Texas at Arlington and the other one is at the University of North Carolina at Greensboro. It is common for great coaches to develop a coaching “tree” as their assistant coaches branch off to assume head coaching positions at other teams. I guess the same is true with great professors like Danny Nuckols.

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Danny Nuckols, (second from left) and three branches of his professor tree. 

Economic Growth by Presidential Administration

A couple of weeks ago I gave a speech in which I anticipated that the audience would like to have some discussion about the potential economic effects of the upcoming presidential election in the U.S.

To support the discussion, I worked with one of our economics students at St. Mary’s  University to create a chart showing the growth in gross domestic product for the U.S. by presidential administration.

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As shown in the graph, GDP growth during Democratic administrations averaged 4.13% and during the Republican administrations, growth averaged 1.77% if you include the Great Depression and 2.72% if you do not include the Great Depression. Without going into more in-depth analysis, it is difficult to make too much of these numbers. I do not think it is correct to just attribute strong or weak growth only to the policies passed during any of these administrations. They can certainly have effects on the economy during their times in office, but the strength or weakness of the economy during most presidential administrations is often due to some extent to the policies implemented well before a president takes office.

For example, some of President Hoover’s policies certainly made the Great Depression worse, but I do not think one can attribute the entire Depression to him. President Roosevelt was the beneficiary of the growth after the Great Depression, the massive amount of spending during World War II, and the fact that he was in office for twelve years. President Obama took office as the economy was at or near the depths of the Great Recession, the cause of which I would attribute to policies implemented by Presidents Reagan, Clinton and Bush 43.

There are other studies that go into more depth on growth during the presidential administrations that I may write about in future blog posts. As previously mentioned, while it is difficult to say much about growth during specific presidential administrations based only on the data presented in this chart, there is one fact worth noting. I hear quite a bit that the economy slows or even goes into recession during Democratic administrations, but as shown in the graph, that is clearly not the case.

In fact, it is just the opposite.

 

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Growth Slowing in Texas and Its Major Metropolitan Economies

I recently gave a speech to the Rotary Club of Seguin titled, “Past, Present, and Future of the Central Texas Economy,” in which I discussed the current economic situation in Texas and across the major metropolitan economies in the state. Growth across the state and in these metropolitan economies has been slowing this year, as expected, but over the past few months, the rates of growth have dipped below long-term trends for San Antonio and below growth rates for the U.S. and even below 1% growth year-over-year in some of the other areas (See chart below). With employment growth of 2.55% in August, Dallas leads the way.

august-2016-employment-growth

There are several factors that play into this. Houston has seen its economy fall into recession since the decline in oil prices, and as the state’s largest metropolitan economy, this downturn ripples through other local economies. Another big factor is that labor markets in these economies are very tight, and there just might not be enough labor to fuel the continued growth we have seen over the past few years. I believe this is especially acute in Austin but could also be playing an important role in San Antonio and other areas.

Additionally, slowing growth around the globe and the continued strength of the dollar have certainly negatively impacted exports, and I can’t help but wonder if uncertainty around the U.S. presidential election has caused at least a bit of the slowdown. I still need to assess the prospects for 2017, but I want to see the results of the presidential election. Regardless of that result, though, it seems likely that some of these headwinds will continue into next year.

If you’d like to see the presentation, it can be downloaded here.

Steve

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Accounting for the Ocean Economy

The oceans are an important part of any economy, even those economies that are landlocked. The obvious importance comes from the food and entertainment options the oceans provide, but the oceans also provide invaluable environmental and ecosystem services that certainly have profound economic effects. Maintaining healthy oceans that are sustainable for future generations is vital for continued economic success, but accurately accounting for the ocean or “blue” economy is vital to accomplishing this. The immediacy of achieving this accurate measurement of the ocean economy, including the environmental and ecosystem services the oceans provide, must also be recognized as the effects of climate change are upon us. If we don’t create these measures as accurately and completely as possible, I don’t see how we can fully understand the economic importance of the oceans and move forward with policies and initiatives that will improve their health and sustainability.

This is why I think the special edition recently published by the Journal of Ocean and Coastal Economics is so important. The journal is published by the Center for the Blue Economy at the Middlebury Institute of International Studies at Monterey, California. This special edition, titled Oceans and National Income Accounts: An International Perspective, is a publication of the papers presented at a meeting hosted by the Center for the Blue Economy in October 2015 “to explore ways in which the economic values of oceans and marine resources can be incorporated into national income accounts.”¹

If you are reading this blog, you obviously have an interest in economics, and I highly recommend you read this special edition because if you truly want to understand how the economy functions, you have to understand how it is measured, or not measured. This is especially true for the oceans and the important contributions they make to all economies. As you get into the articles, you will get a deeper understanding of these contributions and the complexities involved in measuring them. It may not seem like the most interesting reading, but given your interest in economics, I think you will find it more engaging than you might think after you start reading the article. The Center for the Blue Economy is a leader in conducting research on the blue economy, disseminating that information through this journal, conferences, and other means, educating future researchers, and raising awareness about the importance of the blue economy, so I also encourage you to follow their other activities. Their website is a treasure trove of information.

Enjoy.

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¹Colgan, Charles S. (2016) “Introduction to Special Edition: The Oceans and National Income Accounts: An International Perspective,” Journal of Ocean and Coastal Economics: Vol. 2, Article 1.

San Antonio Economic Forecast Update

I recently presented an update to my 2016 forecast for the San Antonio economy.

Please find the full presentation slides here.

In short, the growth in the San Antonio economy has slowed this year as anticipated. As shown in the following two graphs, through July, employment had grown 2.15% compared to July of 2015 and unemployment was at 2.8% (seasonally adjusted). My forecast for San Antonio this year was for employment growth between 2.25-2.75% and an unemployment rate in the range of 3.5-3.7%. While the July figures are slightly outside these ranges, I am leaving my forecast as is with the recognition that employment growth may end the year a bit lower than 2.25% and unemployment may come in at a rate slightly above 3.7%.

Unemployment rate as of July 2016Employment growth through July 2016

Please feel free to contact me with any questions regarding the report.

Steve

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Blind Pursuit of the Free Market Does not Lead to Prosperity

While I think the perfectly competitive model as it is presented in economics has some uses in helping us understand economic behavior, I believe the way it is presented in economics classes has lead to a vast misunderstanding of the workings of the economy. The presentation typically gives the impression that government intervention in the economy is only bad, except for instances where market failures exist. The problem, in my opinion, is that very little attention is given to the assumptions necessary to make the model work. Sure, these are most often covered quickly at the beginning of the presentation of the model, but the rest of the course or discussion of this model is spent showing who this leads to equilibrium in the markets and how government intervention pulls the market away from this equilibrium and leads to a loss of welfare. However, if one stops and thinks about it, the assumptions of the model (e.g., economic agents act rationally, perfect information, perfectly mobile resources) mean that the free market really never exists. By its very inherent nature, market failure is always present, and because of this and the fact that markets and the economy are huge complex systems, not the isolated static mechanisms of the perfectly competitive model, they are rarely, if ever, in equilibrium.

I want to stress again that there are still some valuable lessons that can be taken from the perfectly competitive model. It is an elegant model that lead to some intoxicating conclusions, but because of this and the lack of emphasis of the assumptions underlying the model, it has lead to a lot of misguided economic policy. This is especially the case with respect to macroeconomic policy, which has been misguided by the absurd dynamic stochastic general equilibrium model. This has lead to the belief by many that all regulations and government intervention are bad and that if we would only get rid of almost all regulations, cut taxes, and minimize the size of government, markets would be able to operate freely leading to more prosperity and a better society.

To be clear, I am not arguing that government is the answer to everything, nor am I arguing that we should raise taxes to exorbitant levels. But, this blind pursuit of the free market based on the misapplication of economic theory or just bad economic theory does not lead to prosperity either. There has to be a balance between the two. Even Adam Smith (one of the greatest, if not the greatest, political economists, to have ever lived), whose Wealth of Nations is the standard bearer for all those in blind pursuit of the free market, recognized the need for balance, as he thoroughly discussed in his Theory of Moral Sentiments.

This has lead to the belief that the ideas of cutting taxes (mostly for those in the upper income strata and the wealthy) and shrinking the government will lead to prosperity and improved social outcomes. Two articles recently published in the New York Times provide even more evidence that this is not the case. One of the articles was written by two political science professors, Jacob S. Hacker of Yale University and Paul Pierson at the University of California, Berkeley. The article, “The Path to Prosperity Is Blue,” is a brief summary of their book, American Amnesia: How the War on Government Led Us to Forget What Made America ProsperI think the following quote from the article summarizes their argument.

Mr. Trump and House Speaker Paul Ryan are united by the conviction that cutting taxes – especially on corporations and the wealthy – is what drives growth.

A look at the states, however, suggests that they’re wrong. Red states dominated by Republicans embrace cut and extract. Blue states dominated by Democrats do much more to maintain their investments in education, infrastructure, urban quality of life and human services – investments typically financed through more progressive state and local taxes. And despite what you have heard, blue states are generally doing better.

Work by Jon Bakija, Lane Kenworthy, Peter Lindert, and Jeff Madrick in their book, How Big Should Our Government Be?provides some evidence against the argument that small government facilitates economic growth. They show evidence that there is a direct relationship between the growth of government and economic growth. Over the past fifty years, those countries where governments have grown the largest over the  past fifty years have also experienced some of the fastest economic growth (see the chart here).

While governments are certainly not perfect, and as I have already mentioned, government is not the answer to every issue or problem, but it seems clear to me that government has an important role to play in the proper functioning of an economy and society. Blind pursuit of the neoclassical notion of the free market with the wildly unrealistic assumptions at its foundation can be very appealing, but it leads to bad economic policy in many cases.

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The Emergence of a San Antonio/Austin Metroplex

I gave a speech today to the San Antonio chapter of the Commercial Real Estate Women.

The topic was the potential for the San Antonio and Austin metropolitan areas to merge into a metroplex or mega-region.

The presentation can be found here: The Emergence of a San Antonio/Austin Metroplex.

Thank you to CREW for the invitation to speak.

Steve

 

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Insights from The Wealth and Poverty of Nations

I recently finished reading The Wealth and Poverty of Nations: Why Some are so Rich and Some so Poor by David S. Landes. It was originally published in 1998, so it is a bit dated, and it is still very much worth the read. The themes that run through the book, as I understand them, are still very relevant today. Plus, it is always good to learn more about our economic history. Some of the main themes/points are:

(1) The ability for one society to take over another society through force has often not only meant the decline of the nation being taken over but also the decline of the imperialist nation. Access to steel and the ability to manipulate it, especially into weapons like quick-loading or more automatic guns, and the introduction of foreign germs was often the key to success in battle. (Jared Diamond wrote an entire book on this premise titled Guns, Germs, and Steel, of course. While I found the book to be somewhat redundant, I do think it is worth a read.)

(2) Institutions, including culture and values, are very important factors in determining whether or not a country has or will reach an advanced level of development.

(3) A society’s ability to innovate and its willingness to transfer and accept technologies from other countries also plays a big role in its ability to grow and develop.

(4) Orthodox economics lacks much in trying to explain economic development (see following points).

(5) The market is a powerful force that needs to be harnessed for economic development to occur, but even Adam Smith argued that the market has serious flaws, and there is a role for government to play in the proper functioning of a market economy. He also argues that governments can make as big, or bigger, mistakes than the businesses they are trying to regulate.

(6) There is not one approach to economic development that is appropriate across all countries, and yesterdays “virtues” or “factors” that drove some countries out of poverty may not be relevant (or as relevant) today. “Different strategies in different circumstances” (page 391).

(7) “And what of the poor themselves? History tells us that the most successful cures for poverty come from within. Foreign aid can help, but like windfall wealth, can also hurt. It can discourage effort and plant a crippling sense of incapacity. As the African saying has it, ‘The hand that receives is always under the one that gives.’ No, what counts is work, thrift, honesty, patience, tenacity. To people haunted by misery and hunger, that may add up to selfish indifference. But at bottom, no empowerment is so effective as self-empowerment” (page 523). I would add, and I think Landes would agree given his emphasis on the importance of institutions and culture, that this requires having the institutions that support empowerment, such as access to quality education and healthcare, workforce training programs, small business development support, etc.

(8) He has some very interesting insights on the gains from trade, and in my opinion, this is yet another example of how economic theory (or maybe the misunderstanding or mis-application of economic theory) has misguided the making of economic policy. Furthermore, his understanding of how the pursuit of trade and globalization has played out through history leads to some prescient forecasts of our current economic conditions, as shown in the following quote (keep in mind the book was first published in 1998).

“The present tendency to global industrial diffusion will entail, for the richer countries, a leveling down of wages, increased inequality of incomes, and/or high levels of (transitional?) unemployment. No one has abrogated the law of supply and demand. Many, if not most, economists will disagree. They rely here on the sacred certainty of gains from trade for all. International competition, they tell us, is a positive sum game: everyone benefits.

In the long run. This is not the place to attempt, in a few pages, a survey of the differences of opinion on this issue, which continues to generate a library of material. I would simply argue here, from the historical record, that

  • The gains from trade are unequal. As history has shown, some countries will do much better than others. The primary reason is that comparative advantage is not the same for all, and that some activities are more lucrative and productive and than others. (A dollar is not a dollar is not a dollar.) They require and yield greater gains in knowledge and know-how, within and without.
  • The export and import of jobs is not the same as trade in commodities. The two may be fungible in theory, but the human impact is very different.
  • Comparative advantage is not fixed, and it can move for or against.
  • It always helps to attend and respond to the market. But just because markets give signals does not mean that people will respond timely or well. Some people do this better than others, and culture can make all the difference.
  • Some people find it easier and more agreeable to take than to make. This temptation marks all societies, and only moral training and vigilance can hold it in check” (page 522).

If for no other reason, it is worth reading the book to gain these insights on the notion of free trade and the theory of comparative advantage. International trade brings to the forefront many very complex issues that are ignored or given very little attention if we just grab onto the gains from trade derived from comparative advantage as presented in the mainstream economics textbooks, which typically give very little mention, if any at all, to many of these other issues.

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Brexit’s Potential Impact on the San Antonio Economy

With the United Kingdom voting to leave the European Union, it is worth considering the impact it might have on the San Antonio economy. This basically translates to how it might affect the U.S. and Texas economies because I don’t think it will have any direct effects on the San Antonio economy since there is not a very strong connection between the San Antonio and United Kingdom economies. However, there is a reasonable chance that the uncertainty and chaos caused by Brexit throws the United Kingdom and European Union economies into recession. The best I think we can hope for it that it has no effect. I can’t envision a scenario where Brexit increases economic growth in the U.K or the E.U.

While the United Kingdom’s economy is not big enough to throw the U.S.into recession, according to The Economist, “…Britain is big enough for a recession there to have a meaningful effect on Europe’s economy. As a rule of thumb, whatever the reduction in Britain’s GDP growth, Europe’s economy will suffer a drop of about half as much.”

If a recession in Britain does drag Europe into a recession, the ripples across the pond could drag the U.S. economy into a period of slower growth possibly leading to a recession because the European Union taken together is the largest economy in the world. GDP in the European Union was $18.51 trillion in 2014 compared to GDP in the United States of $17.42 trillion in 2014.

In 2015, U.S. exports to the European Union amounted to $272 billion which equated to 13.36% of all exports (See Trade data). This makes the European Union the second largest export market for the U.S. behind Canada at $281 billion. Mexico is the third largest export market receiving $236 billion in exports from U.S. companies. Exports to the United Kingdom were $56 billion in 2015 (2.76% of all exports). While Texas has the largest volume of exports among all states (See Exports by state 2015), the United Kingdom accounted for 1.8% of total exports from Texas in 2015. This relatively low volume of trade does not mean Texas and the San Antonio economies will be immune from the effects of Brexit. If growth in the U.S. economy slows, it is likely that growth in the Texas and San Antonio economies will follow suit.

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