Economic Expressions in Art and Culture – An Introduction

On the first day of class each semester, I write “economics/economy” on the board, and invite my students to share what comes to mind when they see or hear those words. Almost invariably, the first and most immediate response is money. In the discussion that follows, we acknowledge that there’s necessarily nothing wrong with this initial association, and proceed to come up with as many other associations as possible.

As it turns out, a lot comes to mind the more they consider it. And once we’ve accumulated a sizable list of terms and concepts, I tell them a secret: “You already know economics.” They’ve lived it, they’ve witnessed it, they can’t escape it…and my job is merely to reveal this to them. After providing a basic definition of economics, we discuss the many choices a person will make across their life, from hitting the snooze button on the alarm clock every morning, to having a child of their own. We also discuss all of the choices a firm or business would face – what to produce and how to – as well as the choices faced by an entire society, such as what public goods and services to provide and how.

At the end of the day, we all – people, firms, and societies – grapple with a very basic question: how do we satisfy our needs and wants? Sometimes the answers to that question are simple, straightforward. At other times…more vexing. But whatever the choice, whatever the possible answers, it is part of the human condition that has been experienced and recorded throughout all of human history. And along the way, our forebears have left traces; some obvious, others less so.

My goal with the series of essays that will follow is to delve deeper into this history, to investigate the expressions of our ancestors’ economic struggles and triumphs in the arts and culture, from ancient times to modern day. As we make our way through the chaos of space, time, and history, we will hold fast to various thematic guide-lines:

– identifying and striving to satisfy our needs and our wants;
– acquiring and accumulating resources, be they monetary or material;
– engaging in labor, enjoying our leisure; and,
– reflecting on the outcomes of our endeavors, and dreaming of opportunities.

Some of our stops along the way will be familiar, recognizable. Others will be surprising, unexpected. Some playful, some dire. But in all of these travels, wherever they take us, we will bear witness to the human condition.

We Get What We Pay (Taxes) For – Schools Edition

(This essay is part of a series on taxes. The previous installment can be found here.)

When I teach economics, and explore how markets function, I tell students that another way to think about a price is that it indicates a consumer’s willingness to pay. The market – an amorphous and amoral interaction between buyers and sellers – sets a price for a good or service. Consumers willing to pay that price receive the good or service; those unwilling go without.

But as I’m quick to highlight for my students in a market-building activity, we can’t focus solely on consumers’ willingness to pay – we must also take into consideration their ability to pay. When we’re looking at the market for something frivolous like, say, fidget spinners, we may not worry at all about those unable to pay – a fidget spinner is not necessary for maintaining some basic standard of living, and so fidget spinners are only sold to those willing to pay. But what about things like clothing, or food, or shelter? What about healthcare and education?

In some cases, who gets what is determined in the market – those willing to pay the price get the goods. But in other cases, society has determined that a particular good or service is beneficial, or perhaps even necessary, for everyone in society. In these cases, society can elect to provide the good or service publicly, and to impose some sort of tax to cover the expense of these public goods and services.

This then begs the question – who is included in the “we” that ends up paying the taxes? And what happens when the “we” is segregated by income, where the tax burden and public services are drawn from and delivered to those within a very clearly-defined geographic market?

What we see: school ratings

The recent school ratings released by the Texas Education Agency provide an example of what happens when people are sorted into individual ‘markets’ based not on willingness to pay, but ability to pay…and the results are quite striking. (You can look up your school or school district at this link.) Below, I have plotted each individual school by its rating and the percentage of students who are defined as ‘economically disadvantaged’ (meaning the student is eligible for free or reduced-price lunch at school). I’ve added a trend-line to better illustrate the statistical relationship.

Source: Texas Education Agency

What we see is that schools with a higher percentage of economically disadvantaged students are more likely to receive a lower score. It is a clear relationship, but not absolute, as seen by numerous outliers – poorer districts that score well, and more affluent districts that score poorly.

Why does this matter?

Over the past few centuries, societies around the world have recognized the benefits of an educated population. Because the education of a single student is quite costly, societies have elected to make schooling widely-available, and to fund public education with various forms of taxes.

In Texas, schools are generally funded through property taxes. (Schools do receive some federal funding, as well as state funding, although state funding is still recovering from a significant drop during the last recession). So right from the start, we would expect to see school districts in areas with higher property values generating more tax revenue, allowing schools within that district to spend more per student, and, unsurprisingly, achieve better results. This is independent of how much attention parents within a district pay to their children’s education, or how much they care about or value education in general. But it does demonstrate what happens when access to and quality of a good or service is determined by ability to pay rather than willingness to pay.

It stands to reason that while parents in a property-poor district may care just as much as the parents in a more affluent neighboring district, their limited financial means funnel them into neighborhoods with lower property values, but which also mean less tax revenue per property. So by default, their income determines the quality of their children’s education.

Now, it’s not all bad. Texas uses a system of revenue sharing known as ‘Robin Hood’, that collects some excess tax revenue from property-rich districts, and transfers those funds to property-poor districts, in hopes of providing more equitable funding per student across the state. (But Texas being Texas, they even managed to screw this up…placing a cap on the tax rate that school districts could set, which created a de facto statewide property tax, which is…unconstitutional!)

Not everyone is a fan of Robin Hood, but it does make some sense when we take into consideration whether the outcomes private social and market activity produces are equitable. Within a city, or state, or nation – with either a progressive tax or even a flat tax – we end up seeing some people who pay a bit more in taxes, but receive less in public goods and services, while others pay less but receive more. It may sound unfair, but the whole selling point behind public good and services is that they are available to everyone, regardless of whether they are actually utilized.

For example, a wealthier person may think nothing of spending $30 on a new bestseller at the book store, while a less affluent person may wait to check out the book at the library. Both pay taxes to the city, who in turns provides the library. While the wealthier person is both willing and able to pay the $30 price for the book, the lower income person is perhaps unable…thought they might be willing if they had the disposable income. Now it may seem unfair that both pay taxes, while only one receives the benefit. But in reality, there is absolutely nothing preventing the wealthier person from also utilizing the library, and saving the $30 in private costs.

The problem we run into sometimes is when wealthier citizens decide they don’t like paying taxes for services they don’t utilize. And when that happens, they may vote for elected officials who promise to reduce taxes, but at the cost of public goods and services…at the cost of, say, that library.

In the case of schools, we observe a whole new dimension relative to this phenomenon of some people refusing to pay taxes at the expense of those without the means to acquire various goods and services privately. In the case of schools, we see affluent members of society not just voting to maintain relatively lower tax rates, but effectively excluding anyone unable to pay the price of living in an area with high property values. Now, we could just chalk this up to an efficient real estate market that sorts residents into different areas based on their willingness to pay. But when that leads to a system where quality of education is tied almost directly to ability to pay – as we see illustrated in the graph above – we must start to grapple with the inequity to which we have resigned ourselves, by allowing the market to produce discriminatory and inequitable outcomes.

Imagine, for a moment, that individual neighborhoods within a city could set their own tax rates, and the revenue from their neighborhoods would determine the quantity and quality of services they receive from the city. Richer neighborhoods could set lower rates, knowing their higher property values would generate enough tax revenue to provide high quality services, such as the local fire station. In poorer neighborhoods, residents may desire the same level of fire protection they see their richer neighbors enjoying. But because they live in a neighborhood with lower property values, it may require higher tax rates to fund that level of fire protection, or else the neighborhoods must do without.

This is the state of public education in Texas. Those with the means can segregate themselves into enclaves with high property values. This serves two purposes: it keeps the riff-raff out, and ensures that any public good or service funded through property taxes will be of the highest quality. Meanwhile, those without the means will be unable to move to areas with higher quality schools, and they will be unable to contribute as much in property taxes to fund the schools in their own neighborhood. And because where we go in life is determined to such a large degree by where we’re from – where we live, where we go to school, the house we live in and the food we eat…all based on how much money our parents earn – the promise of opportunity to which we pay so much lip-service in America is nothing more than empty rhetoric.

We know how to education students in this country. We know what works and what doesn’t work. We know that not every approach will work for every student, and so we must tailor our teaching to the needs of the students themselves. And we also know that we can’t solve every problem with money. As the recent school ratings suggest, achieving a more equitable system of school finance would go a long way toward closing the opportunity gap between rich and poor students. Doing so will require a choice: we must choose to fund public education, and fulfill our constitutional obligation to our children. Because the children…well, you know the words….

Race, Gender, and Economic Development in Fort Worth

Earlier this year, the City of Fort Worth released its latest Economic Development Strategic Plan, in which the city acknowledges some challenges it faces and lays out its vision for the future. Over at the Star-Telegram, columnist Bud Kennedy offered up some suggestions on how to fix Fort Worth. One point in particular stuck out for me, based on some analysis I’ve been working on. In discussing Fort Worth’s need to showcase itself as a modern city, Kennedy observes the following:

The Cowtown image isn’t worn out. What’s tired is the image of a stubborn, bigoted old cowboy.

The real story of the West is a story of men and women of all colors and cultures, and how they came together from around the world to help shape Texas. If we’re not welcoming all people, we’re not true to our past.

There’s also a race problem that involves more than image. A new city race and culture commission will address long-standing inequities.

There’s certainly reason to argue with just how welcoming the West has been to men and women of different colors and cultures. And the City of Fort Worth deserves credit for taking steps to address this race problem. But what does a modern city of the West look like? In particular, what does a city of the West look like in terms of public sector employment?

In a perfect society where men and women of all colors and cultures have had access to the same resources and opportunities throughout history, we might expect that the gender and ethnic diversity of a local population would be reflected in the local workforce, both public and private, regardless of industry.

Historically, public sector employment has been viewed as an equalizer when it comes to employment and income/wealth, particularly for ethnic and racial minorities. This is thanks in part to greater transparency and accountability in public sector hiring. But just how close do cities come to representing their populations in terms of public sector employment? Consider the chart below, comparing the racial/ethnic diversity of city population and city workforce. The measured values indicate the likelihood that two random individuals in a group would be of a different race/ethnicity. In other words, the higher the value (closer to 1), the more diverse, and the lower the value (closer to 0), the less diverse.

Source: Public data collected in the Texas Tribune’s Government Salaries Explorer

Looking at the data, we see that in terms of city population, Fort Worth is about as diverse as Dallas, Houston, and San Antonio, and a bit more diverse than Austin. But whereas the public workforces of Dallas and Houston (and Austin) are on par with their populations, Fort Worth’s public workforce falls a bit short of the city as a whole in terms of diversity (though not as badly as San Antonio). Some people might look at this and say: no big deal, it is what it is. Others might say that any attempt to artificially boost diversity in the city workforce would lead to “reverse racism”. But it is worth asking why these disparities exist.

We can take an even deeper look at the gender and racial breakdown of the city population and the city workforce using data from the US Census.

Perhaps unsurprisingly, whites and men are over-represented, blacks are just about proportionally represented, while Hispanics are under-represented. This of itself should give the City reason to reflect on its efforts to build a diverse and representative workforce. But the challenge is not confined to representation – there are also significant disparities in income. The charts below show the same gender and ethnic breakdown for the City based at the income quintile level, where the 1st quintile represents the lowest-paid 20% of workers, while the 5th quintile represents the highest-paid 20% of workers.

Again, we see a stark contrast between workers of different gender and ethnicity. The obvious explanation for this employment and income inequality is inequality in education and opportunity, the result of deep-rooted cultural and structural limitations on who had access to various resources and opportunities. The good news is that the situation today is much better than it was in the past. But as noted above, we are a far way off from living in a truly equitable society where gender and ethnicity play little to no role in employment and earnings.

So what, then, does this mean as for the City and its new strategic plan? Much of the focus on economic development falls on industry-level analysis, but what sometimes gets lost in the numbers and reports is that cities are made of people, and in 2018, there are still many people in cities across the country who are being ignored or left out. Investing in infrastructure and education and health helps to attract the best people and the best companies. But what about the people who are already here? What will it take to bring these stakeholders to the table, to make sure they share in the benefit of economic development?  The City’s plan talks much of redevelopment, but avoids any discussion of racialized gentrification. Transit will be crucial, but who will it serve – the workers of new and growing industries, or the current residents already struggling to live and work in the city? The city can promote existing industries and attract new ones in education, but what does that matter for residents living in so-called “food deserts”?

To their credit, the City does acknowledge “under-served” and “challenged” neighborhoods, recognizing the need for revitalization efforts. But even here, the City does so in a way that casts some of these neighborhoods in a negative light, noting that the City must prevent the proliferation of certain land uses – such as homeless shelters – in revitalization target areas that might “diminish the economic potential of a target area”. Nowhere does the economic development plan address the issue of homelessness as anything other than a hindrance to development. And nowhere does the report acknowledge racial disparities in education, employment, and housing.

Source: City of Fort Worth, Economic Development Strategic Plan

The modern West is made up of men and women of all colors and cultures, but as Bud Kennedy points out, there are some long-standing inequities to address. To accomplish that will require confronting some uncomfortable truths not addressed in the latest report, and ensuring that the issues of race and income inequality are confronted head-on in plans for future economic development. It won’t be easy to address this inequity citywide, but at the very least, the City of Fort Worth would be well-advised to consider what it will take to build a more representative and equitable city workforce.

We Get What We Pay (Taxes) For – Roads Edition

(Note: This entry was originally published on October 7, 2015.)

It’s that time again!

Congress has waited until the last minute to solve all sorts of avoidable problems – funding the government as mandated by the Constitution, raising the debt ceiling as totally not mandated by the Constitution, and figuring out how to pay for roads and bridges.

Roads and bridges don’t get a lot of love in the press – they’re just not sexy or exciting. But you may have heard recently about the Highway Trust Fund running out of money. Turns out, the federal government collects a special excise tax every time you buy a gallon of gasoline – 18.4 cents to be precise – that helps to pay for new roads and bridges and to repair old roads and bridges. It sounds rather mundane – after all, building and maintaining roads and bridges is one of the most basic functions of governments at all levels – city, state, or federal. Unfortunately, the federal government isn’t collecting enough money through that excise tax to pay for all of the building and repairs that are necessary in a geographically expansive country with a half-century-old infrastructure.

In recent years, Congress has simply transferred funds from its general fund (paid for by our individual and corporate income taxes), and this has plugged the gap. But as any casual observer of Congress will see, funding anything these days is proving to be quite difficult for some of our Representatives and Senators. But why is it turning out to be so hard to keep dollars flowing for something as basic as roads and bridges?

We can actually summarize the problem in a single chart.

Sources: Dept of Energy, Dept of Transportation

What’s going on here? We’ve got four series of data, each of which has been indexed, meaning that the value in each year shows us how much larger or smaller it is relative to some base year. In this case, the base year is 1993. Why? Because that’s the last time the per-gallon tax on gasoline was adjusted. Got it? Great! Let’s dive in, one by one.

I Got the Purchasing Power Blues (gas tax, adjusted for inflation)
The federal gasoline tax has remained unchanged since 1993, which wouldn’t seem like sad a bad thing for taxpayers, because hey! the federal tax we pay on gasoline hasn’t gone up in over 20 years, and that’s a good thing, right? From the perspective of the person paying the tax, absolutely. But from the perspective of the government collecting the tax? Not so great. Because just as the per-gallon tax has remained constant, the prices of, well, just about everything have gone up, which means that the measly 18.4 cents per gallon the federal government collects just doesn’t go nearly as far as it used to. Ask any of my economic principles students, and they can tell you – when prices rise, our dollars lose purchasing power, a loss from which not even the United States government is immune.

If You Build It, They Will Drive On It (vehicle miles traveled, VMT)
People are driving more miles. No surprises there. Ever since the interstate highway system was created way back during the Eisenhower administration, Americans have taken to the roadways in increasing numbers, thanks to a growing population and a greater demand for cross-country travel. In addition, consider all of the products and supplies that are trucked back and forth in giant 18-wheelers each year. All of this driving adds up to more wear-and-tear on existing highways and byways, which leads to more and more money spent on maintaining the roads we already have. You break it, you buy it, And in this case, the “you” is “all of us”, with Uncle Sam and his city/state cousins picking up the tab. While VMT dropped a bit during the most recent recession, and hasn’t yet returned to its most recent peak (in part due to people finding alternative modes of transportation), we’re still driving a lot more than we were back in 1993.

Engines Roar, So Let’s Build MOAR ROADS (system mileage)
Wear-and-tear on existing roads is bad enough, but on top of that, the federal government continues to build new highways, wider highways, bigger more badass highways. This means a huge upfront cost in terms of obtaining right-of-way, clearing land, and actually pouring the cement/asphalt/concrete. And once it’s built, you guessed it…just like a brand new car fresh off the lot, the roads being to depreciate and deteriorate, piling up more maintenance costs on down the road (get it? down the ‘road’?)

GIMME FUEL, GIMME FIRE, GIMME THE FUEL ECONOMY I DESIRE (average fuel economy)
Over the last decade, the average number of gallons of gasoline it takes to get from Point A to Point B has decreased substantially. Some of this increase in fuel economy has occurred ‘naturally’, as consumer seek out cars that get better mileage, and car markers respond by designing more fuel-efficient vehicles. On top of this market push, the federal government has continued to push for higher fuel economy standards, in an effort to decrease dependence on fossil fuels for reasons concerning both the environment and economic security. As vehicles become more fuel efficient, drivers need to purchase fewer gallons in order to travel the same distance, which translates into fewer 18.4 cent payments to the federal government.

To summarize:
– demand for (use of) roads is increasing (VMT is up by over 30%);
– more roads are being built (up 5%), and an aging system will continue to require maintenance;
– per-mile-demand for gasoline is decreasing (in part due to the 25% increase in average fuel economy); and,
– the federal tax on fuel remains unchanged in nominal terms (which means 40% loss of purchasing power).

Even if the tax on gasoline had been tied to the price level when it was last adjusted in 1993, meaning that it was being adjusted for inflation on an annual basis to compensate for a loss of purchasing power, the revenue generated from the tax would still today be insufficient to account for higher levels of required spending needed just to maintain our current system.

So…What to Do?
A number of options are available to Congress, the real question being whether they possess the willingness to do anything other than kick the can further down the metaphorical road.

1) We could hike the fuel tax in one fell swoop, and then chain it to the price level in the future. This would catch us up with 20 years of price fluctuations, and ensure that the fuel tax maintains its purchasing power moving forward. But, just to break-even with the higher price level, the per-gallon tax would need to rise from $0.184/gallon to $0.301/gallon, adding about $0.12 to the current price of every gallon of gasoline. This might sound drastic, but in a world where gas prices swing back and forth by $0.10, $0.20, or $0.30 within a single week or month, this might not be such a bad jolt to the system. Demand for gasoline is relatively inelastic, so there would not likely be a huge dip in gallons of gasoline purchased. After this one-time spike, the tax would rise by an average of 2% in future years, which in dollar terms would mean about an additional $0.01/gallon per year. Not such a bad idea…except for the increase in VMT, the increase in fuel economy, and the increase in system mileage.

2) We could simply scrap the fuel tax and roll highway construction and maintenance back into the general fund. Dedicated revenue/expense budget items can be nice, until the revenue starts drying up and/or the expenses balloon. On top of that, Congress can’t seem to agree to fund anything, and adding highways back into the general fund budget absent any other changes on the revenue side of the equation would automatically increase the annual deficit (SACRILEGE! TREASON!). However, we’re already paying for the highway funding deficit with transfers to the highway trust fund from the general fund. So perhaps the only real challenge would be finding the money form elsewhere if the fuel tax goes away. (I know! I I know! Is funny joke, no?)

3) We could switch from an excise tax on fuel to a vehicle-miles-traveled tax. It makes sense in that construction/maintenance of each mile of road would be funded by a road-user fee. This would account for the fact that more miles are being driven, even as fewer gallons of gasoline are purchased per mile traveled. In more technical terms, rather than taxing a complement to road miles (gasoline), we tax the use of the road itself. This option makes a lot of sense, but it is not without its own challenges: how would we measure VMT, and how would we go about assessing the tax? (I suspect Grover Norquist and Co. would have something to say about this….)

I don’t imagine we’ll be seeing any significant changes in the next few weeks, as Congress will be having bigger arguments over the federal budget in general, and the debt ceiling in particular. It would be nice if we could find a more sustainable method of funding our interstate highway system. It really is an amazing bit of public infrastructure, and it would be a shame to see it crumble. Roads and bridges may not be sexy, they may not get the attention they always deserve, but as citizens and taxpayers, it would behoove us all to pay a little more attention to some of the mundanities of taxing and spending, and encourage Congress to find a more permanent solution to a long-term challenge.

Don’t hold your breath.

(This essay is part of a series on taxation. The next installment can be found here.)

On Markets, Wages, and the Honey Badger

(Note: This entry was originally published on August 3, 2015.)

Recently, a long-time friend of mine gained some national attention for his take on fast food workers demanding and securing $15/hour in wages in New York City. He makes a well-written, yet concise argument in favor of workers pushing for living wages, and I encourage you to give it a read. You’ve probably seen it show up on your Facebook feed looking something like this:

It also reminded me of something a grad school acquaintance said some years ago in a discussion about skills, experience, and earnings. He argued that if a person’s labor is only worth $2/hour in market wages, then such a person should not expect to earn more than $2/hour.

These two arguments bring into question how we determine what people should be or will be paid. On the one hand, we can argue that people deserve to earn a living wage, enough to support themselves in exchange for supplying a standard amount of labor. On the other hand, we can argue that skills and experience should be compensated based on how potential employers value those skills and experience; in other words, let the market decide.

But how exactly does a market determine a wage? Let’s take a look at a simple example.

panem et circenses

Pictured above is a photo of a worksite not far from my hometown. On any given night, a variety of people are working at this site, and being compensated for their labor. To keep it simple, let’s imagine the work that’s being done the night of an NBA game, and focus on the work of two groups of workers – the professional basketball players and the concession stand attendants selling hot dogs and beer.

The night of a basketball game, thousands of spectators pack the arena. They are there, primarily, to observe a basketball game, but during the basketball game, they will become hungry and thirsty, and will head to the concession stand. These spectators will be demanding two types of labor – the type that allows some people to play an entertaining game of basketball, and the type that requires others to cook a hot dog and pour a beer. For both types of labor, demand will be very high.

Who supplies that labor? It turns out that while a great number of people would like to become professional basketball players, very few individuals actually possess the professional-level skills to play in the NBA. This means that there is a very limited supply of top-level basketball players. However, there is a great number of people who possess the extremely limited skill set necessary to cook a hot dog or pour a beer. Thus, there is an abundant supply of workers who could possibly fill the role of concession stand attendant.

So demand is high for both types of workers, but supply is low in one case, and high in the other. Using a simple model of supply and demand, we can see what the results will be with respect to what the two types of workers end up being paid.

As you can see, even though there is a great demand for both players and concession stand attendants, the difference in supply leads to two very different outcomes – basketball players receive a high market wage, while concession stand attendants receive a very low market wage.

These market dynamics are the result of the buyers and sellers of labor in these two distinct labor markets negotiating, in a sense, based both on what price the spectators are willing to pay for the labor, and what price the players and attendants are willing to accept. The “market” plays the role of intermediary, trying to find a balance between the two groups. It does not care about the results, so long as they are efficient in their allocation of scarce resources. The “market” is, in a sense, amoral. Or, to put it bluntly, the “market” is like the honey badger – it just don’t give a shit.

Allowing the market to set wages seems fair on the surface. After all, if a person’s wages are lower than they desire, and they would like to earn more, they are free to invest in themselves, building up their skills and experience in an effort to attract higher wages. The responsibility to earn more rests with them. Fair enough.

But how feasible is this when wages are too low? Imagine a person whose labor, as determined by the “market”, is worth only $2/hour. A standard 40-hour work week would generate a paltry $4,160 per year…well below the cost-of-living for an individual, even in the lowest-cost cities. This person would need to work far more hours just to survive. But even working 12-hour days, for 7 days a week, would only lead to an annual income of $8,760. Again, a meager living for an individual. How exactly is this person supposed to find the time, let alone physical stamina, to engage in activities outside of work that can in some way improve their skills or experience? A daunting challenge, indeed.

So what does this mean for us as a society? There’s no single method of determining someone’s pay that is inherently better than any alternative. But at the end of the day, we must ask ourselves – what is the result of our collective decisions and actions? There’s nothing inherently evil about a market – markets are, after all, amoral. But might there be something wrong with a society that leaves all of the wage-setting power to a nebulous, emotionless structure – the “market” – that cares not at all about the physical or mental well-being of people? In other words, what happens when we operate not only as a market economy, but as what Harvard philosopher Michael Sandel calls a market society? And what happens when we structure not just our economic relations with one another, but our social relations as well, using an over-simplified economic analysis? In other words, what happens when we succumb to rank “economism”, as described by U-Conn law Professor James Kwak?

People who work, regardless of what work they perform, deserve to earn a living wage. This doesn’t mean everyone should be guaranteed a life of luxury. But it does mean everyone who works should be capable of achieving a basic standard of living. Hell, let’s go further and say: people, regardless of whether they work or not, deserve the resources they require to meet their basic needs, and perhaps even a little extra to make life just a little less nasty, brutish, and short.

The market is amoral – it will set a market wage based on supply and demand, balancing what workers are willing to accept against what employers are willing to pay. And unfortunately for workers, in most cases, the balance tilts in favor of the employers.

As a society, we face a choice: accept this market outcome, or find an alternative. The market outcome itself is amoral. But for society to accept it, always and forever, is immoral.

The Residential Solar Panel Premium: A Texas Case Study

(Note: This entry was originally published on August 28, 2015.)

I’ve been looking into residential solar panels lately: trying to figure out how much it would cost, whether it’s better to purchase or lease, how difficult it is to go through the permitting process, and what the net benefit of the panels would be in terms of energy and cost savings.

And then I heard another resident of my city tell about his experience with installing solar panels on his home. Not long after his system had been set up, one of his neighbors decided to sell their home. My associate happened to be outside one day when the realtor was stopping by, and after taking one look at his home, and seeing the solar panels mounted on his roof, she asked him if he was interested in selling his own home.

So this got me thinking – does the presence of a solar panel system increase a home’s selling price? There’s not a whole lot of literature on the subject, but a couple of studies out of California have indicated that there is indeed a positive impact on home prices. Hoen et al. (2013) estimate that solar panels generate a premium of roughly $5.50 per watt installed, while another study by Dastrup et al. (2012) find that solar panels generate about 3.5% in premium. I wondered – do homes in my area enjoy the same solar premium?
I began by figuring out which homes in my city – Irving, TX, in the heart of the DFW metroplex – currently had solar panels installed. A request to the city for permit data showed that several dozen residential property owners had applied for and been granted permits for the installation of solar panels. A majority (38) of these homes had been issued a “Final” permit, indicating the installations were complete. After consulting Google Earth, I was able to confirm that 31 homes had solar panel systems of varying sizes installed as of early 2015, and that they were dispersed throughout the city (rather than clustered in particular neighborhoods).

solar panels everywhere

The next step was to gather data on all aspects of homes that have an impact on sales price. As a proxy for sales price, I turned to appraised value, which was readily accessible. The Dallas County Appraisal District collects data on a wide ranger of property features, which are then used to determined the property’s value for the purpose of tax assessments. From the appraisal district, I collected data on the following variables: age, size (in square feet), the number of storeys, bedrooms, baths (half/full), pools, central air, brick exterior, wet bars, sprinkler systems, outdoor decks, and the school district. The final variable is the presence of solar panels, measured with a dummy variable – equal to 0 if the home has no panels, and equal to 1 if the home has panels. (Note: This case study does not account for the size of solar panel systems, in terms of wattage or financial investment.) Between 2010 and 2015, the number of homes with solar panels increased, from zero to thirty-eight, with most of the increase occurring in the last year.

a bright future for solar power in Irving?

With 31 homes confirmed to have solar panels by 2015, and 6 years of data, the final sample was 223 home-year observations. The next step was to use what economists call a hedonic price, or hedonic regression, model. This model allows us to isolate the impact of any particular feature on the home’s overall price. For example, results of this case study show that additional bathroom lead to a 5.4% increase in value, a pool adds about 8% in value, and each additional year of age decreases value by about 1%. (Most of the results obtained in this case study appeared to be on par with those found in other, larger studies.)

Of most interest is the impact of the solar panels. In this sample, the presence of solar panels leads, on average, to an increase of just over 4.7%, and the effect is highly significant (at the 1% level of confidence). By 2015, all of the homes in this sample had solar panels present, so to double check the results, I expanded the sample size to include a ‘sibling’ home for each of the 31 solar homes to serve as a control group. This expanded the overall sample to 443 home-year observations. Doing so led to a smaller premium, dropping from 4.7% to about 3.8%, although still significant at the 5% level of confidence.

for all the data geeks out there…

What does this mean for homeowners? It suggests that solar panels have a significant impact on a home’s perceived value, and eventually its sell price. As the anecdote noted above makes clear, those in the business of selling homes have an eye out for new or non-traditional features. In addition to the traditional aspects of a home – age, size, location, physical attributes – homeowners must now consider a wider range of features when buying or selling a home. And for homeowners interested in installing solar panels in order to reap energy cost savings, they can rest assured that at least some of their investment will be capitalized into the price of their home should they choose to sell it in the future.

What does this mean for “solar communities” as a whole? If the presence of solar panels is in fact reflected in appraisal values, it suggests a boost to the local tax base, as more and more homeowners choose to invest in solar. But beyond the increase in home values and tax revenues, an increase in the presence of residential solar panels within a community will lead to a decrease in demand for traditionally-generated electricity. With a decrease in the draw on the regional grid, communities can expect fewer temporary blackouts during seasons of increased electricity usage, or, they can devote the energy and costs savings to other economy activity. Overall, it seems that solar investment can be a win for everyone.

There are a number of caveats to be made about this analysis but the most important has to do with the short time-frame of this particular case study. There were no homes in Irving, TX, with installed solar panels prior to 2011. Since that time, it does not appear as if any of the homes where solar panels were installed have been sold. In other words, it remains to be seen whether the observed increase in appraised value translates into an increase in future sales price. But so far, the results look promising, in terms of the financial, economic, and environmental benefits.

Government Workers and Economies of Scale

(Note: This entry was originally published on August 8, 2014.)

I had planned on my inaugural post being an eloquent essay on philosophy and political economy, encompassing the designs I had in store for this blog. Alas, I am lé tired.

But! A recent post over at the Wall Street Journal piqued my interest. Using data from the Bureau of Labor Statistics, Rani Molla charts the total number of government workers by state, as well as the government workers per 1,000 people.

Not surprisingly, the states with the largest populations (California, Texas, New York, and Florida) have the greatest numbers of government workers. Indeed, when the data is plotted, we see a clear, positive relationship between population and government workers – the larger the population, the greater the number of government workers.

However, when the data is adjusted for population, we see something quite different. As Molla points out, the states with the highest number of government workers per 1,000 people are those with relatively small number of residents (Wyoming, Alaska, North Dakota). What might account for this?

The answer might be simpler than you’d think, and it boils down to a basic concept of microeconomics.

Think for second – what jobs are performed by government workers? To keep it simple, let’s think about the jobs performed by the government workers in a single city. At the top of the list would be the mayor and members of city council, a city manager perhaps, and the various heads of city departments. Not too many workers overall. But no matter the size of the population, whether a city of 1,000 or 1,000,000, the number of mayors would remain constant (at 1). There would still be only a single city manager, a single chief of police, a single director of budgeting, or accounting, or human resources, and so on. As the number of residents increases, the number of workers performing certain job functions remains constant – a perfect example of economies of scale.

What about further down the pay scale? A larger city might require a greater number of clerks in its municipal courts, or a greater number of sanitation workers. And a larger number of employees in those areas might require a larger number of analysts in human resources to manage payrolls and benefits. Not to mention public safety – larger cities would  certainly employ a greater number of workers in the police force and fire department. In this case, we would observe what economists refer to as constant returns to scale: each marginal (additional) police officer or court clerk or sanitation worker would be capable of serving a roughly equal additional number of citizens within the city.

But what about other factors? When it comes to the government workforce within a state, which can serve as a proxy for the ‘size’ of government, some might argue that the more liberal a state, the higher the government workforce relative to the population. But is this relationship observed in the data? Perhaps unexpectedly, no.

Using the percent of a state’s vote in favor of Mitt Romney in the 2012 election as a proxy for the liberal/conservative leanings of a state, we can examine the relationship between politics and government employment.

In the graph above, states leaning toward Obama appear further to the left (such as California, New York, Massachusetts), while states leaning toward Romney appear further to the right (Utah, Wyoming, Oklahoma). Fitting a trend line to the data shows an ever-so-slight positive relationship; that is, the more conservative the state, the higher the rate of government employment.

But how can this be? Are not political conservatives the champions of ‘smaller’ government? Perhaps there is another factor that explains this observed relationship – such as the relative urban or rural nature of the population? Using population density as a measure of the ‘ruralness’ of a state’s population, we can examine the relationship more closely.

As we see, the lower the population density, the greater the number of government workers per capita. This is in line with the economies of scale described above – even the most-sparsely-populated states would require some minimum number of government workers to deliver public goods and services at even the most basic level. So, as the population converges to zero, the ratio of government workers to population rises.

But what accounts for the previously observed relationship between political orientation and government workforce? Plotting the relationship between political orientation and population density produces the following result:

As we can see, the more conservative a state (i.e. – the greater the percentage of the state voting for Romney in 2012), the lower the population density (the more rural the population). And as observed above, the lower the population density, the greater the government workforce relative to the population.

So what can we take away from this?

First, total government workforce is primarily a function of absolute population – the greater the number of people, the greater the number, degree, and complexity of socioeconomic interactions. Thus, the greater the need for public facilitators and monitors of these interactions, the greater the demand for public goods and services.

Secondly, government workforces exhibit economies of scale – the greater the population, the smaller the number of government workers necessary to deliver those public goods and services relative to the population.

Finally, states with smaller populations, and thus lower population densities, have higher relative numbers of conservative voters, and at the same time, require higher relative numbers of government workers to provide public goods and services.

Whither Wrong Things? (a work in progress)

The Man from Mars had been dead for 37 years.  Or rather, he had discorporated when the time had, grokking the fullness of the moment, when waiting was no more. His disciples, his water brothers, having shared in the non-wasting of food following his discorporation, had carried on their evangelism, spreading the teachings of the Church of All Worlds. The ranks of the ninth circle had steadily grown, to be sure, but not nearly so much as the ranks of casual All-Worlders drawn more to the more meditative practices, which allowed them to carry on with their daily lives rather in the same fashion to which they had long grown accustomed, but in a manner much less unhappy and conflict-ridden. Talking Martian and controlling objects with one’s mind was just fine for some, but for the average lay-All-Worlder, sharing water and a sense of inner peace was plenty.

************************************************************************************

In a sea-side city on the Florida Gulf coast, a 52-year-old woman in the midst of cleaning house one day went to retrieve a broom and pan from the closet. Walking back into the kitchen, she bumped into something that was not there, could not quite grok it, thought to herself “waiting is”, and went about her cleaning.

A week later, making her way into the kitchen, she walked round the something that was not there, and noticed a bulge in the side of her toaster. Puzzled, she picked it up, feeling along the sides, but could detect no anomaly; setting it down, the bulge reappeared. Again, she picked it up, but felt nothing out of the ordinary. Setting it down once more, she took a slice of bread from the cupboard, and inserted it into the misshapen toaster, depressed the lever, waited for the toaster to grok the fullness of the moment, and watched as the warm slice of bread sprang up from within the toaster. Confirming that the toaster was in perfect working condition, she retrieved the slice of bread, ate it (true to the teaching of non-wasting of food), and went about her day.

in the same building, a retired postal worker from Poughkeepsie living out his golden years in the sunny warmth of southern Florida, carried his bag of trash down the hall to the garbage chute, opened the door, stuffed the bag through the opening, and turned, expecting to hear the swoosh of the bag traveling down the chute. After a few steps, he paused, and listened – silence. He turned and walked back down the hall, opening the door and poking his head into the chute. There was his bag of trash, suspended a few feet below the door, wedged between the wall of the chute and…something that was not there. Retrieving a broom from his condo, he poked and prodded the bag until at last he dislodged it. Upon hearing the final thud as the bag fell three floors and landed in the collection bin, he returned to his afternoon ritual of crossword puzzles and light jazz.

In the building next door – an establishment occupied by tenants of a more discriminating taste – there lived a young couple recently returned from a year-long sojourn through the Old World, who, having sown their wild oats (both individually and in tandem, in the manner of the nearly-forgotten Fosterites), and secured gainful employment as an accountant and graphics designer, had settled in the Sunshine State to partake in the age-old tradition of establishing a nondescript nuclear family.

Verse, old and new

(an old verse, written years ago)

a butterfly, so fragile, yet so elegantly able
to instill in us awareness of our oneness with that nature
that guides times across the eons, ‘cross the universe, winds blowing
upon which flutters softly
a fragile butterfly

(a new verse, hot off the press)

The spiny, reptilian lord surveys his domain:
from atop the strange cairn of neatly-stacked stones,
he keeps a watchful eye.
His blood, his throne, warmed by the sun,
change not his cold, hard gaze.
A rustling in the leaves, a tiny cock of his head:
Stand, fight, or fly?
Beware the lord of the sky!
tis nothing….
Flex once, twice, thrice!
Behold the scaly lord,
tread lightly thru his realm.

Fashion Stylings of an Eleven-Year-Old

i buttoned my shirt, starting at the bottom and moving upwards, pausing at the top button.  strange that so many shirts would have a button that in only the rarest of cases would actually be buttoned.  they made fun of me for it.  but how was i to know?  it was there to be buttoned.  i was reading Boy’s Life, they must have been reading GQ.  push down your socks, they said.  i had pulled them up all the way.  it stretched them, loosening them. i pulled them up again and again.  i did not know.  public education of a different sort.  public scorn.  what good was a diagrammed sentence if the socks were too high?  the legs of the diagram stretched down and out, labeled, but upon which stretched no socks.   too many buttons buttoned?  blocking blood to the brain, stifling the stream of speech left dangling un-diagrammed?

fashion be damned – i buttoned the button.