The Decision Strategist

I’m officially on vacation. Doing laundry and packing up to head up to my mom’s house for Christmas. Gonna do some snowboarding, sledding, eating of pie, and other generally good things about life.

I hope all of you have a great week.

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A substantial part of my day job involves trying to estimate the ‘economic impact’ of a company, policy, university, park, forest, visitor, or really anything else that someone wants to champion for some reason (almost always to get more state or federal money).

The method is pretty simple on the surface. How much money does said company, policy, etc… (lets call them actors for brevities sake) bring in to the region you are examining? You don’t want to consider money that is already within the region, because that money is already there, and if it wasn’t going to said actor, it would be going to some other actor in the region.

Often times this is a company looking for tax breaks or other incentives. ABC Auto wants to be able to tell the state economic development department that they will hire 1000 workers, who will provide, through derivative economic activity, an additional 900 jobs.

There are generally two accepted ways in which these additional jobs can be generated. First, they are generated because ABC Auto buys parts from XYZ Metals, and so provides some of the money used by XYZ Metals to pay their employees. XYZ Metals in turn has to buy from Local Smelters, etc… These are called ‘indirect’ impacts.

Then there is the income of all those workers, buying clothes, gas, cars, food, houses, etc… which again provides the economic activity necessary to keep all those retail workers employed. These are your ‘induced’ impacts.

The problem is that the size of your economic impact is extremely dependent on the size and location of your geography. Say for example that Big Mall has a location in the next city. They are considering moving the location to your city, and say they will hire 500 employees!

Sounds great right?

It might be, if you’re measuring the economic impact on the new city. But if you are looking at the old city it’s not such good news. And if you are looking at the state, there won’t be any real change at all.

And here is the problem, because no geographic region is economically isolated. So your ‘outside money’ is only outside because of definition. This can get us in to real trouble. Every economic impact study I have ever seen has worked hard to capture any federal dollars that will flow into the region because of a given actor (say the economic impact of a university). But not one study has accounted for the fact that a whole lot of money flows out of the state to the federal government first.

Indeed, without the flowing of money out of the state, there would be no flowing of money in to the state (unless, like our current government, you just borrow as much as you want).

So really, your benefit from federal dollars is only positive if you get more money than you pay, and then it comes at the expense of some state that gets less than they pay.

But an even bigger problem is a misconception about how economic growth occurs. It doesn’t happen because ABC Auto buys metal from XYZ Metals who buys ore from USA Smelters. Those are economic transactions, and are the transmission lines along which economic growth occurs, but they aren’t the source of the growth itself. But this is implicitly what is happening in economic impact analysis.

Economic growth is a factor of a lot of things, reducing primarily to how productive your workforce is, which depends on your capital investment (e.g. computers and the internets), education, etc…

It’s also a function of use of resources, which may be things like minerals and timber, or things like military power to coerce other countries to implement favorable economic policies.

On a global level though, economic growth can only be due to increases in efficiency, whether it’s in terms of labor or resource extraction or manufacturing process.

The point of this long ramble being that economic impact studies are by their very nature prone to NYMBYism at best, and foster explicit fighting between regions at their worst. Companies playing states against each other to get the best tax break is possible because the economic impact is done for each state separately. Geography is the Achilles Heel of economic impact analysis.

There is a bunch of software available for impact analysis:

• Implan: Some good information in their documents section.
• Remi: Very expensive, more complicated (without necessarily being better).
• Redyn: The gentlemen who put this together are thorough and extremely smart.
• RIMS II: Quick and dirty, BEA model.

I think there is a place for an open source free downloadable and web-based impact model…I should really make that happen.

-zot.

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This article in the New York Times talks about differences in intelligence and making mistakes. Intelligence is a funny thing. It’s a concept that there is no real way to measure. Perhaps because there is no real consensus on what intelligence means. Is intelligence being able to interpret geometrical shapes? Or perhaps being able to understand the concepts in a paragraph (Who’s concepts? What language and subject?)? Perhaps intelligence is being able to interpret body language to understand emotions? Maybe it’s making decisions that are least destructive to our health, in which case all smokers are less intelligent than non-smokers.

At risk of treading dangerously close to ‘everything is relative’ territory, I think it is very hard to judge intelligence. Is a drug user who robs a store not being intelligent? Does being a drug addict in the first place have anything to do with intelligence? In fact, does breaking any laws of any kind have anything to do with intelligence?

I think intelligence has little to do with your genetic gifts and more to do with how hard you work to understand things. If you tend to face unknown or confusing situations by saying ‘meh, nevermind I am not really interested’ or ‘this is too hard’ it almost certainly will be. But if you face those situations by asking what you can learn, pretty soon those situations aren’t as hard as they first seemed.

In other words, I think the human bell-curve of intelligence looks something like this:

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If measures of intelligence are dependent on cultural values, we can be assured that they discriminate against groups with different values. Someone who was raised with the idea of getting married and having a family over going to college is not by definition any less smart than the upper class kid who was raised to go to Harvard.

But we as a society seem to think that intelligence is an objective measure, like the length of a board or the size of a hard drive. Whether you rate someone else as intelligent probably has a lot more to do with how closely their values align with yours than it does with how much processing power they possesses. People don’t like the idea that you can’t assign a number to someones intelligence, or that that number will depend more on whether the person was raised in line with the dominant world view or not.

It’s a weird culture of fear that we have. Even those of us who are critical of what we might call ‘consumer values’ are afraid of the person who is homeless, or the person who is living in the projects. The reality is that people in substantially different walks of life probably have a lot of interesting things to say if we could just overcome our fear of crime and self-protective disdain.

Part of the problem with writing articles over multiple sessions is that you pick up in a very different place from where you left off. I hope this all makes some kind of sense.

-zot.

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