What is the economic impact of Facebook, Twitter, and all those social media applications?

February 9, 2012

Daraius

What do sites that many people use to share their vacation pictures, make snarky comments, or let everyone know what they are doing every minute of the day in under a 140 characters mean for the economy?  That is a question many individuals have. Aside for the very large IPO last week, what is the real economic value of Facebook or Twitter or the myriad of other social medial sites?

According to a University of Maryland study, Facebook and other social media sites have spawned the “App Economy” which has created between 182,000 and 235,000 jobs and has added between $12.19 billion and $15.71 billion in wages and salaries. A study funded by Facebook finds that in Europe, Facebook added a similar number of jobs (approximately 232,000).

Now one may wonder if Words with Friends and Farmville really add to the nation’s economic activity. While the enjoyment of playing social network games may not add a specific dollar amount to the economy, the development of such applications supports numerous jobs. Moreover, the use of Twitter and other location-based social media such as foursquare also support numerous development jobs and add value to the economy.

While all of these new application jobs are a benefit to the economy, I think the value of social media is how it is transforming the way we use the web and the way businesses use the web. In the first phase of the internet, portals such as AOL and Yahoo! made the internet the place to go to find information, albeit slowly. When Google indexed this information, then we were cooking with gas. However, the web experience remained an individual experience.  With the maturity of social media, the web has become a platform for social interaction. Social change empowers individuals who share common likes and dislikes to join together.

Image credit: tungphoto

The success of Facebook and other social media platforms illustrate the potential for profitability of an open internet and a good idea. The fact is that for every like or dislike we post, every tweet we tweet and every time we check in, we are providing immensely valuable information to firms. The rise in location-specific coupons is driven by this information. According to Richard Florida, the geography of the professional use of social media is concentrated in metro areas in the U.S. that are richer, more technologically advanced, have higher levels of education, higher levels of the creative class, and are more open to diversity of all sorts.

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Posted by Daraius Irani

AAA and Fiscal Policy

December 5, 2011

Daraius

Many people mock the two-armed economists, especially as these economists pontificate on the effectiveness of the most recent fiscal and monetary policy solutions to the great contraction. However, this economist firmly believes that the fiscal policy solutions proffered by both parties can and should coexist as they address two fundamentally different problems in our economy—contracting short-term economic growth and sustaining long-term economic growth.

The first and most immediate problem was present when President Obama took office in February 2009; the economy was heading south rapidly. The only indicators which were rising were foreclosures and unemployment.  Our nation was in an economic death spiral. Something needed to be done quickly to stimulate the economy; please note the choice of word: “stimulate,” not “sustain.” I argue, “go big or go home” in regard to the stimulus. (Obviously, my opinion was not sought on this question.) This situation is analogous to discovering your car battery has died. You call AAA to jump start your car. This is a short-term solution as you will buy a new battery rather than continually hope for the timely availability of AAA to jump start your car each time you decide to drive.

At the core of the Republican economic policy, corporations—which believe they have a God-given right to pollute, pay their workers what they want, ship jobs overseas, and pay no taxes, yet they expect subsidies for bringing low-paying jobs to a region, demand a highly educated workforce, and expect that their industry receives federal subsidies for their product—are calling for smaller government, lower taxes, and less regulation. While I agree with these core principles for the most part, I do have qualms about getting rid of regulations. There are numerous anecdotal stories about how government regulations stifled businesses, but we are currently experiencing what happens when there is too little government regulation—mortgage crisis, Deepwater horizon, Bernie Madoff, and Enron, just to name a few.

Photo credit: Renjith Krishnan

My editorializing notwithstanding, the Republican economic platform makes perfect sense to sustain our economy over the long haul. Less is more. The role of the government is to ensure that property rights are safeguarded, laws are passed and obeyed, individuals can engage in commerce freely, and tax policy does not discourage individuals from working harder. On the other hand, the Democratic platform of spending like drunken sailors on leave makes perfect sense to stimulate the economy. Both policies can coexist and should be implemented.

What is stifling a speedy economic recovery vis-à-vis fiscal policy is the uncertainty of government action. When Congress cannot pass a budget until the very last minute with threat of a government shutdown looming or are willing to allow the U.S. to be downgraded, a great deal of uncertainty is created. And while uncertainty makes for exciting movies, novel endings, and thrill rides, it is completely inappropriate for long-term business planning. This is the environment in which we are currently, and until both parties realize that their policies can coexist and that acceptance of one or the other does not imply that they are violating their core political beliefs, the economy will continue to limp along.

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Posted by Daraius Irani

Video: Meet the Team Video with Erin Neuslein

October 25, 2011

Daraius

I have had the great pleasure of working with Erin Nueslein the last 10 years. She has worked in a variety of capacities from project manager for RESI’s contract with the Department of Human Resources to Associate Director of RESI.  In each of these positions she has acquired skills and experience that will help her tackle the new challenges in the role as Director of DECO’s Administration and Finance unit. Watch the interview to learn more about Erin’s role as Director.

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Posted by Daraius Irani

Ladies and Gentlemen Start Your Engines: Economic Impact of the Baltimore Grand Prix

August 29, 2011

Daraius

Soon the roar of Grand Prix racing will fill the streets of Baltimore over Labor Day weekend under the auspices of the IZOD IndyCar series.  In total, there are 19 scheduled races this year of which five are held on the streets of their host city rather than a speedway.  While there has been some controversy surrounding this event, it is my opinion that this event will provide a boost to the City’s name and bottom line. 

As it stands, Baltimore City is already becoming a destination choice among many visitors.  Events such as the Baltimore Running Festival, various soccer and lacrosse matches and Artscape provide diverse activities for visitors.  In addition, with the presence of the Orioles, Ravens, the Hippodrome Theater and various museums, there are plenty of opportunities for visitors to enjoy Baltimore’s cultural, recreational and entertainment offerings.

According to the Economic Impact Report published by Baltimore Racing Development, LLC, Baltimore’s Grand Prix and related events are slated to bring over 100,000 visitors to the City.  Visitors attending the event are expected to generate over $70 million in spending on things such as hotel rooms, food and beverage, transportation and other entertainment. In addition, the City is expected to gain $2.2 million dollars in tax revenues.

Photo credit: Baltimore Business Journal

While the three day event has the potential to bring in a lot of new visitors to the area for the event, the real impact will be in terms of the marketing and outreach for the City of Baltimore. For example, races will be broadcast to a national and international audience.  The media exposure and branding of the City as a Grand Prix destination will have long-lasting and reverberating effects.   In a report regarding the San Jose Grand Prix, the estimated value of media exposure for that city was valued at $4.6 million.  Baltimore’s Grand Prix is expected to have a larger audience and races will get TV coverage on major networks such as ABC and ESPN.  In addition to the race coverage, a documentary based on the behind-the-scenes efforts to put on the race will be broadcast on September 11th.

If Baltimore is lucky, the city’s experience will mirror the success of the Long Beach Grand Prix.  The Long Beach event, which began as a small Formula 5000 street race, recently celebrated its 38th straight year and brings more than 200,000 spectators to the area.  I believe Baltimore has the ability to succeed in this venture.  Some of the City’s best landmarks and spectacular views—including the inner harbor and Camden Yards—will be front and center during the whole event.  I would be surprised if that wasn’t enough to put Baltimore on many people’s radar.

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Posted by Daraius Irani

Maryland’s Business Climate—the factors and how we rank!

July 20, 2011

Daraius

As I have written in the past, Maryland is viewed (fairly or unfairly) as having a poor or less than friendly business climate.  Some have suggested that Maryland’s motto is “If You Can Dream It, We Can Tax It” which is not exactly a ringing endorsement for a business friendly state.   First what determines the business climate and is someone or some entity measuring the business climate?

According the International Economic Development Council (IEDC), the essence of a business climate is “how states state, regional and local policies, relationships and local communities support business development.”   What are some of the major factors associated with a business climate according to IEDC?

Major Factors

1. Business and income tax levels
Business and income tax levels allow prospective businesses to gauge their investments when seeking places to expand or incorporate. According to the Tax Foundation’s 2011 State Business Tax Climate Index (8th Edition), “States with the best tax systems will be the most competitive in attracting new businesses and most effective at generating economic and employment growth.”

2. Workforce availability
This factor does not necessarily need to focus on the amount of able body individuals a state currently has but rather the skill level of those within the state. Maryland’s accessibility and continued efforts to support technology driven education will continue to make us a viable contender with other surrounding metro areas. The Kauffman Foundation (New Economy Index) commented on the technology driven workforce stating, “…(states with) a solid innovation infrastructure that fosters and supports technological innovation, and many(of the highly ranked states) have a good quality of life coupled with high levels of domestic and foreign immigration of highly skilled knowledge workers.”

3.  Energy costs
A hotbed issue right now, rising energy costs not only are seen harboring our monthly electric bills but also at the gas pumps. Continually rising energy costs are added into the final cost of a product, often assisting in the loss of possible consumers. Maryland currently is ranked in the Small Business and Entrepreneurship (SBE) Energy Cost Index (2010) as being one of the highest energy cost states along with New Jersey (rank 44), Washington, D.C. (rank 42), and Delaware (rank 38) overall.

4.  Market size
The Kentucky Cabinet for Economic Development’s 2008 Kentucky Business Climate report referred to this factor as “market access.” The more accessible the state can be to either employees via public transportation, or business imports we will continue to see a growth in those that wish to invest in developing within Maryland borders. Factors such as roadway miles, number of airports, and waterway access are just a few factors that attract new business to states.

5. Cost of living
Cost of living plays a crucial role in exhibiting key trends that will decide if a state has a “good” business climate. States with lower costs of living allow residents to feel the significant increase in their purchasing power as opposed to those states that have high costs of living, per IECD’s key findings.

Other Contributing Factors

  • Quality of life
  • Environmental regulation
  • Permitting, licensing, and various reporting regulations
  • Real estate costs and availability
  • Infrastructure
  • Access to financing and capital
  • Incentive
  • Quality of services

So how does Maryland measure up?

Factor Indication Rating/Rate
Business Tax Levels State Business Tax Climate Index 4.25 (Rank 44)
Workforce Availability New Economy Index 3rd (MA ranked 1, NJ-4, DE-6, PA-22)
Income Tax Levels (State) Comptroller of Maryland MD 2.00-6.25%
DE 2.2-6.95%
PA 3.07%
VA 2.0-5.75%
D.C. 4.0-8.5%
Energy Costs SBE Council Energy Cost Index 39 (tied with Maine, DE-38)
Cost of Living MERIC Composite Cost of Living 44 (VA-24, PA-32, DE-35, DC-50)

So it would seem that Maryland faces some challenges to its business climate, but at least our state motto is not Massachusetts’ motto “Our Taxes Are Lower than Sweden’s (For Most Tax Brackets)”.

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Posted by Daraius Irani

Maryland, the deficit and the debt limit

June 21, 2011

Daraius

Many people have heard me state that Maryland’s economy is based on “Eds, Beds, Feds, and Meds,” and this is one of the reasons why Maryland has suffered comparatively less during this most recent recession.   However, this insulation from economic events may be coming to an end and may have a severe impact on Maryland’s economy. Maryland by virtue of geography has become the home of many federal agencies, and by virtue of its highly educated workforce Maryland has received a disproportionate share of federal funding in research, cyber-security, defense, medicine, and other areas.

While the debate in Washington rages regarding the role of government and the need to shrink it, we Marylanders should feel especially vulnerable.  The Federal government directly employs approximately 130,000 civilian or over 5% of Maryland’s labor force. Moreover, Maryland is home to eleven agencies as well as ten military installations with over 80,000 military personnel, and the state receives over 1.5 billion dollars in federal research dollars, over ten billion dollars in federal expenditures, and over twelve billion dollars in private sector contracting opportunities. Finally, numerous Maryland citizens work for the federal government in Washington, D.C. and Northern Virginia.

It has been estimated that for every federal job in Maryland, two other private sector jobs are created. These private sector jobs include IT contractors, teachers, retail clerks and other professions.

A 10% cut in federal employment could potentially  result in the loss of nearly 40,000 jobs in Maryland, or about 1.6% of the total workforce.

Moreover, the federal workforce tends to be older on average and therefore will likely have a higher salary. As a result, a 10% loss in jobs will also have a disproportionate impact on Maryland’s income tax collections of those federal workers who live in Maryland.

To lessen the state’s dependency on the federal government, Maryland needs to encourage the growth of private sector jobs and companies.  There are hurdles from public policy to perception regarding Maryland’s business climate and tax rates. Hopefully, this is outweighed by our highly educated workforce. According the Department of Labor, Licensing and Regulation (DLLR), Maryland created only 4,400 net new private sector jobs between April 2010 and April 2011 (a growth rate of 0.2%), a very modest number, to say the least .

This growth rate suggests that Maryland is in a precarious position in these latest deficit and debt discussions. Maryland’s economy would perform better if the federal cuts were targeted towards entitlement programs—Medicare and Social Security, for example—rather than agencies (NIH, NIST, DoD, etc.) as cuts to entitlement programs would be felt nationwide while cuts to agencies would be more acutely felt in Maryland. While I am not advocating government for government’s sake, we Marylander’s need to be aware of just how closely tied our economy is to the Federal government.

Image credit: World Travel Guide

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Posted by Daraius Irani

Baltimore Horse Racing, a valued tradition and economic driver!

May 5, 2011

Daraius

Throughout the history of Baltimore and Maryland, there have been many long-standing traditions and venues that have gone by the wayside as well as many familiar faces we have lost.  Remember the days of streetcars running in Baltimore,  shopping at Hutzler’s department stores, going to the Enchanted Forest Theme Park , dining at Haussner’s  Restaurant surrounded by the vast number of paintings, attending a game at Memorial Stadium or even catching a glimpse of Mayor Schaeffer in and around the city?  In the land of pleasant living, the loss of these icons of our past makes us feel less special – as if a piece of us is gone for good.  Granted there may be new icons replacing these lost icons, but it is far from the same.

Every spring as the flowers bloom and the smell of fresh cut grass fills the air, all of Maryland becomes acutely aware that Preakness is around the corner.  This year will mark the 136th running of the Preakness Stakes at Pimlico.  While this event has become less about the actual horse race and more about an event to be seen at, it is still, at its essence, an important part of Maryland’s history as well as our national history.  It is after all, the second leg of the crown jewel of Thoroughbred horse racing, the Triple Crown.  Not only is this event nationally broadcasted, it generates a great deal of economic activity from the millineries to the horse breeders.  It is estimated that Preakness generates between $40 and $60 million dollars in economic activity annually. It also brings to the city anyone who is anyone in Baltimore’s (Maryland’s) social circles as well as college students who invade the infield more for the party than the horse race.  It is truly a unique Baltimore (Maryland) event.

While the Preakness Stakes is a highly visible event nationally and an economic boom to the industry, it just may not be enough by itself to continue to support the overall horse industry in Maryland.  Based upon published estimates, the economic impact of the horse industry is $1.6 billion, with over half of that generated through racing.   Every year, a renewed debate occurs regarding the status of the horse racing industry in Maryland.  Given the challenges the industry in Maryland faces, from larger purses in other states to the presence of slots and table games at these out of state horse racing venues, the industry is struggling.  This has manifested itself in the form of proposals to shorten the racing season as well as the closure of some venues.

While many may wonder whether horse racing in Maryland or Maryland’s horse industry fits in with our “Eds, Feds, Meds and Beds” economy, it not only fits in, it is one of the great icons that helps to define Baltimore and Maryland.  However, if we do not take deliberative action to preserve this industry, we may find that one of our last remaining icons is on the ash heap of history.

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Posted by Daraius Irani

Orioles Opening Day: What’s the Economic Impact of Baseball in Baltimore?

March 31, 2011

Daraius

As spring begins, the smell of pine tar, the crack of the bat, the thump of a well-caught ball and the whoosh of ball thrown on a rope will be filling the air.  Orioles Opening day is just around the corner.  Prognosticators fill the airwaves with their picks and pans for the upcoming season.  Which teams will make it to the World Series and which new hot prospect will get a call to the big show are questions many excited fans are asking themselves.  While these questions have usually been decided to a degree by September and in many cases are a disappointment to most fans, hope springs eternal on opening day.  Ahead lies 162 ball games and every team has a chance to get to the World Series.

Outside of the feeling of “anything is possible this season” or “dream the impossible dream”, what does opening day mean for Baltimore in terms of dollars and cents? There are several ways to illustrate the economic impact of opening day in Baltimore.  Drawing upon some of my own past research as well as work that Towson University completed on behalf of the Maryland Stadium Authority, there are several interesting findings.

In one of my papers, I examined the cost-benefits of a baseball stadium to a city.  Obviously, a winning team will attract more fans and attendance will go up.  Based upon my research, I found that

if a team increases its current year’s winning percentage by 10%,
attendance would rise by approximately 9.6%.

If the team had a strong finish in the prior season, then that will also influence the current year’s attendance, but its impact on attendance is less than half of the current year’s winning percentage.  While I did not explicitly examine an opening day effect on attendance, I suspect that since the season is a blank canvas and fans are full of hope, outside of playoff games, opening day attendance is likely to be among the highest in a team’s season.

Photo Credit: MLB - Oriole Park @ Camden Yards

In a recent Towson University study, the economic impact of the Orioles was estimated in terms of Gross Domestic Product (GDP), employment and taxes.  Over the entire season, the estimated impact of attendance at Camden Yards on Maryland’s GDP is approximately $175 million, while an estimated 2,500 annual FTE jobs are supported and over $18 million in state and local taxes are generated.  Based upon these data and the Orioles’ 2010 Opening day attendance (48,891), the impact of Opening Day on Maryland’s economy is estimated to be 50 annual FTE jobs, $3.3 million in GDP and about $350K in state and local taxes.  However, this does not include the lost productivity due to the spike in absenteeism on Opening Day.  So as they say, “Play ball!”

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Posted by Daraius Irani

TO TAX or TO CUT; that is the question

March 10, 2011

Daraius

Our nation and our state face enormous fiscal challenges ahead. The very essence of what government’s role should be is being questioned during these difficult economic times. Our nation is undergoing one of the most severe economic dislocations since the Great Depression and in the course of propping up the economy; the federal government has accumulated tremendous deficits. Moreover, many states have gotten used to the tax revenues generated from the pre-recession period but have yet to wean themselves off the spending patterns that grew to absorb those tax revenues. Many states find themselves with immense unfunded of underfunded pension and healthcare obligations. In some instances these obligations dwarf the current expenditures on the current employees in those agencies. Unfortunately, our nation’s and many states’ elected officials have refused to address these issues, preferring to “kick the can down the road”, or at least have attempted to delay until they are out of office. So our nation and states now stand at a crossroads in terms of our fiscal health and must ask the questions “to tax or to cut”.

While spending cuts and tax cuts seem to be very popular with those who believe that the government is already too large and needs to be scaled back significantly, the challenge will be to arrive at a political solution to this problem. However, the problem runs deeper than simply cutting taxes or spending. Our tax structure is highly inefficient, not in the sense that funds are lost or that there are too many tax collectors, but in the sense that the tax system encourages behavior that would not otherwise occur.

According to the Tax Foundation, Americans spend nearly 20 cents for every dollar collected in taxes on tax compliance. This tax compliance includes completing tax forms, seeking tax planning and filling out other paperwork.   According to the CATO institute, the cost of tax compliance is nearly 2 percent of Gross Domestic Product, or roughly $265 billion.

The complexity of the tax code not only interferes with economic planning, but has also fostered an entire industry segment that has devoted itself to assisting firms and individuals in aggressively avoiding taxes.

Moreover, due to the complex nature of the tax codes, these firms are able to exploit the loopholes which in turn push Congress to act to close those loopholes, which then creates more loopholes and the cycle goes on.

While our tax system is highly complex, the way government spends and allocates funds to achieve its goals is much more complex and perhaps inefficient. A recent Government Accounting Office (GAO) report finds that numerous federal agencies perform similar if not duplicative duties and have identical programs. According to the report, there are nearly three dozen agencies and sub-agencies in which there are duplicate and/or fragmented programs.  The agencies range from agriculture to defense to social services.  While many elected officials are bemoaning the excessive waste that is inherent in the federal government, the fact of the matter is that the report indicates that $100 billion to $200 billion is duplicative spending. Out of a $3.4 trillion budget, this duplicative spending amounts to less than 1 percent of the total budget.

It is clear the current tax system is a drag on the economy. Perhaps more tax revenue could be collected with a simplified tax code. In addition, how funds and programs are disbursed within the federal government can be characterized as inefficient. However, many elected officials want to avoid addressing these problems and go directly to cutting programs and cutting taxes as to avoid upsetting their constituencies. One of the roles of economists is to assist society in identifying efficient allocations of scarce resources among various competing interests. From this economist’s point of view, our current tax system and the waste within government needs be addressed before we decide to change our taxes or spending.

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Posted by Daraius Irani

From an Economist’s point of view baggage fees are a GOOD idea

January 20, 2011

Daraius

As I began reflecting upon this past holiday season, I realized that many of us flew to our destination via commercial airlines and many of us not only paid for ourselves but for the privilege of having luggage accompany us to our final destination.   We have reacted indignantly when we have heard or read about another fee the airlines are charging us; from fees for boarding early or using the lavatory to fees for checking in luggage, including carry-on luggage.

However, as an economist, I applaud these efforts as airlines are establishing a pricing structure which enables consumers to choose the precise mix of airline services that fit their needs and budgets. From an economist’s view, this pricing structure is very efficient as it forces individuals to reveal their willingness to pay for different levels of services-remember, what did your parents always ask you before you left for a long car ride?  From an airlines perspective, the ability or the increased ability to charge a different price to each person depending on whether they prefer an aisle seat or emergency exit row seat, how many pieces of luggage they have, whether they want to eat and perhaps whether they want to use the bathroom or not better serves their bottom line.

According to the Wall Street Journal, in 2009 airlines racked up $13.5 billion in what are called a-la-carte fees, a 43% jump over the prior year. Leading the charge for the a-la-carte fees were United Airlines, American Airlines and Delta Airlines each racking up over $1.4 billion in 2009.  Moreover, these fees were the reason why many airlines were in the black in the most recent reporting period.  Many reports are surfacing that for 2011, the airlines may introduce (if they have not already) additional fees such as:

  • Infant fees
  • In person check in
  • Using a credit card
  • Checked bag fees by the pound
  • Name change fees
  • No more refunds if a fare goes down
  • Carry-on bag fees
  • Fare lock-in fees
  • Internet “convenience fee”

While this trend is likely to continue for many airlines, some airlines are capitalizing on the ire of air passengers about this policy.  To wit, Southwest Air’s ad campaign of “bags fly free” or their newest ad revealing the fees that other airlines charge for changing your ticket seem to be working as Southwest has enjoyed another year of profitability , its 37th year of profitability.

Photo Credit: Southwest Airlines Flickr

So before you plan your next holiday, make sure you pack light, leave your baby at home, wear multiple layers of clothing and stuff your pockets with what you would have had in your carry- on bag, pay for the trip in cash, don’t book your ticket in person but don’t use the internet to book your ticket either.  Other than that, have a great flight!

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Posted by Daraius Irani

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