Isaac Laquedem

Inflation strikes the new Sellwood Bridge, and we haven't even designed it yet

Some months ago I coined the "Sellwood" as a monetary unit in which to measure transportation projects, equating one Sellwood to the cost to replace the Sellwood Bridge, not counting the west side interchange.  At that time the government estimated the bridge to cost about $200 million (the number to which I pegged the Sellwood).  The entire project cost was estimated at about $330 million.  Keep in mind that these estimates are less than six months old.

Yesterday I noticed this Tribune story that reported the estimated cost of the project to be $479 million, which is 45% above July's estimate of $330 million.  Here's a bridge that's running way over budget, and we haven't even designed it yet.  Happy new year!

HAP misses a chance to save $161,000 per unit

Ages ago, the Housing Authority of Portland announced that it wanted to scrape and rebuild one of its projects, an old cinderblock apartment called Hillsdale Terrace in southwest Portland, at a total cost of about $400,000 per housing unit.  In a market where the median price of a single-family detached house is still under $300,000, to pay $400,000 per unit to build a garden apartment project was rightly criticized as wasteful.

The Housing Authority missed a chance last week to save some money, when the Ladd Tower was sold to a private investor.  The Ladd Tower is a brand-new high-rise apartment tower on SW Broadway, just south of the Oregon Historical Society and adjoining the South Park Blocks.  It has 332 units, averaging about 800 square feet each.  The kicker?  It sold for only $79,350,000, which is $239,000 per unit, just 60% of HAP's projected cost to build new.  HAP has some opportunities in the marketplace (translation: screaming deals available) that make a lot more sense than building new.

There's nickel, neodymium, neptunium, germanium

"Rare earths are the hot investment opportunity," said some of the hucksters who call me, hoping in vain for an investment of the Laquedem fortune in the rare earth metals.  [The rare earth metals are elements 58 to 71, also known as the lanthanide series, and include no household-name elements.]  Because the rare earth metals have similar electron structures, they tend to be found in bunches and to be difficult to separate chemically.  Until recently, they had no special uses, but recently some have been discovered, particularly for neodymium, which is used to make the batteries for hybrid cars, high-performance magnets for munitions, and computer displays.

The hucksters' pitch is that industry is demanding more rare earth metals, and China controls the world's supply (about 90%, currently) so the prices are bound to go up.  I enjoyed the sales pitch, but didn't buy any.

China figured out what the commodities brokers were pitching: it is cutting its exports of rare earths by a third for 2011.  (Here are stories from Financial Feed and Bloomberg on this.)  This is its second export cut in three months; the first was in September when it cut the rest of 2010's quota by 72%.  It's also on the lookout for people who might bootleg neodymium to Japan.  I was surprised to learn that China credits its former leader, Deng Hsiao-P'ing (1904-1997), for seeing this opportunity in 1992.  We're only 18 years behind.

Congress says investing is more moral than working

A Republican friend and I had an enjoyable argument a few days ago about a thesis that I recently formulated.  It goes like this:  Our tax code is designed not just to raise revenue but also to carry out social policy.  For example, Congress allows taxpayers to deduct home mortgage interest and charitable contributions from gross income to encourage us to borrow to buy houses and to give money to charity.  The deduction for charitable contributions and the lower effective tax rate for married couples may also reflect the moral philosophy of Congress: it's more righteous to be married and give generously than to be single and stingy.

Similarly, income from certain sources (such as qualifying investments in offshore dependencies) is taxed at a lower rate, or not at all, to encourage taxpayers to invest in income-producing ventures in those locations.

It follows, then (I told my friend) that legislators who want to tax capital gains at lower rates than ordinary income (i.e., income from working) want to encourage people to realize capital gains -- and, conversely, discourage them from working.  Alternatively, the difference in tax rates may embody the collective moral philosophy of our elected representatives, even if they don't know they're showing it: it's more praiseworthy to trade stocks for profit than it is to earn money from producing something in a factory, and Americans should thus be discouraged from working for a living.

How much should you spend on an engagement ring? Roger Staiger says it's not enough

In the 1940s, De Beers recommended that the groom should spend two months of his salary on the ring for his betrothed.  (De Beers, which controls much of the diamond industry, didn't discourage grooms from paying more.) Today De Beers is more circumspect, saying only that the groom should establish his budget based on his income and what he wants to spend. Meghan O'Rourke, writing in Slate in 2007, brought economics into the picture, and argued that the tradition of the man giving his fiancee an expensive ring as evidence of his commitment to marry her replaced her right to sue him for breach of promise of marriage.  She made a Galbraith-style economic argument: lots of policy, but no equations.

Roger Staiger, a noted real estate consultant, lecturer at Georgetown University, and adjunct professor in the graduate school of Johns Hopkins University, has now introduced mathematics into the question.  Writing in the current issue of Live Valuation, a magazine for the appraisal industry, Professor Staiger suggests treating the cost of the engagement ring as equivalent to payment for an option to enter into a transaction at a fixed future date, and then applying the Black-Scholes theory of option pricing to compare the price of the ring to the present value of the bride's expected future earnings.  (Black-Scholes is the most common method of valuing options, and used by public corporations to assign values to their outstanding grants of stock options.)  He used Jessie, one of his students, newly married to Tom, as an example.  His surprising result: De Beers would recommend that Tom pay $18,300 for Jessie's engagement ring, but the Black-Scholes valuation method sets a fair economic value for the option to marry Jessie at $140,000.  Tom got a bargain, and Jessie now has the evidence to prove it. 

Yo-Yo Ma lends out his cello

The noted cellist Yo-Yo Ma was in Portland this last weekend, where he played a concert with the Oregon Symphony.  The conductor, Carlos Kalmar, and the orchestra did him proud -- though Mr. Ma's one piece was the highlight of the program and he ripped through it with verve and elan, the Symphony played that and the other three pieces at a very high standard.

Mr. Ma doesn't rehearse much before an orchestral performance -- he spent about an hour and a half with the Oregon Symphony Sunday morning -- but the musicians said that he was likable and very approachable, so much so that at one point he turned to one of the Symphony cellists, held out his cello, and said, "Here, play mine."  What's so special about one cellist lending his instrument to another?  Mr. Ma travels with his own cello, a valuable Stradivarius worth something in the $millions.  (Word got out 11 years ago when he left it in a New York taxicab.)   I'd be afraid to even breathe on it.

Governor-Elect Kitzhaber celebrates the Emperor's birthday, in disguise

One of the high points of the Laquedem social season is the celebration of the birthday of the Emperor of Japan, hosted by the Japanese Consulate in Portland and conveniently falling in December.  This year's gathering was on Wednesday at a downtown hotel, and attracted perhaps 300 guests.  Consul-General Okabe shared the podium with Governor Kulongoski and Mayor Adams, both of whom gave brief and graceful remarks.  Governor Kulongoski, in particular, evinced delight that his tenure as our governor was about to end; he cheerfully told the guests, "I'm looking forward to next year's celebration of the Emperor's birthday, when I get to stand out there (he waved toward the crowd) and listen to someone else up here."

Governor-Elect Kitzhaber was a late arrival, and a bit of confusion ensued when he was recognized as being in the audience and asked to come up to the podium and say a few words.  Despite his having won three statewide campaigns, he's not (as it turns out) that recognizable by the public, and maybe not even by other elected officials, when he's wearing a coat and tie and well-cut khakis instead of blue jeans.

Ponder this, Fred Meyer

The loyalty clubs of grocers -- the cards that give you discounts at Albertsons, Safeway, or Fred Meyer -- provide the merchant with information in exchange, of the sort of "people who buy X also tend to buy Y."  The retailers offer coupons and discounts, and adjust their marketing plans, based on that information.  I'd love to know what my grocer's marketing computer made of my recent purchase, one that included only four items: bagels, Christmas lights, a Santa stocking, and a yahrzeit candle.

Delia Lopez asks for a recount, but not to change the outcome

Candidates who lose narrowly sometimes pay to recount the ballots in the hope that the second count will reveal them to be the winner.  Oregon law allows a losing candidate to request a recount of the entire race or of selected precincts.  The candidate has to pay the cost of the recount unless the recount shows that the candidate won the election.  The outcome of the election does not change after a partial recount unless the candidate then pays for a complete recount.

Delia Lopez, whom Earl Blumenauer defeated by a wide margin for Oregon's 3d Congressional District, has filed the necessary forms and fees to have Multnomah County recount just six precincts, which the county will do next week.   (Recounting the six precincts will take four election workers about five days to examine and hand-tally each ballot, at a cost to Ms. Lopez of about $1,000 to $1,500.)  Ms. Lopez doesn't expect this partial recount to change the result of the election, and under Oregon law it can't.  Rather, she's viewing this as a sort of test of the elections process: do the machines that count Multnomah County's ballots accurately count the ballots?  And do the ballots in the precinct boxes match up with where they're supposed to be?

It's an interesting civic contribution that Ms. Lopez is making; in effect she's paying a few dollars to the county elections office to give the public another report on our system for counting the votes.