Monday, October 16, 2006

Thanks to Marginal Revolution

Wow, traffic to my blog went WAY up last week after it was mentioned on my favorite blog, Marginal Revolution! Thanks Tyler.

Michigan Economy, Election for Governor

From today's WSJ, an article about the Michigan economy and the upcoming election for governor - incumbent Jennifer Granhom (D) vs. the billionaire challenger Dick DeVos, who has spent $16 million of his own money from the Amway family fortune!

Ms. Granholm isn't considered particularly pro-business, having relied heavily in her first term, as do most Democratic politicians here, on union support. Her campaign against Mr. DeVos has included traditional Democratic business-bashing, with jabs at her opponent for decisions he made at Amway. In the 1990s, Mr. DeVos oversaw the elimination of about 1,400 jobs and turned the company toward the world's biggest potential market: China.

What's an anti-business Democratic governor to do to get re-elected when the job picture is so bleak (see graph above)?

While other states dispense incentives to companies, few governors have done as much and as fast as Ms. Granholm -- especially during a re-election campaign. In August and September, Granholm-controlled development boards doled out $315 million in tax breaks and loans.


Why racial preferences are a product of white guilt

From "An open letter to my collegues and students at the University of Michigan," by Professor Carl Cohen, published in the Michigan Daily (student newspaper at the University of Michgian):

The preferences we give to minorities in admission (and in other contexts) were initiated as a form of compensation for injuries earlier inflicted; they were efforts to make retributive payment. In reality those preferences impose great burdens on minorities, burdens that outweigh any benefits they appear to offer; nevertheless the preferences are commonly viewed as instruments of redress. This compensatory intention was for many years explicit. But equal treatment under the law is plainly inconsistent with compensation by ethnicity; one is entitled to redress for injury without regard to skin color. So the compensatory justification of preference was thrown out by the courts, even though it remains for most ordinary folks the only ground on which preferences might make any sense at all. Our University, defending preferences in the courts, renounced that compensatory justification explicitly, resorting instead to the one justification that had some hope of winning the legal battle: diversity.

As a defense of race preference, the alleged compelling need for racial diversity is entirely without merit. That defense has been advanced and accepted only because there is no other way, under the U. S. Constitution, to rescue the drive to expiate white guilt. We are told repeatedly, by people who seem not to fear embarrassing themselves, that diversity is the very heart of educational excellence. The compensatory payments by race that cannot otherwise be defended are saved by a dreadful argument.

That the diversity defense is no more than a stratagem is made manifest by the history of this controversy. Diversity was hardly ever mentioned until the compensatory justification was thrown out by the courts.

The race card always works in our country because, where the atmosphere is one of pervasive racial guilt, the accusation of racism leveled at a person or an institution sticks like glue, and needs no proof to do its damage. Universities, like corporations, do not pay to the measure of any actual racism; they pay to the measure of racism's bloated reputation in the age of white guilt.


Finance vs. Econ Salaries, What a Difference One Field Exam Makes!

How much do new assistant professors make at AACSB B-schools? Here are the data for 2005-2006 from AACSB, these are national means for new hires:

1. Finance $111,000

2. Accounting $104,200
3. Marketing $89,300
4. Management $88,900
5. Operations $87,500
6. MIS $87,400
7. Quant $75,100
8. Economics $71,900

It is interesting to me that there is almost a $40,000 difference in starting salaries between economics and finance. Especially after just aquiring lots of information from interviewing 40 finance candidates at the Financial Management Association conference in Salt Lake City for a finance position at the Flint campus of the University of Michigan. I asked a lot of candidates about the amount of economics they take in graduate PhD programs in finance, and was surprised to find out that many PhD programs in finance are actually about 50% economics, in terms of the courses they take. Many PhD programs in finance require students to take graduate macro (one or two semesters), graduate micro (one or two semesters), and between 2-4 econometrics classes, and sometimes a class in Math Econ. In fact, many finance PhDs take preliminary examinations in economics. Therefore, in reality, finance PhDs basically get a PhD in economics with a field specialization in finance.

Further, I found it interesting that most finance PhD programs are very small, they only admit a few students per year in many cases, compared to large entering classes in economics PhD programs (25 is typical for econ at UM Ann Arbor), and most finance PhD programs can be completed in 4 years, vs. 5 years for many/most economics programs (another reason to get a PhD in finance vs. economics). The small number or PhDs in finance vs. economics explains a lot of the salary differential.

Maybe more economics PhD programs should offer fields in finance-related fields like financial economics, capital markets, asset pricing, financial markets, futures and options, international finance, etc., so that PhD students in economics could capture that $40,000 additional starting pay if they can penetrate the finance market for academics. Over a 35-year career, that would be additional lifetime income of close to $1.5 million (ignorning discounting), seems like it would be worth it.

It is easy to explain the $29,000 difference in starting salaries between economics and accounting, because they are two fairly different subjects/fields. But how to explain the $40,000 difference in two disciplines that are almost exactly the same? Market inefficiency? Comments welcome on this issue.

My advice for those considering PhDs in economics: Switch to finance if you have any interest in finance-related topics. You will still get to take a full year of PhD-level economics (micro, marco and econometrics), and you just specialize in finance instead of monetary economics and industrial organization (like I did!).

B School Dean Salaries


Can you guess how much recently hired deans of top B schools are making, like the new dean at my alma mater, the Carlson School of Management at the University of Minnesota?

Hint #1: She makes more than the president of the University of Minnesota.

Hint #2: If your guess was $400,000, you would be more than 10% TOO low!

Read about Carlson School Dean Alison Davis-Blake, including her salary, in the
StarTribune here.

When Reducing Tariffs on Imported Steel, Why Not Cars Too?

The US automakers (GM, Ford and DaimlerChrysler) have teamed up with foreign transplants (Honda, Nissan and Toyota) to pressure the Bush Administration and the International Trade Commission (ITC) to drop tariffs on imported galvanized steel used to make motor vehicles. See the WSJ article and the editorial in today's Detroit News.

Searching the
ITC's online 2006 tariff database, I found tariff rates on foreign steel used for motor vehicles to be only between 2 to 3.2%. Tariffs on imported, finished motor vehicles, are 2.5%.

Just wondering, during the ITC hearings starting tomorrow (10/17/06), could they perhaps discuss ending tariffs on both imported steel and imported vehicles?

China's Government Lifts Ban on Wikipedia, English Only

From today's NY Times, an article about the ending of China's ban on Wikipedia, but only the English version:

The Chinese government last week appeared to lift its block on the English-language version of the online encyclopedia Wikipedia, an unexpected move that comes almost a year to the day when access was first denied. The Chinese-language site, however, remains blocked within China.

“We are pleased to see the change, but would like to see the Chinese version unblocked, too,” said Jimmy Wales, founder of Wikipedia, the encyclopedia created by voluntary contributors. “We don’t know what prompted the block and don’t know what prompted the unblock.”


Trade with China

From today's WSJ editorial page, an excellent article about US trade with China:

This explosion of cross-border commerce has worked to the benefit of both nations. China has had a compounded rate of GDP growth of 10% for the past five years. A report by McKinsey consulting finds that if anywhere near these rates of GDP growth are sustained over the next decade, poverty rates in China -- a nation barely able to maintain subsistence living standards for centuries -- will fall by two-thirds.

What has America gained? A surge in low-priced, high quality consumer products. Apparel, footwear, consumer electronics, computer equipment, and so on -- all of which Americans have bought voluntarily (MP: countries don't trade, individual companies and individual consumers trade). Arguably the biggest beneficiary of China's emergence on the world trading stage has been America's poor, who have new access to bargain-priced consumer goods. A 27.5% China tariff would be the most regressive tax imposed on low income Americans in decades.

The standard response from the China-bashers (just as the Japan-bashers argued two decades ago) is that America is "exporting" jobs overseas. But over the time period that trade with China has surged, so has the number of new jobs created here. Yes, some U.S. manufacturers have lost market share to lower-cost Chinese competitors, and in recent years U.S. apparel and light manufacturing firms have brought a series of anti-dumping complaints against the Chinese.

But it's a myth that U.S. manufacturing is disappearing. A recent Cato Institute report shows that U.S. manufacturing output is up 50% in the past 12 years along with our expanding trade with China. And the National Association of Manufacturers reports that August was the tenth consecutive month in which U.S. manufactured goods exports rose more than imports. Outsourcing to China has allowed many U.S. companies to remain competitive against foreign producers, and a large chunk of U.S.-China trade is in fact intra-company trade conducted by American firms.

So has China "cheated" in the trade arena by holding the yuan artificially low relative to the dollar? The yuan has been pegged at 7.92 against the dollar since the mid-1990s, and Beijing has begun to allow a modest fluctuation in the last year or so. But this is not a "manipulation" of its exchange rate so much as it is a contracting out of its monetary system to the U.S. Federal Reserve Board. That strategy has allowed China to remove the uncertainty of exchange-rate fluctuations from investment decisions and allowed China to grow rapidly while controlling inflation (so long as the Fed controls it too, which is a separate issue).

The Chinese have thus avoided the bane of most developing nations of inept monetary controls leading to price fluctuations and periods of hyper-inflation. China was one of the few Asian nations that didn't face a crippling currency devaluation during the monetary crisis of the late 1990s.

Nor is it clear that a yuan revaluation of even 10% to 30% would have any meaningful impact on the U.S. trade deficit. China imports some $100 billion a year of raw materials. A stronger yuan would lower the price of those inputs, and thus of production costs, which could largely offset the impact of the stronger currency on export prices.

Sunday, October 15, 2006

Music Recommendations

1. Dr. John: Live at Montreux 1995. It doesn't get any better than Dr. John when it comes to funky New Orleans piano, and this is a great live recording of Dr. John with a 7-piece band (New Orleans Social and Pleasure Club), at his best, performing at the Montreux Jazz Festival in 1995.

2. Sierra Leone's Refugee All-Stars:
Living Like a Refugee

Amazon: This is a group of musicians who lived for years as refugees in the West African nation of Guinea. While living in a tent camp, they acquired a couple beat up guitars and a rusted out sound system and began playing. American documentary filmmakers made the band the focus of their movie, which received enthusiastic endorsements from the likes of Keith Richards, Paul McCartney, Joe Perry, and Ice Cube. The film's success has allowed the band to tour internationally to ecstatic audiences. Born in the midst of a violent, decade-long civil war, the group and its music celebrate our ability to sustain hope, inspiration, and creativity - the best in us - even in a climate of rage, loss, and madness.
3. Reverend Arthur T. Jones: Speak for Me OOP (out-of-print) and only available used on Amazon, but great gospel music from the executive director and producer of the Florida Mass Choir. You can really "get your praise on" with this CD.

World Series Tickets for $1000


As might be expected, tickets are already being sold on Ebay for the World Series, check it out here. Face value for Tigers tickets for the games at Comerica Park are $90 - $250, but tickets have already sold on Ebay for $1000 per ticket. Notice that in many Ebay listings now, you can actually see the view of the field from the seat you are buying (see picture above), from a company called SeatData.

Saturday, October 14, 2006

To Tow or Not to Tow?


The sign above is posted in the parking lot of the UAW Local #659 in Flint, Michigan, and I just took this picture today. I noticed a Honda in the parking lot while I was taking photos, so I am not sure how strictly this parking ban is enforced.

Just wondering..... how do you think the local union would classify these vehicles?

Buick Lacrosse, Chevy Equinox, Chevy Impala, Chevy Monte Carlo, Chevy Silverado, Chrysler 300, Chrysler Pacifica, Chrysler Town and Country, Dodge Caravan, Dodge Charger, Dodge Magnum, Ford Crown Victoria, Ford Freestar, GMC Sierra, Mercury Grand Marquis, Dodge Stratus, and Pontiac Torrent. Problem? All of these vehicles are made by the UAW, but in Canada. Isn't that a foreign country? Wouldn't those be "foreign made autos"?

Another problem is that the Chevy Silverado and GMC Sierra are also produced in the U.S., directly across the street from UAW Local #659 in Flint at the Flint Truck Plant. Better check those VINs before towing - 1A is US and 2A is Canada. Same for the Chrysler Town and Country and the Dodge Caravan, they are produced both in the U.S. and Canada, so check those VINs before towing those models.

Now, what about these vehicles?

Mitsubishi Eclipse, Mitsubishi Galant, Mazda 6, Toyota Corolla, Mazda Tribute, Mitsubishi Endeavor, Mazda B Series Truck, Mitsubishi Raider, Toyota Tacoma, Isuzu I-Series Trucks?

The problem? All of these vehicles are produced in the U.S. BY THE UAW!? Hmmmmmmm. Guess they can't be towed. But don't they sound pretty "foreign"?

And what about the Cadillac Catera, now discontinued and replaced by the STS and CTS? The problem? It was built in Germany. Tow or no tow?

And to further complicate matters, what about Volvos, Jaguars and Saabs? Volvo and Jagaur are owned by Ford and Saab is owned by GM?

To tow or not to tow? It gets soooooo complicated in the Global Economy.

UHaul Rates and Relative Demand

Here are the U-Haul rates for a one-way truck rental on a 26-ft truck in October 2006, from U-Haul's website for one-way rental quotes:

Flint to Nashville: $1730
Nashville to Flint: $433

Flint to Jacksonville: $1884
Jacksonville to Flint: $432

Flint to Altanta: $2312
Altanta to Flint: $272

Same equipment, same distance, but it is 8.5X more expensive to move OUT of Flint compared to moving TO Flint!! Can you predict which direction people are moving based on these market prices for one-way truck rentals?

Like airlines price tickets, U-Haul prices one-way rentals dynamically, based on relative demand at any given point in time. Ceteris paribus, if it is 8.5X more expensive to rent a truck from Altanta-Flint than Flint-Atlanta, it is precisely because there are 8.5X more households wanting to go from Flint-Atlanta than Atlanta-Flint.

I believe there is great empirical research potential here with these one-way rental data, especially if these data could be tracked over time. We can pontificate endlessly about relative tax burdens among states, differences in business climates, right-to-work issues, labor costs, union vs. non-union, desirability of differnent locations for living or doing business, etc., etc., but the U-Haul one-way rental prices reflect actual, REAL demand, based on what people are ACTUALLY doing, in terms of where they are ACTUALLY moving. Talk is cheap.... One-way rental prices are a direct measure of relative attractiveness.

For example, it would be interesting to investigate the one-way rental differentials between high unemployment states (Michgian) and low unemployment states, states with high tax burdens (Michigan) and states with low tax burdens, heavily unionized states and right-to-work states, etc. It would also be interesting to track these one-way rental data over time....


Significant Income Inequality for the NFL?

1. USA Today has a database of salaries for all professional athletes in the NFL, NBA, NHL and MLB, annually from 1988 to 2006. As one example, the Minnesota Vikings in 2005 had a payroll of $85.4 million for a roster of 61 players, a median salary of $596,100, and an average (mean) salary of $1.4 million. The lowest paid player was T.J. Cottrell ($139,840), and the highest paid player was Fred Smoot ($12.3 million).

2. The IRS keeps a database of income tax returns, and does an analysis of the
share of total income earned by different groups of taxpayers. For example, in 2004 (most recent year) here are the shares of total income earned by differnent groups of taxpayers:

Top 1% earned 19% of all income ($328,000 income or higher)
Top 5% earned 33% of all income ($137,000 income or higher)
Top 10% earned 44% of all income ($99,000 income or higher)
Top 25% earned 66% of all income ($60,000 income or higher)
Top 50% earned 86% of all income ($30,000 income or higher)

3. Many people express concern about the inequality of income across all taxpayers.

How are the above items connected?

Well, even the lowest paid Viking is in the top 5% of all taxpayers, most Vikings are in the top 1%, and many are in the top 1/2 of 1%. So I am sure nobody feels sorry for them. But wait a minute! Couldn't there be significant income inequality among this group of "the rich."

Here is the breakdown for the Minnesota Vikings:

The top 1% of the team earned 14.5% of total income (payroll)
The top 5% of the team earned 31.4% of total income (payroll)
The top 10% of the team earned 48% of total income (payroll)
The top 25% of the team earned 71% of total income (payroll)
The top 50% of the team earned 88% of total income (payroll)

Hmmmmmmmmmmm. If you compare the percentage breakdowns above, it seems like there is about just as much income inequality among the "super-rich" Minnesota Vikings, as among the general population. Maybe such income inequality is natural, and should be expected, regardless of whether it is all taxpayers, or various sub-groups of taxpayers. That is, you could take the top 1%, the top 5%, the top 50%, or the top X%, all the way to the top 100% (all taxpayers), and you would probably always find a significant, and possibly similar and consistent pattern of income inequality.

Addendum:
See my article on this topic. For Nobel prizes, the top 20% of countries receiving Nobels have received 85% of all prizes awarded. For Olympic medals, the top 20% of countries receiving medals received 70% of all medals. In most sales environments (real estate, securities, insurance, etc.), it is expected that the top 20% of salespeople generate 80% of all sales. It is probably the case that the top 20% of students at a university receive 80% of all grade points every semester. In the NBA, the top 20% of the players probably generate 80% of the total points scored. For movies, the top 20% of the highest grossing movies probably generate 80% of all revenues. For books, the top 20% best-selling book probably generate 80% of all sales. The list could go on... If this is a natural outcome in any competitive process, the process of earning income should be no different.

If talent, ambition, skills and luck are distributed "unequally," should we not expect unequal outcomes? And suppose you don't like the inevitable result of an inequality of outcome? What is the logical solution to correct such a "problem"? The use of the coercive force of the government to redistribute income, sales revenue, grades, Olympic medals, Nobel prizes, or grade points?

And now think about this scenario: what if professors started "grade redistribution" at the end of each semster, and took grade points away from the A students and gave them to the D students, to achieve a more "equal" distribution of grade points and final grades, possibly resulting in all Cs? Who would study?

Weekly Summary of U.S. Economy

Summary: This week's economic releases were few in number but seemingly significant in impact. The Dow Jones Industrial Average hit record highs as oil prices neared 2006 lows, and the Federal Reserve Board's Open Market Committee (FOMC) shed some light on its policymaking with a pair of relatively benign reports. For the week, the S&P 500 Index increased 1.2%, to 1,366—its highest close since early 2001, and the DJIA closed at an all-time record high of 11,960 on Friday. The yield of the 10-year U.S. Treasury note rose 11 basis points to 4.81%, and the average 30-year fixed mortgage rate rose 12 basis points to 5.92%. The US dollar strengthened during the week vs. the euro, yen and pound.

Read more here
.

Friday, October 13, 2006

Gas Price Conspiracy?

From yesterday's Detroit Free Press, my article on the "gas price conspiracy," which also appeared in papers in San Diego, Salt Lake City and NYC.

When gas prices were rising earlier this year, oil companies were accused of "price gouging" and were investigated by the U.S. Senate. Now that gas prices are falling, many Americans believe in a gas-price conspiracy by oil companies to lower prices deliberately for political reasons.

Whether gas prices are rising or falling, we're quick to scapegoat U.S. oil companies for our energy problems, but unfortunately, we're very slow to enable them to increase their output to meet our rising demand for oil.


Tuesday, October 10, 2006

The Case for Inflation Targeting in the US and Japan

Economist John Makin writes about inflation targeting in a recent study "A Case for Inflation Targets in the United States and Japan" for the American Enterprise Institute. Most other advanced, developed economies have an inflation target to guide monetary policy: U.K., Canada, the European Union, New Zealand, and Australia. Makin conludes:

Inflation targeting is a useful tactic within a central bank strategy of maintaining low and stable inflation to enhance growth. It also helps to anchor inflation expectations as a means to enhance the effectiveness of central bank policy actions by minimizing their cost in terms of either lost output or employment. Both the Federal Reserve and the Bank of Japan could add to their already substantial contributions to global growth and stability by moving toward adoption of inflation targeting.


Monday, October 09, 2006

Significant Inequality for Nobel Prizes?

I have analyzed the Nobel Prizes in the sciences: chemistry, physics, medicine and economics. Since 1901, there have been 587 Nobel prizes awarded to recipients from 32 countries. Here is my dataset. Using income data from the IRS, I was able to make this comparison of outcomes by percentiles for both: a) the share of total income earned by different percentiles of taxpayers, and b) the share of all Nobel prizes earned by different percentiles of countries:



Share of Total Income

Share of All Nobel Prizes


Top 10%

44.4%


65.4%


Top 25%

66%


83.5%


Top 50%

86.5%


94.4%




For example, the top three countries for Nobel Prizes are the US (265 awards), UK (82) and Germany (37), and these three countries together represent about 10% of all countries, and have earned 384 Nobels, or 65.4% of all prizes.

A previous analysis I did of Olympic medals shows the same outcome as well. Maybe we can learn a lesson from the Nobel awards: unequal results should be expected as the natural outcome of any competitive process, whether it is sports, science, education, or national income.

The Nobel prize winners are respected and admired, despite the gross inequality of outcome. Perhaps we should pay the same respect to the winners of our free enterprise system - the successful workers at the top of our economic ladder. Or should we maybe redisbribute the Nobels in the interest of "fairness" and "equality?"

Edmund Phelps Wins Nobel Prize in Economics



STOCKHOLM, Sweden -- American Edmund S. Phelps won the 2006 Nobel Memorial Prize in Economic Sciences on Monday for furthering the understanding of the trade-offs between inflation and its effects on unemployment.

In doing so, the 73-year-old Columbia University professor showed how low inflation today leads to expectations of low inflation in the future, thereby influencing future policy decision making by corporate and government leaders.

The Royal Swedish Academy of Sciences said his work, done in the late 1960s, had "deepened our understanding of the relation between short-run and long-run effects of economic policy." Mr. Phelps challenged the prevailing view in the 1960s that there was a stable, negative relationship between inflation and unemployment, illustrated by the so-called Phillips curve.

Links:

WSJ article

Nobel press release

CV

WSJ Commentary October 2005

WSJ Commentary 2004: "Some of my own research recognizes deep advantages in capitalism, a market system driven by entrepreneurs and financiers leaping into the unknown."

Wikipedia

His Webpage at Columbia

Recent reserarch


Music Videos I Like on YouTube

T-Bone Walker: Don’t Throw Your Love on Me So Strong
Otis Spann: 1966 Spann’s Blues
Otis Spann: Blues Don’t Love Nobody
Albert Collins: The Lights Are On, But Nobody’s Home
Albert King: Blues Power
Freddie King: Ain’t Nobody’s Business
Oscar Peterson: Eight Bar Boogie Blues
Clarence Gatemouth Brown: Gate Walks to Board
Louis Jordan: Let the Good Times Roll
Gene Harris: Summertime
Diana Krall: Charmed Life
Nat King Cole: Route 66
Electric Flag/Mike Bloomfield: Wine
Muddy Waters: Long Distance Call
Professor Longhair: Tipitina
Dr. John:How Come My Dog Don't Bark When You Come Around


Sunday, October 08, 2006

Coca-Cola is 2X as Expensive as Oil

Oil is still cheaper than Coca-Cola, about $60 per barrel for oil, vs. $120 per barrel of Coca-Cola, and a gallon of gasoline (national average now $2.25) is cheaper than the national average price of milk, $3.03 per gallon.

Ethanol: A Subsidy-Fueled Gold Mine

How do you make ethanol? By mixing corn with our tax dollars.

From an article in the
St. Paul Pioneer Press:

The ethanol industry wasn't born, it was built, one government act at a time.

During the 1970s energy crisis, turning corn into fuel seemed like a cool idea, but it wasn't economical. So the subsidies began. Then protection from foreign imports.

During the 1980s farm crisis, Minnesota officials hoped ethanol could lead a rural revival and offered subsidies so generous that farmers could build ethanol plants practically for free.

Still, ethanol struggled. So the 1990s brought laws encouraging ethanol use. Then laws requiring it. Then more laws, requiring more ethanol.

Today, at long last, ethanol has entered its golden age, thanks to three decades of government subsidies and the more recent run-up of oil prices. But if ethanol's fortunes have dramatically changed, ethanol politics have not. All across the Corn Belt, there's scant debate about whether ethanol needs more government help — only how much more to give.

"Ethanol was always seen as an 8-year-old kid that needed to be taken care of, but now it's a 27-year-old graduate student with a Ph.D. from Harvard that wants to live at home with mom and dad," said Michael Swanson, vice president and agricultural economist at Wells Fargo.


Saturday, October 07, 2006

Wyoming Jobs

Michigan has the highest state unemployment rate in country, tied with Mississippi, at 7.1%. Hawaii is the state with the lowest unemployment rate, at 2.8% and Wyoming has the 5th lowest state unemployment in the counry, at 3.3%. The city of Flint's unemployment rate is 14.6%, and Genesee County's (where Flint is located) unemployment for August is 8.3%. There are currently 341,664 workers in Michigan who are unemployed, and 17,552 unemployed workers in Genesee County.

Bottom Line: Wyoming has a labor shortage and is recruiting workers in Flint, here is the
story in the Flint Journal.

Tax Tidal Wave

According to the most recent release from the Congressional Budget Office, the budget deficit has fallen by $68 billion, to $250 billion for FY 2006, which just ended on September 30. Compared to our GDP of $13 trillion, the current budget deficit is 1.9% of economic output, down from 2.6% in 2005, and well below the 2.7% average since the 1960s.

As the
WSJ points out, most states have budget surpluses, and including those brings the total U.S. public sector borrowing down to 1.5% of GDP.

The reason for the falling budget deficit? Well, it's not because of decreased government spending. According to the WSJ, "the federal budget expanded to $2.7 trillion last year, a 9% increase, or three times the inflation rate. Over the past six years the federal budget has increased by 49.2%."

The budget deficit is shrinking because of a "tidal wave of tax revenues:" Tax collections have increased by $521 billion in the last two fiscal years, the largest two-year revenue increase in American history (even adjusting for inflation).

* Individual income tax receipts rose by 13% in FY 2006, to a record-high of $1.049 trillion, surpassing the previous record set in 2000 at the height of the last economic expansion. From the WSJ, "The IRS tax-return data just released last month indicates that a near-record 37% of those income tax payments are received from the top 1% of earners -- 'the rich,' who are derided regularly in Washington for not paying their 'fair share.'"

* Corporate inclome tax receipts rose by more than 27% this year to $354 billion, a new record, and 71% higher than the peak of the last economic expansion in 2000.

Hmmmmmmmmm...... Sure seems like the "2003 tax cuts for the rich" turned out to be the largest tax hike in history. And what's not to like? Tax revenues are at an all-time high, the rich are paying more in taxes, the deficit is falling, and way below historical average as a percent of GDP?

Well, if you can't deny the reality of a healthy economic expansion, you can always claim that ''The benefits of the economic expansion have not been equally distributed.''
See the NY Times for that quote.

Thursday, October 05, 2006

Partisanship Rankings

Of all of the nationally syndicated newspaper columnists, who was the most consistently, one-sided and partisan in 2005? Economist Paul Krugman of the NY Times according to the website "lying in ponds," which analyzes op-ed columns for partisanship. For example, in 95 commentaries published in the NY Times in 2005, Krugman criticized Republicans 621 times and criticized Democrats only 18 times, for a partisanship ratio of 34.5X to 1 against Republicans. Likewise, Krugman praised Democrats 103 times and praised Republicans only 9 times. Therefore, these data show that Krugman spent most of the space in his NY Times columns criticizing Republicans, and got ranked #1 for partisanship in 2005 by "lying in ponds."

In contrast, economist Thomas Sowell ranked #16 in 2005, based on the following results: he criticized Republicans 65 times in his columns and criticized Dems 94 times. Sowell praised Republicans 89 times and praised Dems 13 times.

So far this year, Krugman ranks #3, and the top 5 most partisan columnists in 2006 are liberals (Molly Ivins, Joe Conason, Krugman, Bob Herbert and Frank Rich). Conservative Ann Coulter ranks #6. Ivans (528 anti-Rep comments), Krugman (534 anti-Rep comments), and Rich (566 anti-Rep comments) are even more anti-Republican than Ann Coulter is anti-Democrat ("only" 309 anti-Dem comments). Yikes!!

Supply and Demand for Exotic Cowboy Boots

Lucchese handmade cowboys are very expensive, and Lucchese anteater cowboy boots are very, very, very expensive. How expensive? Check out this listing on Ebay to find out, and here's another pair for sale. Hint: anteater boots are no longer being made.

Oil Companies Don't Set Oil Prices

A recent Gallup poll found that 42% of the general public believes the Bush Administration has deliberately manipulated gasoline prices in advance of the fall elections.

From an article I just wrote for national distribution through McLatchy (formerly Knight-Ridder) newspapers:

The basic economic reality of world oil trading is that even the biggest oil companies don’t set gasoline or oil prices, any more than farmers set the price of corn, soybeans, coffee or sugar. Oil and gas prices, like all world commodities, are set by the twin forces of global supply and global demand in a competitive international marketplace, not in the conference rooms of oil companies.

And many people also mistakenly think that the major oil companies are still sitting on top of most the world’s oil. But oil companies today control only a small fraction of the world’s oil reserves – about 2.5 percent. Most of the world’s oil is owned by the national oil companies of foreign governments such as Saudi Arabia, Iran, Russia, Venezuela, China, and India. The fact that U.S. oil companies control such a small fraction of the world’s global supply of oil is another reason that makes it almost laughable to think that they could deliberately manipulate gasoline prices for political reasons.

Oil and gasoline prices in the U.S. change daily, in response to the relentless and dynamic changes in global economics, forces that are totally beyond the control of U.S. oil companies.

Wednesday, October 04, 2006

Excessive Government Spending is the Problem

According to a Heritage Foundation report titled: "Tax Rate Reductions Strengthen the Economy, But Excessive Government Spending Threatens Long-Run Performance,"

The U.S. economy has enjoyed strong growth in recent years, especially compared to the lackluster performance of other developed nations. Unem­ployment is low, income is high, and wealth is at record levels. Government is not the reason for the economy’s growth, but policymakers can improve economic performance by reducing or eliminating barriers to productive behavior. The Bush Admin­istration’s 2003 tax cut—which lowered marginal tax rates on work, investment, and entrepreneur­ship—has encouraged growth and improved com­petitiveness.

Regrettably, the benefits of better tax policy have been undermined, especially in the long run, by excessive government spending. The Bush Admin­istration has presided over a dramatic increase in the burden of government spending. Whether measured in nominal or inflation-adjusted dollars or as a share of GDP, federal outlays have grown at an unprecedented rate. This is harming economic growth because government spending is deter­mined by political rather than economic motives. This results almost inevitably in a less efficient allo­cation of labor and capital compared to what would happen if market forces governed the use of those resources.


Ending the Inflation Tax: Indexing Capital Gains

Income tax brackets have been indexed for inflation since the Reagan tax cuts of 1981 to prevent "bracket creep" - where inflation pushed income into higher tax brackets, resulting in an increase in income taxes and tax burden, but no increase in real purchasing power. There is now a house bill that would likewise index capital gains taxes for inflation. From yesterday's WSJ:

An investor who purchased a stock for $10 in 1956, and sold it for $20 today, would still pay a 15% capital gains tax on the transaction, even though adjusted for 50 years of inflation he'd be a net loser.

From 1979 to 1994, roughly 33% of the increase in shareholder wealth, or some $1.5 trillion, was due to inflation. This means Americans are paying far higher capital gains tax rates than advertised. A 1993 study by then Federal Reserve Board Governor Wayne Angell calculated that the average real tax rate on investments from 1972 to 1992 in Nasdaq stocks was 68%. It was 101% in the S&P 500, 123% in the NYSE, and 233% in the Dow Jones Industrials. On three of the four major indexes, the average taxes were higher than the actual return.

Inflation remains a hidden thief that transfers gains unfairly to the government from taxpayers. The Pence-Cantor bill would protect against this by allowing any taxpayer holding an asset for more than three years to have a gain or loss determined by a cost basis adjusted for inflation. The proposal would immediately raise the after-tax return on capital investment, thus providing an incentive for more of it.


DJIA Hits New Record


How Do You Fire an Incompetent Public School Teacher?

It's not easy, check it out here.

Tuesday, October 03, 2006

iTunes Pricing


I own more than 1,000 CDs, and I buy new music almost every week. I will often now buy single songs for 99 cents through iTunes, especially when I want to listen to a song right away, and not wait to buy the CD, or when I might only like one song on a CD.

Yesterday, I did something new for the first time: I bought an entire CD through
iTunes Store for $9.99, it was Diana Krall's new CD "From This Moment On." Normally I would prefer to own a physical copy of the CD to have the liner notes, and have a physical copy of the CD for my library. The CD is available for sale on Amazon.com for $10.88, and I would usually be willing to pay $1.89 extra to get the CD compared to downloading from iTunes store.

However, buying the CD from Amazon involves: a) shipping (unless you order about $50 to qualify for free shipping), and b) waiting up to a week to get the CD, two costs that I would typically be willing to pay. But what convinced me to buy and download the online version of the CD this time: ONE BONUS TRACK, only available when you download the CD, and NOT available when you buy the CD in a store or online through Amazon.

Brilliant marketing strategy!

Wal-Mart's Expansion

Watch this incredible video of Wal-Mart's expansion across the USA, starting with one store in Arkansas in 1964! There are now 3,800 Wal-Mart facilities in the US, and 2,600 in other countries.

Return to Sender, India Post Loses Rupees


Q: How many people work at the world's largest post office, India Post?

A: About half.

Well, actually they work half days, finishing their deliveries by noon. Due to so much competition from UPS and FedEx, India Post has lost half of its business in recent year. From today's WSJ, "
As Economy Zooms,India's Postmen Struggle to Adapt:"

India's vast postal service, the world's largest, highlights a little-understood feature of this nation's economic transformation. While India often draws criticism for its failure to sell its vast network of state-owned companies, the government has quietly been opening many of its agencies to blistering competition from private-sector rivals.

But as India lets its public sector get squeezed, it faces a big dilemma: What to do with these often huge and politically connected organizations during the painful transition period where they have to become competitive and profitable or extinct?

Once the pride of India's civil service, India Post and its predecessor, the British East India Co., controlled most mail delivery for centuries. But since a reform-minded government started allowing more competition in the 1990s, more-efficient private couriers have eaten deeply into India Post's business.


Monday, October 02, 2006

Income Tax Cuts Benefit All

An article from today's USA Today:

Americans of every income have benefited from a drop in federal income tax rates as Bush administration tax cuts enacted since 2000 took effect, an independent analysis of newly released IRS data shows.

For example, millions of lower-income Americans — those earning $25,000 annually or less — have been taken off the federal tax rolls. In 2000, 29 million tax returns had no federal tax owed. Four years later, the number rose to 43 million returns.

A taxpayer who earned $35,000 in 2000 would have paid 8.5% of that income -- $2,989 after credits -- in federal taxes; in 2004, federal taxes would have accounted for only 5% of that taxpayer's annual income, or $1,792 (a 40% decrease in tax burden).

But those earning $75,000 to $500,000 are shouldering a larger share of total taxes paid as millions more of them earn higher incomes and get hit with the Alternative Minimum Tax, the analysis also found.

At the higher end of the income brackets, a $1.75 million earner would have paid $513,625 in 2000 federal taxes, when the rate for that earning bracket was 29.35 percent; four years later, when the rate dropped to 25 percent, that earner would have paid $437,500 (a 14.8% cut in tax burden).

Further, the overall tax buden of higher income taxpayers increased. Taxpayers who earned between $100,000 and $200,000 in 2004 paid 22.5% of all federal taxes, up from 19.4% four years earlier. Those who earned between $200,000 and $500,000 in 2004 paid 18% percent of all federal taxes, up from 15.4% in 2000, the analysis showed.


The Market Creates Wealth and Miracles for All

From today's WSJ, an article by Johan Norberg titled "Humanity's Greatest Achievement," in defense of global capitalism.

Think for a moment about what this morning would have looked like if it were 150 years ago. You wouldn't have had electric light, running water or indoor sanitation. You couldn't have gone to work by car, bus or train. You couldn't have used a computer, which performs calculations in seconds that would take decades with pen and paper. In short, you would probably not have found this morning very comfortable or enjoyable -- if you had been alive to experience it. Back then, the global average for life expectancy was around 30 years.

We tend to take our opportunities for granted, but our ancestors could not have imagined what we now have. In the last 100 years, we have created more wealth than in the 100,000 years before that, and not because we work more. To the contrary: In the last century, work hours have been halved in the Western world. It is because new ideas have made it possible for us to work smarter and find easier ways to satisfy our needs and demands.

The people we should thank are the innovators and entrepreneurs, the individuals who see new opportunities and risk exploring them -- the people who find new markets, create new products, think out new ways to handle commodities commercially, organize work in new ways, design new technology or transfer capital to more productive uses. The entrepreneur is an explorer, who ventures into uncharted territory and opens up the new routes along which we will all be traveling soon enough. Simply to look around is to understand that entrepreneurs have filled our lives with everyday miracles.

The ingratitude toward those who have given us almost everything seems strange. But perhaps there is a historical explanation. Wealth and innovation are recent phenomena.

Amen.

Saturday, September 30, 2006

Online Retail vs. "Brick-and-Mortar" Retail

Q: Which has a larger market value?

1: The approximately 5,000 retail stores in the U.S. owned by two retail giants: Federated (Macy's, Bloomingdale's, Filenes, Hecht's, etc., about 1,000 stores), and Sears Holdings (Sears and K-Mart, about 4,000 stores).

2: Ebay and Amazon?

A: #2!

Federated and Sears have a combined market value of $47 billion and Ebay and Amazaon have a combined market value of $50 billion.

Friday, September 29, 2006

Significant Income Inequality for the NFL?

1. USA Today has a database of salaries for all professional athletes in the NFL, NBA, NHL and MLB, annually from 1988 to 2006. As one example, the Minnesota Vikings in 2005 had a payroll of $85.4 million for a roster of 61 players, a median salary of $596,100, and an average (mean) salary of $1.4 million. The lowest paid player was T.J. Cottrell ($139,840), and the highest paid player was Fred Smoot ($12.3 million).

2. The IRS keeps a database of income tax returns, and does an analysis of the
share of total income earned by different groups of taxpayers. For example, in 2004 (most recent year) here are the shares of total income earned by differnent groups of taxpayers:

Top 1% earned 19% of all income ($328,000 income or higher)
Top 5% earned 33% of all income ($137,000 income or higher)
Top 10% earned 44% of all income ($99,000 income or higher)
Top 25% earned 66% of all income ($60,000 income or higher)
Top 50% earned 86% of all income ($30,000 income or higher)

3. Many people express concern about the inequality of income across all taxpayers.

How are the above items connected?

Well, even the lowest paid Viking is in the top 5% of all taxpayers, most Vikings are in the top 1%, and many are in the top 1/2 of 1%. So I am sure nobody feels sorry for them. But wait a minute! Couldn't there be significant income inequality among this group of "the rich."

Here is the breakdown for the Minnesota Vikings:

The top 1% of the team earned 14.5% of total income (payroll)
The top 5% of the team earned 31.4% of total income (payroll)
The top 10% of the team earned 48% of total income (payroll)
The top 25% of the team earned 71% of total income (payroll)
The top 50% of the team earned 88% of total income (payroll)

Hmmmmmmmmmmm. If you compare the percentage breakdowns above, it seems like there is about just as much income inequality among the "super-rich" Minnesota Vikings, as among the general population. Maybe such income inequality is natural, and should be expected, regardless of whether it is all taxpayers, or various sub-groups of taxpayers. That is, you could take the top 1%, the top 5%, the top 50%, or the top X%, all the way to the top 100% (all taxpayers), and you would probably always find a significant, and possibly similar and consistent pattern of income inequality.

Addendum:
See my article on this topic. For Nobel prizes, the top 20% of countries receiving Nobels have received 85% of all prizes awarded. For Olympic medals, the top 20% of countries receiving medals received 70% of all medals. In most sales environments (real estate, securities, insurance, etc.), it is expected that the top 20% of salespeople generate 80% of all sales. It is probably the case that the top 20% of students at a university receive 80% of all grade points every semester. In the NBA, the top 20% of the players probably generate 80% of the total points scored. For movies, the top 20% of the highest grossing movies probably generate 80% of all revenues. For books, the top 20% best-selling book probably generate 80% of all sales. The list could go on... If this is a natural outcome in any competitive process, the process of earning income should be no different.

If talent, ambition, skills and luck are distributed "unequally," should we not expect unequal outcomes? And suppose you don't like the inevitable result of an inequality of outcome? What is the logical solution to correct such a "problem"? The use of the coercive force of the government to redistribute income, sales revenue, grades, Olympic medals, Nobel prizes, or grade points?

And now think about this scenario: what if professors started "grade redistribution" at the end of each semster, and took grade points away from the A students and gave them to the D students, to achieve a more "equal" distribution of grade points and final grades, possibly resulting in all Cs? Who would study?

What Does a 4BR Home Cost? Depends....

What does it costs to buy a typical four-bedroom home, with 2.5 baths and a double garage? Well, it depends a lot on whether you buy the house in Minot, ND or Beverly Hill, CA. In Minot the 4BR home will cost you $132,333, and the same house in Beverly Hills will cost you a cool $1.8 million. For the complete list of home prices in 342 cities, click here.

Greenspan Calls Sarbanes Oxley a "Nightmare"

From today's Investor's Business Daily, an editorial about Sarbanes-Oxley, specifically about how former Fed chair Greenspan now has second thoughts about a bill he once supported, but now calls a "nightmare."

According to IBD, it's "the arrogance of Washington that gave birth to the Sarbanes-Oxley monster, " which:

• Requires small companies to spend an average $3 million a year and big companies an average $8 million to comply with its rules.

• Is responsible for a $1.5 trillion reduction in value in the U.S. stock market, according to an American Enterprise Institute study.

• Creates conditions so demanding that only one of the top 10 overseas IPOs was held in the U.S. last year.

• Prompted European companies to withdraw from U.S. exchanges because of the heavy financial burden of compliance.


Good Thinking Senators.....

From today's NY Times, an article about how "the Chinese government has sharply stepped up the appreciation of its currency, allowing it to push through an important level against the dollar on Thursday for the first time."

The recent climb of the Yuan (depreciation of the dollar, see graph above) — less than a full percentage point since the beginning of September — is still modest and perhaps will not last. But it is producing cautious hope in the Bush administration that the Chinese government may be lifting its opposition to a revaluation that could ease China’s huge trade surplus with the United States.

And partly in response to the currency lift in China, two influential senators in Washington announced Thursday that they were pulling back legislation that would punish China with 27.5% tariffs if it did not allow the value of its currency to rise, a step that would make exports to the United States more expensive and imports from America more competitive.
Good thinking senators....... because how would 27.5% taxes (tariffs) on Chinese products that would be imposed on, and paid for, by US consumers and US business "punish China?" And wouldn't that be "price gouging?"

Wednesday, September 27, 2006

Business Failures are Good for the Economy

The market imposes strict, severe and fierce discipline, through the profit and loss system, especially by imposing harsh penalities for firms that operate inefficiently. More than 80 percent of new firms in the United States end up failing and about 10 percent of all American companies fold each year. But do these business failures provide real economic benefits and enhance social welfare? Yes, business failures are good for the economy, according to a study by University of Michigan professor Hart Posen.

His study found that the more firms that enter a market, the greater the likelihood that poorly performing established companies will disappear, suggesting that failure is merely a byproduct of a phenomenon (excess entry) that yields superior firms.


In addition, competition from a glut of new companies—even those that eventually fail—leads to innovation and efficiency gains among incumbent firms, they say.

This happens for two reasons. First, excess entry, which leads to decreases in price margins, spurs incumbent firms to innovate and reduce costs over the long term. Second, knowledge produced by failed firms, while wasted on themselves, may be absorbed by survivor firms through a spillover effect.

Competition breeds competence. The market rules.

Medical Tourism

It's easy to see why people are tempted to combine travel with surgery: The cost of medical procedures is often much lower abroad. For example, Howard Staab, a 53-year-old North Carolina contractor, was healthy in the summer of 2004--or so he thought, until his doctor found a life-threatening heart condition during a routine physical.

Uninsured, Staab had always paid out-of-pocket for medical care. But discussions with the local hospital revealed uninsured patients pay much higher fees than insurers do. Staab faced a $200,000 bill for the heart valve surgery he needed if it was performed there.

In September 2004, Staab got his surgery at a state-of-the-art facility in New Delhi, India. He is part of a growing number of people traveling to other countries in search of low-cost medical care. Staab's surgery cost $6,700; post-operative lodging and airfare added another $1,500 to the tab.

PlanetHospital.com is a Web site that connects patients with high-quality medical facilities in India, Thailand, Singapore, Mexico, and Costa Rica.

When potential clients contact PlanetHospital.com, the medical staff reviews their medical history to assess whether they are well enough to travel; some people may have waited too long to seek care and therefore are not healthy enough to make a long flight to India or Thailand.

Staff members then help clients choose appropriate physicians and destinations for care; the medical records are digitized and placed online to allow physicians in the destination country to easily review the patients' medical histories; PlanetHospital.com then arranges conference calls between the physician and patient to discuss the procedure.

Once the patient chooses a physician, arrangements are made for the procedure. PlanetHospital.com assigns a case manager from the destination country; the site often arranges travel and lodging as well.

A country manager coordinates any additional requirements such as cell phone service and airport transportation; case managers attend to all needs that arise while the patient is in the destination country.

Although insurers currently do not make medical travel part of their provider networks, they may in the future, according to Mercer Health & Benefits, a national consultancy group for human resources managers.

Source: Devon Herrick, "
Medical Tourism Prompts Price Discussions," Heartland Institute, October 1, 2006.

Tuesday, September 26, 2006

What's a Degree Worth?

These salary increases indicate that 2005-06 has been the best job market in the past four years.

Business disciplines posted increases across the board. Accounting grads' average offer rose by 6.2 percent to $45,723, and business administration/management graduates saw an increase of 3.9 percent, raising their average offer to $39,850. The average salary offer to economics/finance graduates jumped 11 percent to $45,191.

DJIA Within 53.5 Points of Record-High

The Dow Jones closed today at 11,669.39, the second highest closing in history, and within 53.5 points of the highest close in history on January 14, 2000.

India's Outdated Foreign-Exchange Policy

From today's WSJ: "Rupee Reform"

Despite these achievements, India's whole approach to foreign-exchange control is badly outdated, a point occasionally recognized in the report itself. The system was invented during World War II, strengthened in the late 1950s and made truly draconian in the early 1970s by former Prime Minister Indira Gandhi. It is animated by the view that foreign exchange is the property of the state, and that Indian residents are constantly poised to mount a run against the rupee.

BUS 468: 10-year Yields Falling


Ten-year T-note yields hit 4.55% yesterday, the lowest level in about 7 months, since February 28 (see graph above).

From today's WSJ front page:

In one of the bigger surprises in financial markets this year, a growing sense that the economy is slowing and inflation receding is fueling a rally in the nation's bond markets, pushing Treasury-bond yields to their lowest levels in months.

Because bonds pay fixed interest, their yields go down as investors bid up their prices, and vice versa. Earlier this year, Treasury yields rose as investors fretted that a strong economy would pump up inflation. Inflation eats away at bond returns, so investors dumped Treasurys, which pushed bond prices lower and their yields higher.

Now, in the upside-down world of bond investing, bad news about the economy has investors turning back to bonds, which is pushing yields back down, essentially making it cheaper to borrow money.


Monday, September 25, 2006

Home Sales Fall in August, Buyer's Market


Total existing-home sales – including single-family, townhomes, condominiums and co-ops – dropped 0.5% to a seasonally adjusted annual rate of 6.30 million units in August, down from 6.33 million homes in July, and were 12.6 percent lower than the 7.21 million-unit level in August 2005.

The national median existing-home price for all housing types was $225,000 in August, down 1.7 percent from August 2005 when the median was $229,000. This was the first year-to-year median price decline since April 1995, and it was the second-biggest year-to-year price decline in the 38-year history of the monthly survey of home sales released by the National Association of Realtors (since 1968).


Mortgage Rates Falling


30-year mortgage rates now at a 6-month low of 5.8%.

Sunday, September 24, 2006

Wal-Mart Goes Global

The number of Wal-Mart stores in foreign countries:

Argentina: 11
Brazil: 295
Canada: 278
Japan: 398
Mexico: 774
Puerto Rico: 54
S. Korea: 16
UK: 315
China: 56
Guatemala, Honduras, El Salvador, Nicaragua and Costa Rica: 363

How does this benefit the U.S. economy? Wal-Mart employs about 1,500 people at its Arkansas headquarters (about 10% of 15,000 total jobs there) just to coordinate worldwide shipments for the 2,560 stores outside the U.S.

$1.90 Gas and Oil Below $60!!

Gas prices keep falling, now down to $1.90 per gallon in Missouri, and oil just went below $60 per barrel for the first time in 6 months!

Economic Appreciation 101

"I think we really need to appreciate what we have in the U.S. economy. That we benefit greatly from openness and competition. Our economy is by far the world's strongest. Because it's built on openness … to people of all nationalities, new ideas, investment, openness to competition, and it's a model that others try to emulate. And if you're sitting here in this country, you don't see it like you do when you're traveling around, and when I traveled around the world and everywhere I went, where people would welcome me, they welcomed me because they wanted to know about economic best practices. They wanted to know how we did things in the U.S., often, and how it would be applicable to particularly the developing world. And so we need to cherish what we have, we need to strive to keep it this way, and I think it's our proven record of success that lets us advocate free trade, open markets, here in the United States and around the world."

~Treasury Secretary Henry Paulson

International Gas Prices

Current gasoline prices, in USD per gallon:

Belgium

France

Germany

Italy

Netherlands

UK

$6.13

$5.71

$6.02

$6.02

$6.57

$6.40