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.

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%



Top 25%



Top 50%



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.


WSJ article

Nobel press release


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."


His Webpage at Columbia

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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.