Tuesday, November 14, 2006

Peak Oil Production is 25 Years Away

Far from being a nearly exhausted resource, the world's oil reserves are three times bigger than what some popular estimates state, and peak global oil production is still about a quarter-century away, according to a new study by Pulitzer Prize-winning oil historian Daniel Yergin. Yergin's views carry weight because he won the Pulitzer for his 1991 book "The Prize," an exhaustive history of oil economics.

The world's total oil supply is estimated to be 4.82 trillion barrels, and 1.08 trillion barrels have already been consumed (see graph above). The remaining oil resource base is about 3.74 trillion barrels, according to a report released by Yergin's Cambridge Energy Research Associates. That's more than three times the 1.2 trillion barrels that "peak-oil" theorists suggest.

There's an estimated 1.07 trillion barrels yet to be discovered, and the incentive to explore and discover that oil will increase significantly when the price of oil eventually rises. As as the price of oil eventually rises, the incentive to conserve oil use by consumers will increase significantly as well. And as oil prices rise, the incentive to discover alternative energy sources will increase significantly as well.

Not to worry.

Tragedy of the Commons, Solution: Property Rights

From today's WSJ, an editiorial "Save the Fish" about the false scare from junk science reports that we will run out of fish by 2048. From the WSJ:

"Extrapolation of any trend far enough into the future can bring surprising results (remember Dow 36,000?). And at least one professor of marine sciences has called this particular extrapolation "mind-bogglingly stupid."

What's the problem with fish? Well, unlike domesticated animals, no one owns them. (MP: When is the last time you heard of a pending shortage of Holstien cattle, chickens or German Shepards?) Government programs to set catch limits and so reduce fishing effort are a constant source of friction with fishermen, who are always pushing for higher limits than regulators feel are advisable. It's not that fishermen want to decimate their cash crop. But the system is set up to encourage them to push for whatever they can get, now.

There's a better way. Private property rights: adopting a system of individual, tradeable quotas."

See a related, recent article by NY Times columnist John Tierney, "
Where the Tuna Roam:"

"If 19th-century researchers had kept tabs on buffalo hunts, they could have drawn a similar graph of doom. And if they wanted their study to make front-page headlines, they could have warned that overhunting doomed future inhabitants of the Great Plains to live in a world without fresh meat.

Today that sounds silly. You can get all the beef -- or buffalo meat -- you want from Western ranchers.

A quiet revolution has occurred in certain American waters, like the halibut fishery of Alaska, and in countries like Canada, Iceland, New Zealand and Australia. Fishermen have discovered the same tool used by settlers on the Great Plains: property rights."

Europe vs. USA

From today's WSJ, an article "Euro-Zone Economic Growth Slows in Third Quarter," here is a quote:

"The latest growth data, combined with strong business surveys, still back up the European Central Bank's view that the 12-nation currency area is heading for growth of around 2.5% this year, the region's fastest pace of growth since 2000."

When Europe has output growth of 2.5% it is the strongest economic performance in 6 years. When the US has output growth of 2.5%, it would be considered below-average performance.

According to a report by the Swedish think tank Timbro called "
EU versus USA:"

"If the European Union were a state in the USA it would belong to the poorest group of states. France, Italy, Great Britain and Germany have lower GDP per capita than all but four of the states in the United States. In fact, GDP per capita is lower in the vast majority of the EU-countries (EU 15) than in most of the individual American states. This puts Europeans at a level of prosperity on par with states such as Arkansas, Mississippi and West Virginia."

The Dangerfield US economy gets no respect.

Monday, November 13, 2006

When It Comes to Taxes, Simple is Better KISS

A recent report from the World Bank Group and PricewaterhouseCoopers, “Paying Taxes – The Global Picture” examines the tax regimes of 175 countries, including measuring the number of pages in a country's income tax code:

India was #1 in the world with 9,000 pages

UK is #2 in the world with 8,300 pages, and it would have been higher but the UK tax laws were recently simplified!

USA has 5,100 pages

Switzerland has just 300 pages

The report also looked at the number of hours it takes to comply with tax requirements and reported an average of 332 hours a year for businesses to comply with tax requirements, ranging from 2,600 hours in Brazil to 325 in the U.S. to 68 in Switzerland.

See today's
Wall Street Journal editorial "Tax Ephiany" on the World Bank report:

"A bright light descended from the sky last week and shone upon the world's economic planners. It came courtesy of the World Bank, of all unlikely places; its toiling economists have discovered that simplified tax systems promote economic growth."

"The overriding goal of any tax system should be to raise the revenue that governments need for public purposes with the least amount of economic distortion and evasion. The lesson of the World Bank report is that the more transparent and simple a tax scheme, the more it will achieve that purpose."

Sunday, November 12, 2006

Cost of Living, NYC vs. Minneapolis

How expensive is it to live in NYC compared to Minneapolis? According to Sperling's Cost of Living Calculator, it is 55.3% more expensive to live in NYC than Minneapolis, see the comparison here. Or to maintain the same standard of living, a salary of $100,000 in Minneapolis should increase to $155,263 in NYC. The biggest difference of course is the cost of housing, which according to Sperling is twice as expensive in NYC vs. Mpls. Food costs are also about 37% more expensive in NYC vs. Mpls. You can compare any two major US cities using the Sperling cost-of-living calculator.

See a related post on
Marginal Revolution here, which mentions this article in New York Magazine that says a dollar in NYC is worth only 76.2 cents, and compares NYC to Minneapolis.

Saturday, November 11, 2006

More on Lou Dobbs Democrats

From today's WSJ, an article titled "Democratic Gains Raise Roadblocks To Free-Trade Push," about the anti-free trade movement ahead in Congress:


The Democrats' sweep of Congress is set to deliver a blow to President Bush's free-trade ambitions and could hamper impending trade deals both big and small.

Democrats' stances against free trade helped build the party's success at the polls and could tip the balance on trade matters. The new dynamic could put a definitive end to the already troubled effort to reach a global agreement to reduce tariffs and open markets, known as the Doha round. It also could put in jeopardy smaller deals such as those the U.S. has crafted with Peru and Colombia, intended to boost two-way trade by lowering tariffs and increasing intellectual-property protections.

All told, 16 incoming "trade skeptics" are set to replace "trade friendly" Republicans in the House, according to a study by the Swiss Institute for International Economics.

Democrats also could push tough measures of their own. They have floated various bills to squeeze imports from China or to try to manage the country's trade imbalance. Others seek to impose various restrictions or punishments for intellectual-property violations or its failure to allow its currency, the yuan, to strengthen further. Those have been shelved until now, partly because of a lack of support from the Republican leadership and the White House.

Congressional Democrats have long been moving away from free-trade support. In the 1990s, dozens of House Democrats regularly supported free-trade initiatives like the North American Free Trade Agreement backed by then-President Clinton, which won 102 Democratic votes. But only 15 Democrats backed the Central American Free Trade Agreement negotiated by the Bush administration in 2005.

Remember: Trade is Win-Win, and it doesn't matter at all if the buyer and seller are the same side of an imaginary line we call a national border, or on different sides of an imaginary line we call a national border. Just like it doesn't matter if both the buyer and seller are on the same side or different sides, of imaginary lines we call state borders. Or imaginary lines called county borders, or imaginary lines we call city limits, etc.

See
Greg Mankiw's post titled "David Ricardo Rolls Over in His Grave."

Remember a few years ago when Mankiw, when he served as chairman of Bush's Council of Economic Advisors, was
harshly criticized by political leaders in both parties for his statement that "Outsourcing is just a new way of doing international trade. More things are tradeable than were tradeable in the past. And that's a good thing." House Speaker Dennis Hastert, R-Ill., called for his head, and Mankiw was forced to "apologize."

Apologize for what? Understanding the significant benefits of free trade?

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Corporate Social Responsibility?

From today's NY Times, an article about CSR (corporate social responsibility) and the annual Business for Social Responsibility conference in NYC this week.

OVER 35 years ago, the economist Milton Friedman wrote a famous article for The New York Times Magazine entitled, “The Social Responsibility of Business Is to Increase its Profits.” It’s not hard to find critics of corporate social responsibility who still take that hard-line view.

“C.S.R. is a misguided attempt by a subcategory of business managers to deal with the crisis of corporate legitimacy,” said Isaac Post of the Competitive Enterprise Institute. Russell Roberts, an economist at George Mason University, said: “Doesn’t it make more sense to have companies do what they do best, make good products at fair prices, and then let consumers use the savings for the charity of their choice?”

Their essential point is that companies are simply not equipped to “save the world” — nor is it their mission. That’s what governments are supposed to do.

And that is why corporations pay taxes, almost $1 trillion in corporate income taxes over the last three years, so the government can "save the world."

Whenever a corporation has money available (say $50m) at the end of the year to give/donate to charitable causes and be socially responsible, doesn't that really mean its prices were too high all year, or its wages too low all year?

That is, couldn't Target "give money back to the community" by lowering its prices or having huge sales to increase the standard of living of all of its shoppers by giving them $50 million in cost savings? Or couldn't Target give wage increases or annual bonuses totalling $50 million and "give money back to the communities" where it operates?

And what if I am a Target shareholder, maybe I would prefer $50 million of dividend payments, instead of a $50 million donation to the Boy Scouts? Or maybe I would prefer a $50 million donation to the Girl Scouts or Salvation Army instead of the Boy Scouts?

Friedman: "But the doctrine of 'social responsibility' taken seriously would extend the scope of the political mechanism to every human activity. It does not differ in philosophy from the most explicitly collective doctrine. It differs only by professing to believe that collectivist ends can be attained without collectivist means. That is why, in my book Capitalism and Freedom, I have called it a "fundamentally subversive doctrine" in a free society, and have said that in such a society, "there is one and only one social responsibility of business--to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud."

Minimum Wage, Maximum Folly

From today's WSJ, an editorial "The Wages of Politics" on the minimum wage:


Raising the minimum wage has been a hardy perennial of the left for decades now. What is striking is the degree to which is has come to be seen as an economic free lunch. Even some reputedly unbiased economists have started to tout the view that raising the minimum wage has no discernible effect on job creation.

But if this were true, they'd be calling for a $10, $20 or even $50-an-hour minimum wage. They're not, and neither is Nancy Pelosi. That's because the Law of Demand is one of the most dependable precepts of economics. It says that when the price of something goes up, demand for it goes down. An employee's wages are the price the employer pays for his services, so raising their wages means forcing employers to pay more for workers. The price goes up and there is downward pressure on demand for workers. Other things being equal, jobs are lost.

It is implicit in the logic behind raising the minimum wage that if we squeeze employers just a little, they won't even notice. Another argument, this one made explicitly, is that jobs are destroyed, but the wage gains more than make up for the reduced number of jobs. But this is only true if it's not your job that is destroyed. If you are a young black male, you are slightly more likely than the general population to be paid minimum wage, but you are almost 10 times as likely not to have a job at all. And if you're unemployed, raising the minimum wage not only doesn't help you find a job; it probably hurts. Welcome to Speaker Pelosi's idea of progress.
The main question is: How can the thousands of unskilled workers who will be unemployed as a direct result of the minimum wage be better off without a $7.25-an-hour job than they would be with a job that pays $5.15 an hour?

The real problem facing the workers affected by the minimum wage is not that they are underpaid, but that they are under-skilled. Unskilled workers don't need our intuition and humanitarian intentions. They need employment so they can gain valuable work skills.

As the NY Times so correctly said in an editorial on January 14, 1987, "The Right Minimum Wage: $0.00."


Friday, November 10, 2006

The Sad State of German Education

From today's WSJ, an editorial "Educating Germans" about Germany's poor and declining higher education system, partly because of the country's egalitarian federalism which promotes equal funding for all universities regardless of quality, to provide "equal" education across the country. Consider that:

1. Germans practically invented the modern research university in the 19th century, but today not a single German university ranks in world's top 50 universities (the University of Heidelberg ranks #58).

2. The concept of elitism is rejected in Germany universities, and academic mediocrity has been the predictable result. Just 20.6% of adult Germans have completed college, compared with an OECD average of 35%.

3. Most university education is free, and so students consider higher education a "free" service and not an investment in human capital, an attitude that has led to high drop-out rates and long years of study.

4. The civil-servant status of professors makes it impossible to fire even sub-par academics.

In other words, insulation from competition has led to inferior and declining quality of German higher education. Sound a little like American public schools?

Conclusion: Competition breeds competence (those words have the same Latin root: competere), insulation from competition breeds incompetence.

Music I've Been Listening To

1. Shirley Brown, who has a voice that sounds like Aretha Franklin on steroids, how could I have missed her all these years? I have the "Timeless" and "Diva of Soul" CDs, and just ordered about 5 more Shirley Brown CDs. Check out her version of Al Green's "Still in Love," it's awesome. It doesn't get any more soulful than this.

2.
Earl King's CD "King of New Orleans," how did I miss Earl King all of these years? Check out his song "Three Can Play the Game," what a sound!

3.
Oscar Peterson's 4 CD set "Exclusively for My Friends," recorded before live audiences in an elegant, old Black Forest villa in Germany between 1963-1968, these recording have a loose, intimate feel and showcase Oscar Peterson's piano sound at his best on an Imperial Bosendorfer concert grand. When it comes to the classic sound of a jazz trio with piano, bass and drums, it really doesn't get any better than these CDs! Check out the song "Sax No End" on Disc 3, it is the #1 most rockin' jazz piano recording I have ever heard.

4. My brother Jeff Perry in Minneapolis-St. Paul has a new CD out,
give it a listen here.

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Proposal 2 Passes in Michigan

With a 58% to 42% margin, Michigan voters approved Proposal 2, which ends race-preferences for admission to the University of Michigan. The table above shows data from the Center for Equal Opportunity on undergraduate students at UM (except for graduation rates in the last column, which are national data).

For example, an Asian minority student with a 3.2 high school GPA and 1240 SAT would have only a 1 in 10 chance of admissions, and an African-American student with the same academic credenitals would have more than a 9 in 10 chance of admission to UM. Unless successfully challenged in the courts, that type of discrimination by a public university will be illegal in Michigan, and the table above might help explains why this proposal passed overwhelmingly in Michigan, and why even many Democrats voted for Prop 2.

Read the
WSJ article here about Proposal 2 passing in Michigan - "Voters Turn Back College Affirmative Action." Read President Mary Sue Coleman's defiant speech here. "I will not stand by while the very heart and soul of this great university is threatened." In other words, diversity, and not quality scholarship, is the heart and soul of this university?

It Was Iraq, NOT The Economy

George Will writes about Tuesday's election, and says that "Republicans sank beneath the weight of Iraq, the lesson of which is patent: Wars of choice should be won swiftly rather than lost protractedly."

"Never before has a midterm election so severely repudiated a president for a single policy. The Iraq war, like the Alaska bridge, pungently proclaims how Republicans earned their rebuke. They are guilty of apostasy from conservative principles at home (frugality, limited government) and embrace of anti-conservative principles abroad (nation-building grandiosity pursued incompetently)."

Read more here.

The unemployment rate is at a 5 1/2 year low, 11 states have the lowest unemployment rates in history, the stock market is hitting record highs, and the 4% average output growth over the last 3 years is well above average. The election was NOT about the economy this time, it was about Iraq.

Thursday, November 09, 2006

Pay Gap? Men Earn 85% of Women?

In 2001, comparing men and women who never married, never had a child, worked full time, and were college educated, women earned 117% of what men earned. That is, after controlling for marital status, having children, hours worked and education, men earned 85% of what women earned.

The graph above is from
Warren Farrell's website, he is the author of the book "WHY MEN EARN MORE: The Startling Truth Behind the Pay Gap and What Women Can Do About It."

See his
NY Times commentary here from September 2005 (may require NY Times subscription).

The Rise of Anti-Trade Lou Dobbs Democrats: Free Trade Has Left the Building

From yesterday's Slate.com, an article titled "The Lou Dobbs Democrats: Say Hello to the New Economic Nationalists," about how many of the Democrats who recaptured seats held by Republicans ran hard against free trade, globalization, and any sort of moderate immigration policy.

Economic nationalism begins from the populist premise that working people aren't doing so well. But instead of blaming the rich at home, it focuses its energy on the poor abroad. The leading economic nationalist today is Lou Dobbs, who on nights other than Election Night natters on against free trade, outsourcing, globalization, and immigration on CNN.

Economic nationalism is not unique to Democrats—nor is it a new theme. The protectionist wing of the party emerged in the 1980s when America's manufacturing decline was first linked to imports and foreign competition. During his 1992 campaign, Bill Clinton made a key decision to support NAFTA. Clinton espoused a strong free-trade position and embraced globalization through his presidency.

See a related post from Greg Mankiw's here: "Which Party Favors Free Trade?"

As a result of this year's election, it now seems unlikely that the new Congress will extend George W. Bush's "fast-track" trade-negotiating authority, which expires this summer. The results are further bad news for the Doha round and bilateral trade agreements with South Korea and other countries. It is possible that congressional Democrats will revive efforts to saddle China with punitive tariffs as punishment for "currency manipulation." It would be going too far to say that the 2006 election ushers in a new protectionist consensus. But free trade has definitely left the building.

See today's NY Times Business section for more on the anti-trade trend:
Democrats and Republicans agree that the new Congress is likely to be less hospitable to trade deals negotiated by the Bush administration, since any such deals are likely to involve cuts in tariffs and subsidies that could cost manufacturing jobs.

The main issue would be a possible global trade agreement negotiated by the World Trade Organization. Major business organizations support such a deal but farm groups are ready to oppose anything that does not require tariff and subsidy reductions by America’s trading partners.

Wednesday, November 08, 2006

Gridlock is Good

More on gridlock from columnist Bruce Bartlett, a Republican who voted for Democrats for the first time in his life as a "vote FOR gridlock":

I think the American people like divided government. They don't trust either party to run the whole show and believe deeply in the separation of powers that the Founding Fathers established in the Constitution. To most people, dividing government by political party is just another way of separating power.

Every war in American history that lasted more than a few weeks was authorized by a unified government. It's also worth noting that every major entitlement program -- the spending programs that are bankrupting the country -- was enacted by unified governments.

I believe that the good economic times of the late 1990s resulted largely from gridlock -- Democrat Bill Clinton couldn't get his plans through a Republican Congress and he blocked its initiatives. So for a blessed six years government was basically on automatic pilot. The result was budget surpluses instead of deficits, low unemployment, high wages and a skyrocketing stock market. Who wouldn't go back to those times if we could? Bringing back gridlock could to the trick.

Divided government often helps the passage of legislation with broad support that is opposed by special interests. Neither party will want responsibility for killing it, and so they both push it forward. If one party were shut out of power, however, it would be easier for it to oppose even an overwhelmingly popular measure out of sheer partisanship.
Read more here.

Gridlock Glee

Bloomberg News: U.S. Stocks Rise on Gridlock Prospects: A divided government may lead to a legislative impasse and forestall new regulations as well as curb government spending, investors said.

International Herald Tribune:
Gridlock hopes lift indexes: Analysts say gridlock would forestall new regulations and curb government spending.

P.J. O'Rourke on gridlock: "I like legislative gridlock. What I hate is bipartisan consensus. Bipartisan consensus is like when my doctor and my lawyer agree with my wife that I need help."

Tuesday, November 07, 2006

Rodney Dangerfield Economy

From Investor's Business Daily yesterday:

Here we had 92,000 jobs added to payrolls in October. That may have been below estimates for the month, but the total first reported for August was revised upward 42,000 to 230,000, and September turned out to be nearly three times as strong as first reported — 148,000 vs. 51,000. Bottom line: Corporate hiring is running near a healthy 150,000 positions a month.

And that doesn't include jobs in the household survey. That measures both corporate payrolls and the hard-to-gather data on entrepreneurial jobs and self-employment. By the household measure, the number of jobs surged 426,000 in October to a total of 145.3 million, even stronger than the strong gains of the previous two months and pulling the monthly average in 2006 to 251,000.

All this has contributed to a 0.2-percentage-point drop in the jobless rate — to a 5 1/2-year low of 4.4%. That's lower than the Clinton-era unemployment average of 5.2%, by the way, and is hair-close to the level where employers start having a hard time finding workers.

Meanwhile, wages are growing at 4%, a rate — as economist and commentator Larry Kudlow notes — almost twice that of inflation, which itself has been cut in half with the plunge in gasoline prices.

So how does all this good news play out in, say, the New York Times?

For the positive wage news, you'd have to drill down 11 paragraphs (and flip to the jump page) in a Friday story headlined "October Sales Were Weak At Wal-Mart" to learn that "wages are increasing and Americans are finding themselves with more disposable income."

Read more here.

The Paradox of Progress

The gains from America's recent economic growth have been widely shared throughout society, as low- and middle-income families -- not just the wealthy -- have seen their standards of living improve dramatically, says James Sherk, a policy analyst with the Heritage Foundation.

But despite the facts, some still claim that few Americans have benefited from the growing economy. Their analysis is based on four specific claims, says Sherk:

1. The share of income earned by the wealthiest Americans has risen, and these are the only Americans whose standards of living have improved.

2. Inflation-adjusted wages have not risen for most Americans.

3. Wages have not kept pace with rising productivity.

4. Wages and salaries, as a share of the economy, have fallen in recent years, while corporate profits have risen.

But a closer look at the data reveals that most Americans have shared in the rising prosperity.

Consider:

1. Between 1979 and 2004, the proportion of Americans with inflation-adjusted incomes below $75,000 fell by 10.1 percentage points.

2. The largest portion of the decrease came from households earning less than $35,000.

3.Workers total compensation -- wages plus benefits -- have risen by 3 percent since 2003 and 9 percent since 2000, after adjusting for inflation. (MP: I have an earlier post on this.)

4. Net worth of the median American family rose from $70,800 in 1995 to $93,100 in 2004.

And beyond rising incomes, Americans have also seen dramatic improvements in their standard of living. For example:

1. Newly built homes -- in terms of square feet -- almost doubled from 1979 to 2004.

2. Medical advances have improved the health and quality of life of all Americans, raising the life expectancy from 73.7 years in 1980 to 77.9 years today.

3. Between 1997 and 2003, the proportion of Americans with computers at home went from 37 percent to 62 percent; and Internet access leapt from 18 percent to 55 percent.

Read more here.

The Sugar Racket

The graph below is for the March 2007 sugar futures contracts, traded on the NY Board of Trade, quoted in cents per pound for DOMESTIC SUGAR. The contracts were trading at 22-23 cents per pound last summer and are now trading at 19.74 cents.

This next graph is for March 2007 sugar futures contracts at the NYBOT that are traded for the WORLD price of sugar. The prices were 15-16 cents/lb. last summer, and are now trading at 11.75 cents, more than 40% below the price for domestic sugar.

Q1. Why is the world price of sugar 40% below the domestic price? World prices for sugar reflect the cost of producing sugar from the most cost-effective, efficient source: sugar cane. Domestic prices reflect the more inefficient production of sugar from an inferior source: sugar beets.

Q2. How can high-cost, inefficient sugar beet-sugar producers in the U.S. stay in business when their sugar prices are 40% above the world price of sugar? SUGAR PROTECTIONISM in the form of tariffs and restrictions on cheap, imported sugar at the world price.

This sugar protection costs consumers about $3 billion per year in higher prices. There are only about 11,000 sugar farms in the U.S., so that is an annual subsidy of almost $260,000 per farm!

Read more about sugar protection here.


Monday, November 06, 2006

Medical Tourism

Businesses and insurance companies are starting to eye the potential savings of outsourcing health care from the USA to the developing world.

Last year, about 500,000 U.S. residents traveled to countries like India, Singapore and Thailand for medical treatment.

The overseas hospitals, typically known for offering low-cost plastic surgery, are now gaining reputations for heart, knee and back operations.

Medical tourism facilitators like California-based PlanetHospital are already working to make the journey less stressful for patients traveling abroad by arranging everything from visas and airport pickup to sightseeing.

Many doctors working in facilities catering to medical tourists are trained abroad, often in the United States or Europe.

About 100 foreign hospitals have been approved by the international arm of the Chicago-based Joint Commission on Accreditation of Healthcare Organizations, which also accredits American hospitals.

Read more here.

The Amazing Teaspoon Johnson

Check out the amazing Teaspoon on guitar and spoon. I have no information about this guy, but he is pretty amazing.

RSS Feed Now Available

Carpe Diem now has an RSS feed, and you can subscribe to this blog, or any blog, using a reader like Google Reader, if you find it more convenient to read blogs that way. If you go to Google Reader you can add a blog by using the "Add Subscription" option, and entering the blog website address, mjperry.blogspot.com as an example for Carpe Diem.

Especially if you read several blogs daily, using a reader makes it very convenient since all of your subscribed blogs are listed on one page, and new postings on the blog are automatically "fed" to your reader, and you can see if there any new postings. It saves time because you don't have to go to multiple websites to read blogs, they are all organized for you on your reader.

Quotes from P.J. O'Rourke on Politics

1. Giving money and power to government is like giving whiskey and car keys to teenage boys.

2. If you think health care is expensive now, just wait till you see what it costs when it’s free.

3. The Democrats are the party that says government will make you smarter, taller, richer, and remove the crabgrass on your lawn. The Republicans are the party that says government doesn't work and then they get elected and prove it.

4. The mystery of government is not how Washington works but how to make it stop.

5. The Clinton administration launched an attack on people in Texas because those people were religious nuts with guns. Hell, this country was founded by religious nuts with guns. Who does Bill Clinton think stepped ashore on Plymouth Rock?

6. Social Security is a government program with a constituency made up of the old, the near old and those who hope or fear to grow old. After 215 years of trying, we have finally discovered a special interest that includes 100 percent of the population. Now we can vote ourselves rich.

7. When buying and selling are controlled by legislation, the first things to be bought and sold are legislators.

8. No drug, not even alcohol, causes the fundamental ills of society. If we're looking for the source of our troubles, we shouldn't test people for drugs, we should test them for stupidity, ignorance, greed and love of power.

9. If government were a product, selling it would be illegal.

10. Feeling good about government is like looking on the bright side of any catastrophe. When you quit looking on the bright side, the catastrophe is still there.

11. America wasn't founded so that we could all be better. America was founded so we could all be anything we damned well pleased.

12. Bureaucrats want bigger bueraus. Special interests are interested in whatever's special to them. These two groups bring great pressure to bear upon politicians who have another agenda yet: to cater to the temporary whims and fads of the public and the press.

13. People who are wise, good, smart, skillful, or hardworking don't need politics, they have jobs.

14. If we're going to improve the environment, the first thing we should do is duck the government. The second thing we should do is quit being moral. Screw the rights of nature. Nature will have rights as soon as it get duties. The minute we see birds, trees, bugs, and squirrels picking up litter, giving money to charity, and keeping an eye on our kids at the park, we'll let them vote.

15. The U.S. Constitution is less than a quarter the length of the owner's manual for a 1998 Toyota Camry, and yet it has managed to keep 300 million of the world's most unruly, passionate and energetic people safe, prosperous and free.



TV Economics

There was a scene on the West Wing recently about protecting pharmaceutical patents. One guy says: "Those pills cost them 4 cents a unit to make." The other guy says: "That's not true. The second pill costs them four cents, the first pill costs them $400 million dollars."

When a firm faces a large fixed cost of production for research and development, and a low marginal cost of production that might be close to zero, e.g. computer software, CDs, DVDs, books, textbooks, pharmaceutical products, medicine, computer games, etc., the firm faces a "pure selling problem." Under those production conditions of high fixed cost and low marginal cost, the firm usually wants to maximize global sales to maximize profits.

Suppose a new economics textbook costs $50 million to develop to the point where it can start being printed, and it then costs about $10 for each additional, marginal copy of the book. The textbook publisher now wants to maximize global sales, and will now price the textbook according to the demand conditions in each country. In wealthy countries like the U.S., Japan and Western Europe, it will price the texbook at $150 because that is "what the market will bear" in those countries. In Central and South America, it might price the textbook at $75, and in China and India it might price the textbook at $50, based on "what the market will bear" in those economies. These editions are often called "International Editions" and might be in soft cover instead of hard cover, and are usually marked "Not for Sale in the U.S.," but are otherwise identical to the U.S. edition.

Pharmaceutical products, CDs, DVDs, etc. are priced globally the same way, and many CDs, DVDs and books in countries like India and China are labelled as only for sale in specific countires and maybe "Not for sale in the U.S."

There is nothing necessarily sinister, evil, unethical or illegal about this practice of what economists call "price discrimination," the pricing practice of adjusting the price based on "what the market will bear." Think about how common coupons are - that is simply a pricing practice of charging "what the market will bear" to two different consumer groups: a low price to price-sensitive consumers who use the coupon, and charging a high price to price-insenstive consumer who don't use the coupon.

If you think there is anything wrong with charging "what the market will bear," think about the last time you sold a house, or think about when you sell your current house. Did you, or are you going to, charge "what the real estate market will bear" at the time of sale, or would you be willing to accept some price less than that?

Sunday, November 05, 2006

Prince

Prince, the artist formerly known as Roger Nelson, is now setting up home in Las Vegas to headline at the Club Rio every Friday and Saturday for the foreseeable future. The club will be renamed 3121 after Prince's most recent album for the late-night concerts, which will begin later this month. Prince will use his new Las Vegas club to highlight new talent every Wednesday and he'll stage a Latin club night every Thursday. There is a website here for the new club, including ticket information - $125 for general admission.

Check out Prince's
8-page backstage rider from his 2004 Musicology tour. Strangest items include:

1. All items must be covered by clear plastic wrap until uncovered by main artist. This is ABSOLUTELY NECESSARY.

2. Please make a physician available on call until 5:30 p.m. This physician will be used to administer a B-12 injection.

3. Tour does carry a washer and dryer. We request hookups to be available.

4. TOWELS: Tour requires 16 dozen bath towels (192).


World's Smallest Political Quiz

Take the World's Smallest Political Quiz to find your true political idenity.

Real Hourly Compensation Has Increased

We hear a lot about stagnant or declining real incomes, but the graph above shows the relentless and continual increase in real hourly compensation since 1947, data are from the BLS, see the most recent release here. One issue is that compensation includes both wages AND benefits, and we should really look at TOTAL COMPENSATION over time, and not just monetary wages.

1. The data in the graph above are quarterly, and measure real (inflation-adjusted) hourly compensation (wages AND benefits). Click on graph to enlarge.

2. Using the percent change from the same quarter a year ago, real wages increased by 3.3% in the third quarter this year, 3.7% in the second quarter this year, and 2.6% in the first quarter of this year. In fact, we have had 45 consecutive quarterly increases in real compensation, and you have to go all the way back to the second quarter in 1995 for the last quarterly decrease in real hourly compensation.

3. The last time in U.S. history when there was a consectutive increase that long in real hourly compensation was from 1961-1973, when there were 51 staight quarters of increases in realy hourly compensation.

4. Over the last 10 years, there was a 25% increase in real hourly compensation for the first time for a 25% increase in real compensation during a 10-year period since the 1963-1973 period.

Don't buy into all of the "gloom and doom" scenarios about declining incomes - real hourly compensation is at an all-time high, and has increased faster over the last ten years than in a generation.

Is the Economy in Good Shape?

As voters go the polls on Tuesday, is the U.S. economy in good shape?

In a Pro-Con commentary distributed nationally this weekend by McLatchy-Tribune News Service, I say Yes, here is my commentary in today's
Tucson Arizona Daily Star. Note: Since I wrote the article several weeks ago, the unemployment rate fell to 4.4% in October.

Democratic Congresswoman Carolyn B. Maloney from NY (representing the 14th district in NYC)
says NO. She is also the the ranking House Democrat on the Joint Economic Committee.

H.L. Mencken on Government, Elections and Politics

H.L. Mencken is often regarded as one of the most influential American writers of the early 20th century. Here are some of his quotes on politics, democracy, government and elections.

1. Every election is a sort of advance auction sale of stolen goods.
2. A good politician is quite as unthinkable as an honest burglar.
3. A politician is an animal which can sit on a fence and yet keep both ears to the ground.
4. Democracy is a pathetic belief in the collective wisdom of individual ignorance.
5. Democracy is also a form of worship. It is the worship of jackals by jackasses.
6. Democracy is the art and science of running the circus from the monkey cage.
7. Democracy is the theory that the common people know what they want, and deserve to get it good and hard.
8. Every decent man is ashamed of the government he lives under.
9. If a politician found he had cannibals among his constituents, he would promise them missionaries for dinner.

Read more here.

Freakonomics

1. Think of all the service people who habitually get tips: hotel bellmen, taxi drivers, waiters and waitresses, the guys who handle curbside baggage at airports, sometimes even the baristas at Starbucks. But not flight attendants. Why not? Read the Freakonomics posting here.

2.The latest Freakonomics column appears in
today's N.Y. Times Magazine. It’s about how some economists are studying the weather itself (particularly the potential impact of global warming) and how others use weather as an instrumental variable to measure various human behaviors, including crime, war, rioting, etc.

If you haven't already read
Freakonomics, I highly recommend it - wait until you get to the surprise, shocking ending!

Saturday, November 04, 2006

Grade Inflation at the High School Level


Click on graph above for better view, it should enlarge. Note that the percentage of letter grades A+, A and A- has increased from 36% to 43% from 1996 to 2006. During the same period, there was an 11 point drop in SAT scores for reading and a 3 point drop in mathematics for the A students.

The Case for Low Voter Turnout

People often complain about low voter turnout in the U.S. - 50-55% in presidential election years, and 35-40% in non-presidential election years like 2006. See voter turnout since 1960 at this link. Notice that voter turnout has decreased in the last 45 years by more than 10 percentage points, from 63.1% in the presidential election of 1960 to less than 50% in 1996, and from 48.4% in 1966 to 36.4% in 1998.

Many people are probably upset by this trend, but not I, and here is why: In almost all cases, higher voter turnout would NOT have changed the outcome of the election, and so we get the same election outcome/results at a lower cost to society (measured in the opportunity cost of our time).

I have never heard those who complain about low voter turnout make the argument that higher voter turnout would CHANGE the outcome of the election, they usually just say that more people should vote for other reasons: exercise our right to vote, fulfill our civic duty, participate in democracy, etc.

But I have never heard anyone say "More people should vote because low voter turnout leads to unreliable results," or "more people should vote because that would change the outcome/results of the election. " Mostly, I think people would simply "feel better" if we had the same results with 80% turnout, compared to having those same election results with 40% turnout.

But think about it - would you feel any better about a blood test if they took two pints of your blood compared to 20 ccs? Probably not.

There are about 160 million registered voters in the U.S. From sampling theory, a sample size of 16,639 would accurately and reliably represent the entire population of 160m at a 99% confidence level, with an error of only 1%.

What this means is that if the first 16,000 people who vote when the polls first open in the morning are random voters who represent the population of voters, almost all elections are already decided by 9 a.m. or so in the morning. The rest of the voters are really just wasting their time, in the sense that their votes will not affect the outcome of the election. It is like increasing the blood sample - the blood test will still be positive or negative regardless of the sample size.

The possible exception to this would be an extremely close presidential election like 2000, where "every vote mattered" in a sense, but this was an extreme case. Of course, you don't know ahead of time which elections will be that close, so you could justify always voting, just in case.

But in almost all elections, I would argue that voter turnout has NO effect on the outcome of the election, and the same results would prevail with 20% turnout as 100% turnout. Although most people would "feel better" about the election with 100% turnout, that is irrational in my opinion. If the results are same, I would prefer the 20% turnout, because of the significant saving of time for the 80% who did not vote.

Voting is expensive when measured in its full cost: our time. An hour spent voting is an hour lost forever doing something else. As Gatemouth Brown said (see an earlier post): "My time is expensive, I gotta make it last."

I like low voter turnout, because the election results are almost always exactly same as for high voter turnout, and low voter turnout saves and conserves our most precious non-renewable resource: our time, and therefore it is socially more efficient than high voter turnout.

Weekend Voting or Voting Holiday?

Turnout among eligible voters in the U.S. for presidential elections is only 50-55%. Turnout in non-presidential years like this year will be far lower. By comparison, turnout is 70-75% in Canada and over 80% in most other democracies. Even many fragile new democracies have turnout levels far higher than ours.

One reason for low voter turnout in the U.S. is the opportunity cost of time for voting here is very high, because we vote on a weekday that is also a workday and not a holiday. This probably made sense in the 1700s and 1800s when the U.S. was an agriculture-based economy, - farmers had flexible schedules and probably weren't too busy on a Tuesday in November after the fall harvest.

The United States is one of the few Western democracies that do not schedule elections on weekends or a designated holiday. Some countries also have voting on more than one day (Saturday and Sunday) or even for a full week. Advocates for a voting holiday in the U.S. point to higher turnout in countries that give a day off to vote or hold elections on the weekend. They also look to Puerto Rico, where a full day off (voting holiday) is dedicated to the election, and turnout in 2004 was the highest in the U.S. at over 82 percent.

The demand curve for voting slopes downward like other demand curves and follows the Law of Demand, i.e. there is an inverse relationship between the cost of voting and the number of votes.
Therefore:

1. There is a significant opportunity cost of time to vote in an election, and that opportunity cost is probably higher on weekdays that are not holidays.

2. If you lower the opportunity cost of voting with weekend voting, voting holidays, electronic voting, Internet voting, etc. the number of votes will increase, ceteris paribus.

That is, if you want higher voter turnout, simply lower the cost of voting.

Q.E.D.

Friday, November 03, 2006

Are You Economically Literate?

Take the Minneapolis Federal Reserve Bank's Economic Literacy test here - there are 13 multiple choice questions.

Unemployment Rate Falls to 4.4%

The jobless rate in October fell to 4.4%, the lowest unemployment since May 2001, see WSJ article here. The unemployment rate for college graduates fell to the lowest rate in more than five and 1/2 years (since Feb 2001) to 1.8% in October. Read the BLS report here.

Grade Inflation at UM-Flint


You Say Bangalore, They Say Bengalooru

From today's NY Times Business section, an article about Bangalore, India changing its name this week to the original, traditional name Bengalooru, and the controversy the name-change is causing.

Infosys and its domestic rival Wipro, each with thousands of employees, are among the companies credited with building the city’s brand name around the world. Bangalore is now home to more than 1,000 technology firms, ranging from tiny two-person start-ups to large multinational companies like Intel, Texas Instruments and Cisco Systems. In a teeming city of seven million, the industry employs about 300,000 workers, who are turning into a rising middle-class that is giving rise to some resentment.

Bangalore represents a cosmopolitan, multicultural brand,” said Nandan M. Nilekani, chief of
Infosys Technologies, the outsourcing company, adding: “It is not prudent to abandon the name of India’s most global city.”
I guess you can't be "Bangalored" any more if you lose your job to outsourcing, you'll be "Bengaloorued" from now on?

Thursday, November 02, 2006

Let's Vote in April, or Pay Taxes in November

If you vote next Tuesday, November 7, 2006, it will have been 206 days since you paid taxes on April 15, 2006. From November 17, 2006 until you pay taxes next year on April 15, it will be 159 days. If two dates occur once a year, the farthest away those two dates can be is 182.5 days (365 / 2) or about 6 months. Therefore, the day we vote in November is about as far away from the day we pay taxes in April as possible. It's been more than 6 months since the last tax day (4/15/06), and almost six months before the next tax day (4/15/07), and November is probably the time of the year that we are least likely to be thinking about April 15 and taxes.

Solution:

1. Abolish withholding taxes, and require all taxpayers to write a check once a year for their entire tax liability - for someone making $100,000 that would mean a check to the IRS of about $25,000.

2. Move Voting Day to April 16 right after we pay taxes, or move Tax Day to early November right before we vote.

Here is an exercise: What is your monthly car payment, and what is your monthly mortgage or rent payment? Most people know immediately what those payment amounts are, because most of us write out a check for those expenses. Now, what is your monthly tax liability for federal income taxes, and what is the amount of state income taxes you owe monthly? Most of us have no idea what our tax liabilities are, because we don't write monthly checks for federal and state taxes, employers withhold those taxes and make payments on our behalf. In fact, most employees have TOO much taken out of their checks, resulting in a refund in April!

Wednesday, November 01, 2006

Standard of Livings Keep Rising, Even for Min Wage Teens

According to W. Michael Cox, senior vice president and chief economist at the Federal Reserve Bank of Dallas, a typical college student arrives on campus today with household possessions that his parents often didn’t acquire until they were 40 or even 50 years old, reflecting the relentless rise in living standards over time.

One way to measure the significant advances in US standards of living over time is to consider what a 19-year old could buy with summer earnings at the minimum wage at different points in time.

The summer job, a rite of passage involving ten or so weeks of work between the end of high school and college, provides a useful starting point for looking at the prospects of young people entering college. Taking a job at the minimum wage of $5.15/hour in 2001, a worker could have easily pocketed $2,000 over the summer.

The earnings of one summer’s employment pack quite a lot of buying power in today's economy. The money would be enough to fill a dormitory room or small apartment with all kinds of electronics, gadgets and gizmos:













Go back to 1970, when the minimum wage was $1.60, and summer earnings at the minimum wage would have been $618, enough to only buy the following items:








What about 1950? At the minimum wage of $.75, a teenage worker would have only earned about $282 over the summer months, and his or her entire earning would have been exhausted after purchasing only 4 items, and most of the earnings would have been spent on just buying a TV:







Add it all up. When it comes to their economic prospects, today’s young Americans are the Luckiest Generation in history—at least until their children grow up and forge an even luckier one. And even if real wages are flat, the explosion of new products over time at lower and lower prices translates into a rising standard of living for all income groups, even minimum wage workers. Teenagers today can afford things like cell phones with cameras, and iPods that even a billionaire couldn't have purchased 20 years ago.

No Grade Inflation Here

The Cato Institute released its Fiscal Policy Report Card on America's Governors: 2006, the eighth biennial fiscal policy report card on the nation's governors. The report card's grading is based on 23 objective measures of fiscal performance. Governors who have cut taxes and spending the most receive the highest grades. Those who have increased spending and taxes the most receive the lowest grades.

Only one governor receives an A this year — Republican Matt Blunt of Missouri. Nine governors received a grade of F: Montana, Alabama, Washington, Arkansas, Nevada, Delaware, North Carolina, Arizona, Louisiana. Overall the grades are: 1 A, 6Bs, 17Cs, 13Ds, and 9Fs. Cato is a tough grader.

See the
list of grades here.

Tuesday, October 31, 2006

Google

Go to Google and search for the word "failure." How does that work?

More Internet Porn, Less Rape?

From University of Rochester economist Steven E. Landsburg, author of "Armchair Economist: Economics and Everyday Experience," a new article in today's Slate.com titled "How the Web Prevents Rape." Here are some excerpts:

"Does pornography breed rape? Quite the opposite, it seems.

What happens when more people view more of porn? The rise of the Internet offers a gigantic natural experiment. Better yet, because Internet usage caught on at different times in different states, it offers 50 natural experiments.

The bottom line on these experiments is, "More Net access, less rape." A 10 percent increase in Net access yields about a 7.3 percent decrease in reported rapes. States that adopted the Internet quickly saw the biggest declines. And, according to Clemson professor Todd Kendall, the effects remain even after you control for all of the obvious confounding variables, such as alcohol consumption, police presence, poverty and unemployment rates, population density, and so forth."

Monday, October 30, 2006

NYC Taxi Cartel, I Mean Commission

Over the last 5 years, NYC taxi medallion prices have more than doubled from $200,000 in October 2001 to an all-time high of $450,000 in 2006! Click here for a better view of the graph above. Note that a $450,000 medallion is the license required to operate only ONE taxicab in NYC!

Why so expensive? A medallion is the membership fee to join a taxi cartel, with a strict limit on the number of members competing for business in NYC. With such high barriers to entry, and strict limits on competition, the taxi cab cartel can charge monopoly prices, which then justifies paying $450,000 to join the cartel.

According to the NYC Taxi and Limousine Commission, the official name of the NYC Taxi Cartel: "In 1937, the number of taxicab medallions was limited to those that existed at that time. By the late 1940s, this number settled at 11,787 and was capped by law. Today there are currently only 12,779 yellow medallion taxicabs operating in New York City. A new medallion is a rare opportunity."

Yes, a rare opportunity to join a cartel. Membership has its privileges.

London Stock Exchange Trivia

Stock prices are quoted on the London Stock Exchange in British "pence" and not British "pounds." For example, British Airways is trading at about 457.75, which is 457.75 pence and not 457.75 pounds.

Strange, but true. See the list of stocks in the
FTSE-100 here, note that there is a "p" after each stock price.

Michigan vs. France

Michigan's September unemployment rate of 7.1% is considered high for the U.S., second highest in the country next to Mississippi (7.2%). But if Michigan was a country in Europe, it would be considered much better than average compared to the 7.9% average unemployment rate for OECD Europe countries.

Germany's unemployment rate is 8.5% for August, France is 8.8%, Finland 7.8%, and Belgium 8.6%.

From today's
Investor's Business Daily, an editorial about the persistent unemployment problems in France, despite the mandatory maximum 35-hour work week that was supposed to create jobs:

No longer able to withstand the rigors of a normal schedule, the French had to cut back to a 35-hour workweek. Six years later, and the rotten fruit of socialism is being harvested.

With fewer hours worked, the state predictably has been collecting fewer taxes. The shorter workweek, Finance Minister Thierry Breton reported this week, has added roughly $126 billion to the national debt. For a country obsessed with the safety net, this was deflating news.

But the lost productivity and the drag on economic growth are even worse. All told, the 35-hour week has cost France hundreds of billions of dollars in lost output.

The 35-hour workweek, introduced by I-saw-Karl-Marx-in-my-dreams Socialist Prime Minister Lionel Jospin, was peddled as a solution for France's high unemployment rate. With employees working fewer hours — down from 39 a week before overtime kicked in — businesses would be forced to hire more people.

Has it worked? No. France's jobless rate continues to stagnate in the 9% area — just modestly better than the 5 1/2-year high of 10.2% between March and May of last year, but not much. Nine percent is about where it was when President Jacques Chirac took office more than 10 years ago.

It can take up to 100 days of bureaucratic dithering to get rid of an employee in a big company. As a result, businesses are shy about hiring because they fear they can't fire a worker for not doing his or her job.

French business leaders want the 35-hour workweek abolished. That's a good idea. Unfortunately, fierce resistance from the socialists might be too much to overcome.


Google Rocks

Google stock price is approaching $500 per share. It originally sold for about $100 in August 2004 when it went public, and has doubled in less than 18 months, since May 2005 when it was $222.

Google's market capitalization of $145 billion is more than IBM, Hewlett-Packard, Intel, McDonald's, Merck and Coca-Cola. It is worth 4X the market value of Yahoo! and 3X the market value of Ebay.

It is worth about the same as the combined market value of GM, Ford, ChryslerDaimler and Boeing.

Grade Inflation


Graphs above are from the website GradeInflation.Com, run by a retired Duke University professor.

Also, there is an article titled "When Bs Are Better" in the
current issue (subscription required) of The Chronicle for Higher Education (subscription required) by a Rutgers management professor:
In the fall of 2001, The Boston Globe reported that 91 percent of the seniors who had graduated from Harvard University the previous June had received honors, prompting an investigation that concluded grade inflation was indeed a serious problem at Harvard.

Faculty members have not fulfilled the responsibilities associated with their proclaimed right to be the final judges of student performance. In shirking that duty, they have also neglected their broader obligations to society: Teachers weaken rather than bolster the commonweal when they fail to award meaningful grades. Grading laxness at all levels of American education has contributed directly or indirectly to a variety of problems, including declining scores on the SAT, decreases in the ability of American undergraduate and graduate students to understand prose, and poor training in mathematics and science, which puts American students behind their peers in many European and Asian countries.
Could more-realistic grading stem the tide? Ample evidence shows that students learn more when the bar for success is raised rather than lowered. For example, Valen Johnson's Grade Inflation contains analyses demonstrating that students who took prerequisite courses from teachers who were tough graders performed better in upper-division classes than did students whose prerequisite courses were taught by easier graders.

What are universities doing?

A few universities have established grading standards, and their administrators monitor professors' compliance. Perhaps the most heralded example is Princeton University's adoption of limits on the percentage of A's given in undergraduate courses. And in the M.B.A. programs at the University of Chicago and New York University's Leonard N. Stern School of Business, online grade-reporting systems will not accept an instructor's grades in certain courses if the grades exceed school or departmental standards.

Carpe diem.

Sunday, October 29, 2006

Big and Slow Doesn't Work, Big and Fast Might

From today's (Sunday) NY Times article "Now Playing in Europe: The Future of Detroit:"

“There’s no case anywhere in the world of any previously dominant manufacturer retaining much more than 20 percent once the market is opened to full global competition,” said G.M.’s vice chairman, Robert A. Lutz.

While some national loyalty lingers in Europe, as it does in the United States, no company can rely on such loyalty to sell cars. Carmakers are forced to continually update their brand images in order to stand out in a crowded market. At the same time, like their European counterparts, America’s unionized autoworkers must also adjust. They cannot count much longer on the cushy contracts that typified their jobs in the past, because new deals at new factories have chipped away at pay and benefits while emphasizing more-productive work methods.

European companies have long competed this way, but it is a new reality for American carmakers who were so dominant for much of the last century. As recently as 1990, G.M., Ford and Chrysler together sold more than 70 percent of the cars bought in the United States; G.M. alone accounted for more than one-third of auto sales.

Now those companies’ American market share has dropped to around 50 percent, while the influence of Toyota and other foreign manufacturers is growing. Though G.M. remains on top, its share has slipped below one-quarter, and the battleground has become the section between 10 percent and 20 percent of the market. That is the area where Ford and Chrysler have slipped and where Toyota and Honda have grown.

David E. Cole, chairman of the Center for Automotive Research in Ann Arbor, Mich., said that American carmakers must change, and fast, or risk disaster. “For an automobile manufacturer, big and slow doesn’t work anymore,” he said. “Big and fast gives you a chance.”

Friday, October 27, 2006

NCAA's Tax-free Lifestyle Operating Football and Basketball Factories at Colleges

From George Will's new column in today's Washington Post:

What is the place of high-stakes football in higher education? Only 55 percent of football players and 38 percent of basketball players at Division I-A schools graduate.

Republican Rep. Bill Thomas wrote, as chairman of the tax-writing Ways and Means Committee, an eight-page letter to the president of the National Collegiate Athletic Association, asking awkward questions. Thomas wonders how, or whether, big-time college sports programs, which generate billions of tax-exempt dollars -- CBS pays the NCAA an annual average of $545 million, mainly for the rights to televise the March Madness basketball tournament -- further the purposes for which educational institutions are granted tax-exempt status.

Some say the tax-exempt status of college sports is justified by the fact -- and it is a fact -- that successful sports teams often trigger increased applications for admission, and largess from alumni and legislatures. But, Thomas notes, "federal taxpayers have no interest in increasing applicant pools at one school opposed to another." Furthermore, athletic success that causes a surge of giving to universities might decrease giving to worthy charities.

Also, tax exemption is financing an escalation of coaches' salaries. More than 35 college football coaches are paid more than $1 million annually.

The University of Michigan, which has had 198 consecutive sellouts at its stadium -- it now seats 107,501 -- is spending $226 million to add 3,200 luxury seats and 83 suites. The University of Texas at Austin is spending $150 million to add 10,000 seats to its current 85,123 capacity. These may be sound commercial decisions, but why should this commerce be tax-exempt?


Arbitrage on Eagle Coin Sets?

American Eagle 20th Anniversary Silver 3-coin sets are available from the US Mint for $100 + $4.95 shipping.

These exact same coin sets are selling on
Ebay for $160 - $175, + $5-$10 for shipping.

The only difference is that coins on Ebay are available immediately, and the coins from the Mint will be shipped in early December. But being willing to $60-$75 extra for delivery in November vs. delivery one month later in December for $100, is about a 720%-900% annual interest rate. Annualized interest rates at Paycheck Advance operations are often less than that, see
some rates here, showing that 14-day rates are "only" 460% on an annual basis.

Arbitrage profits anyone? You can purchase up to ten sets from the US Mint!

New Homes: Good Time to Buy, Save $40k vs Feb

The median price for new homes sold in September ($217,100) was 9.7% below last September's median price of $240,400, which is the largest percentage year-over-year drop in median home prices since December 1970! The median price home in September 2006 fell to about the same as the median price two years ago in August 2004 ($218,100). The median price for new homes peaked in February 2006 at $250,800, and new home prices have fallen by almost $40,000 in the last seven months!

Unit sales have fallen by more than 14% over the last year, and the "months supply"of new homes has increased (months supply is the ratio of new houses for sale to new houses sold).

The information above is from the monthly report on new home sales
from the Census Bureau. Monthly reports on existing-home sales come from the National Association of Realtors. According to the Realtors report earlier this week, the median price for an existing home was $220,000 in September, 2.2 percent below last September's median price of $225,000.

Therefore, you can now buy the median priced new home for $217,100, which is almost $5,000 cheaper than buying the median priced existing home!

Thursday, October 26, 2006

Big Worries for Big Oil?

From today's WSJ, a staff editorial on oil companies, profits and oil prices:

Our favorite headline this week has to be "Big Worries for Big Oil," reporting that oil company profits are under pressure as oil prices decline. Exxon Mobil, Royal Dutch Shell, BP and other members of the vast energy conspiracy may have a hard time keeping their run of profit growth going now that oil prices have fallen to $60 or so a barrel from upwards of $80.

Imagine that: Oil companies are subject to market forces. They may make big profits when the price of oil rises, but those profits invariably fall back down to Earth when oil prices decline. This is also what happened in the 1990s, as oil crashed below $20 a barrel after the heights reached in the 1970s. The companies and their shareholders swallowed those declines, as they should have.

This cycle is typical of commodity markets, and is part of the risk of doing business. The run-up in oil prices over the past couple of years was rooted in worries about supply related to hurricanes, Middle East tensions and low stockpiles, as well as growing demand in a strong global economy and the Federal Reserve's easy money policy. As supply fears and demand have ebbed and the Fed has tightened, prices have fallen back down, albeit still to higher levels than a decade ago.

The recent price decline is also proof of the folly of a "windfall profits" tax or similar punitive measures against Big Oil favored by so many politicians. Only this week, however, Democratic Leader Nancy Pelosi repeated her pledge to soak the oil companies if her party takes over the House next month.

Her policy seems to be that when oil prices decline, oil company shareholders must absorb all the market risk and the lower profits. But when oil prices rise, the companies must hand over a cut of their profits to Members of Congress to spend as they like. The only "windfall" is for the political class.