Saturday, October 21, 2006

Trade Deficit Angst

Protectionist Pat Buchanan worries about our trade deficit in a recent column, and free trade economist Walter Williams responds in his column:

First, he laments, "Europeans, Japanese, Canadians and Chinese sell us so much more than they buy from us, because they have rigged the rules of world trade." But so what? I buy more from my grocer than he buys from me. It wouldn't make a difference if I lived 2 feet south of the U.S.-Canadian border and my grocer lived 2 feet north of it.

Like many, Buchanan worries about our foreign trade deficit, pointing out that it's reaching an annual rate of $816 billion, and that means "dependency on foreigners." Actually, the foreign dependency is a two-way street. I'll explain it, starting with the alleged trade deficit I run with my grocer.

When I purchase $100 worth of groceries, my goods account (groceries) rises by $100, but my capital account (money) falls by $100. That means there's really a balance in my trade account. By the same token, my grocer's goods account (groceries) falls by $100 but his capital account (money) rises by $100, also a balance in his trade account.

Mr. Buchanan writes, "Imports surged to $188 billion for the month [of July], as our dependency on foreigners for the vital necessities of our national life ever deepens." That means we imported $188 billion worth of goods. Do foreigners keep all those dollars they earned under a mattress? They are not that stupid. They use those dollars to import capital goods such as U.S. stocks, bonds and U.S. Treasury notes.

They might use some of it to build factories in the U.S. such as Honda, Novartis and Samsung. The dollar amount of those purchases is going to equalize the value of what we import. We sport a huge surplus in our capital account with foreigners. As such, they are dependent on us for a safe and profitable place to invest their earnings. That dependency contributes to our economic growth.
Remember: The balance of payments always balances, and equals zero. We hear a lot about the "trade deficit" for merchandise (about $800 billion), without hearing about the offsetting and matching surplus on our capital account (about $800 billion). Trade statistics are based on double-entry bookkeeping, so there HAS to be an overall balance. BP = 0.

Do a Google News search for "current account deficit" and you'll get about 2200 hits. Search for "capital account surplus" and you'll get about 542 hits? Hmmmmmmmm. Even though a capital account surplus of $800 billion is just the flipside of a $800 billion current account deficit, and they are really just two sides of the same coin, we hear about 4X as much/often about the trade deficit, as the capital surplus?

What's to complain about anyway when we have a trade deficit? We get access to the world's cheapest goods and increase our consumption, and more of the world's goods end up here than our goods end up there. In other words, a trade deficit of $800b means we end up in the USA with a net increase of $800b in foreign-produced goods. We end up with more stuff, why do we even call that a "trade deficit" in the first place? Actually, it is because we follow the money, and NOT the goods. We end up with a cash outflow and a goods inflow, and we call it a "trade deficit."

If we tracked and recorded where the actual merchandise and goods actually end up and get consumed, instead of where the money ends up, we would then think of our trade balance as a $800 billion trade surplus, no? I am not sure the general public understands that a "trade deficit" really means that we end up with "more stuff" and is really a "stuff surplus?"

Weekly Summary of U.S. Economy

Summary: Sharp declines in energy prices brought good news on the inflation front, with both producer (PPI) and consumer (CPI) prices declining in September. The housing market got a boost with housing starts rising in September, but the overall housing market remains soft. The Index of Leading Economic Indicators was up in September, but just barely (.10%). And on Wall Street, the Dow Jones Average marked the 19th anniversary of the 1987 crash by closing above 12,000 on both Thursday and Friday, setting a new record. For the week, the yield of the 10-year U.S. Treasury note fell 3 basis points to 4.78%, and the average 30-year fixed mortgage rate rose 1 basis point to 5.93%.

Read more here

Outsourcing Works Both Ways, Talent Shortage in India

From the NY Times:

Indian IT firms like Infosys (
NASDAQ:INFY) are now recruiting engineering talent in the US - they get trained in India (at Mysore, near Bangalore), and then return to the US to work for Infosys, according to this article:

Where once the brains of India left for more lucrative pastures in the United States, today a handful of fresh American college graduates are sampling the fruits of the Indian economic boom.

The recruits from America and elsewhere are not expected to fill the looming labor pinch. But they do illustrate the efforts by Indian companies to extend their global reach and recognition.

From a related NY Times article, "Skills Gap Hurts Technology Boom in India":
As its technology companies soar to the outsourcing skies, India is bumping up against an improbable challenge. In a country once regarded as a bottomless well of low-cost, ready-to-work, English-speaking engineers, a shortage looms.

India still produces plenty of engineers, nearly 400,000 a year at last count. But their competence has become the issue.

A study commissioned by a trade group, the National Association of Software and Service Companies, found only one in four engineering graduates to be employable. The rest were deficient in the required technical skills, fluency in English or ability to work in a team or deliver basic oral presentations.

Movie and TV Mistakes: DOH!

Which movie has the most mistakes, like factual errors, visible crew or equipment, continuity mistakes, etc.? According to, the movie with the most mistakes is "Pirates of the Caribbean: The Curse of the Black Pearl," with 220 mistakes, followed closely by "Apocalypse Now," with 219 mistakes, "The Birds" (212), Star Wars (209), and Harry Potter and the Chamber of Secrets (203).

Example of a factual error in the movie "Spinal Tap": In the scene where Derek Smalls is having trouble with the airport security the gate only beeps when he walks 'in'. The gate would beep no matter what way he walked through it.

Continuity problem from "Cuckoo's Nest": In the scene where the boys are playing blackjack, watch McMurphy's (Jack Nicholson) cigarette as he talks to Martini about the rules of the game. It changes length throughout the scene.

Who thinks of these things?

For TV mistakes,
check it out here. Friends is #1, Simpons is #2. DOH!

Friday, October 20, 2006

Stay in School and Don't Do Meth

Faces of Meth. Yikes.

Stay in School

WSJ: The typical American worker with a four-year college degree earns a lot more money than a similar worker who didn't go beyond high school -- 45% more.

Education does pay. But in today's economy, getting a bachelor's degree is no longer a guarantee of raises big enough to beat inflation.

Although the best-paid college grads are doing well, wages of college grads have fallen on average, after adjusting for inflation, in the past five years. The only group that enjoyed rising wages between 2000 (just before the onset of the last recession) and 2005 (the most-recent data available) were the small slice with graduate degrees.

Economic Hypochondria

According to George Will: "Economic hypochondria, a derangement associated with affluence, is a byproduct of the welfare state: An entitlement mentality gives Americans a low pain threshold — witness their recurring hysteria about nominal rather than real gasoline prices — and a sense of being entitled to economic dynamism without the frictions and "creative destruction" that must accompany dynamism. Economic hypochondria is also bred by news media that consider the phrase "good news" an oxymoron, even as the U.S. economy, which has performed better than any other major industrial economy since 2001, drives the Dow to record highs."

"Today's widening income disparities will be partly self-correcting. Granted, income statistics show the increasing disadvantages of persons with education deficits. But that is the market saying — shouting, really — "Stay in school!" Over time the voice of the market is rational, credible and therefore a potent instrument for changing behavior."
BTW, the unemployment rate for college graduates in September was 2% ( and was 1.8% in August - the lowest jobless rate for college grads in more than 5 years). For those with less than a HS degre the September unemployment rate was 6.4%. Stay in school.

Gotta Love Wal-Mart

Wal-Mart Stores Inc. on Thursday said it would begin selling $4 generic prescriptions in 14 additional states, including New York and Texas, speeding up the roll-out of a plan that has put pressure on rival retailers.

Wal-Mart said the $4 program covers a 30-day supply of 143 different drug compounds, representing nearly 25 percent of the prescriptions it currently dispenses in pharmacies nationwide.

The program, initially launched in Florida last month, will be available in an additional 1,264 stores throughout Alaska, Arizona, Arkansas, Delaware, Illinois, Indiana, Nevada, New Jersey, New Mexico, New York, North Carolina, Oregon, Texas and Vermont.

Wal-Mart said it filled 88,235 new prescriptions in Florida in the 10 days after it rolled out the $4 program across the state. (MP: That's more than 6 prescriptions every minute in FL, 24/7).
I think even Wal-Mart employees can afford these prices.

Mankiw's Top 10 List for $1 Gas Tax

Well, Harvard economist Greg Mankiw actually only gives 7 reasons for a $1/gallon gasoline tax in his WSJ article today:

1. Help the Environment
2. Reduce traffic congestion
3. Reduce energy dependence
4. Help the federal budget, $100 billion per year in increased tax revenue
5. Tax incidence - some of the $1 tax would be paid by OPEC producers
6. Economic growth - tax consumption, not income and investment
7. National security

Even after a $1 hike, the U.S. gas tax would still be less than half the level in, say, Great Britain. But don't expect those vying for office to come around until the American people recognize that while higher gas taxes are unattractive, the alternatives are even worse.

Thursday, October 19, 2006

EU = Mississippi?

I find these education statistics for selected OECD countries very interesting, you can find the complete data set here.

For example, I had no idea that only about 50% of the adult population in countries like Greece, Italy, and Spain finish high school, and only about 1/4 of the adult population in countries like Turkey, Portugal and Mexico finish high school!

Further, the US has close to twice as many college graduates in percentage terms compared to UK, France, Switzerland, and Spain; more than twice as many college graduates as Germany, Netherlands, and Mexico; and almost three times as many college graduates as Greece, Italy, Turkey and Portugal.

That probably explains why a recent study by a
Swedish public policy group found that 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. And in fact, GDP per capita is lower in the vast majority of the EU-countries 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.

EU Farmers Harvest Cash Too, In Private

From today's WSJ, an editorial "Behind the Subsidy Curtain," about the billions of euros paid by taxpayers in the form of farm subsidies, without ever knowing who is receiving subsidies and how much.

"The vast majority of handouts go to big agribusiness firms that could survive just fine on their own -- or, if they couldn't, should have fallen by the wayside long ago."

Social Security

The NY Times reports today that Social Security payments will go up by 3.3% next year. The average monthly benefit check will rise to $1044 for more than 53 million people. If my math is correct, that will mean more than $55 billion per month and more than $660 billion (2/3 of a trillion dollars) will be spent next year for Social Security. Now that there are 300 million people in the U.S. , social security payments work out to about $2,213 PER PERSON.

Harvesting Cash: A Bumper Crop for Farmers

As Congress prepares to debate a farm bill in 2007, the Washington Post is examining federal agriculture subsidies that grew to more than $25 billion in 2005, despite near-record farm revenue. The Post has run a series of a dozen articles about farm subsidies, starting last July with an article "Farm Program Pays $1.3 Billion to People Who Don't Farm." They ran 4 articles in last Sunday's paper, and another on Monday this week. Here are several excerpts:

Nationwide, the federal government has paid at least $1.3 billion in subsidies since 2000 to individuals who do no farming at all. (See humorous post below about getting paid not to farm.)

The checks to landowners were intended 10 years ago as a first step toward eventually eliminating costly, decades-old farm subsidies. Instead, the payments have grown into an even larger subsidy that benefits millionaire landowners, foreign speculators and absentee landlords, as well as farmers.

What began in the 1930s as a limited safety net for working farmers has swollen into a far-flung infrastructure of entitlements that has cost $172 billion over the past decade. In 2005 alone, when pretax farm profits were at a near-record $72 billion, the federal government handed out more than $25 billion in aid, almost 50 percent more than the amount it pays to families receiving welfare.

Farmers often get paid twice by the government for the same disaster, once in subsidized insurance and then again in disaster assistance, a legal but controversial form of double-dipping, a Washington Post investigation found in another article. Together, the programs have cost taxpayers nearly $24 billion since 2000.

The government pays billions to help farmers buy cheap federal insurance, billions more to private insurance companies to help run the program and billions more to cover the riskiest claims. And on top of all that, it spends billions on disaster payments.

Wednesday, October 18, 2006

Getting Paid For Not Raising Hogs

TO: Honorable Secretary of Agriculture, Washington, D.C

Dear Sir,

My friend over at Wells, Iowa received a check for $10,000 from the Government for not raising hogs, and I want to go into the "not-raising-hogs" business.

What I want to know is, in your opinion, what is the best kind of farm not to raise hogs on, and what is the best breed of hogs not to raise? I want to be sure that I approach this endeavor in keeping with all governmental policies. I would prefer not to raise razorbacks, but if that is not a good breed not to raise, then I will just as gladly not raise Yorkshires or Durocs. As I see it, the hardest part of this program will be in keeping an accurate inventory of how many hogs I haven't raised.

My friend, Peterson, is very joyful about the future of the business. He has been raising hogs for twenty years or so, and the best he ever made on them was $4,220 in 1988, until this year when he got your check for $10,000 for not raising hogs. If I get $10,000 for not raising 50 hogs, will I get $20,000 for not raising 100 hogs? I plan to operate on a small scale at first, holding myself down to about 400 hogs not raised, which will mean about $80,000 the first year. Then I can afford an airplane.

Now another thing, these hogs I will not raise will not eat 10,000 bushels of corn. I understand that you also pay farmers for not raising corn and wheat. Will I qualify for payments for not raising wheat and corn not to feed the 400 hogs I am not going to raise?

Also, I am considering the "not milking cows" business, so send me any information you have on that too.

Patriotically Yours,

Otis Deal

Minority Enrollment in CA Universities

Source: National Center for Educational Statistics

We often hear the claim that since Prop 209 was passed in CA ten years ago, minority enrollment at California universities has declined. For example, see page 2 of
this report titled "The Potential Impact of the Michigan Civil Rights Initiative on Employment, Education and Contracting," by Susan Kaufman (University of Michigan's Center for the Education of Women), who writes that Prop 209 in CA "led to significant decreases in college enrollment of minority students."

As the data above clearly show, there have NOT been any significant decreases in minority enrollment in the state of California since Prop 209 was passed in 1996. In fact, there has been an enrollment increase in absolute numbers for all three minority groups in the state of California from 1994-2004, and either a stable percentage (African-American and Native American) or a significant increase in percentage (Hispanic) of these minority groups.

Please also note that the total enrollment for the entire University of California (UC) system at the 8 UC campuses is approximately 200,000 students. Compared to the total college enrollment for the entire state of California of approximately 2,400,000 students, college enrollment in California at the UC campuses represents less than 9% of the total college enrollment in the state. Further, there are approximately 400 colleges and universities in the state of California, and the eight UC campuses represent only 2% of the total number of colleges in the state of California.

English Has the Richest Vocabulary

Number of human languages and dialects: 6,912

Number of words in the English language: 500,000 according to the number of words in the Oxford English Dictionary. There are supposedly another 500,000 uncataloged technical and scientific terms. By comparison, most estimates indicate that German has a vocabulary of about 185,000 words and French and Spanish have fewer than 100,000 words.

Number of people who use English: 750 million

Number of people for whom English is their mother tongue: 350 million

Percent of information stored on the world's computer in English: 80%

Percent of world's technical and scientific periodicals in English: >50%

Official language of the Olympics: English

Default language of aviation and air traffic control: English

Americans With No Abilities Act

On Monday, Congress approved the "Americans With No Abilities Act," sweeping new legislation that provides benefits and protection for more than 135 million talentless Americans.

The act is being hailed as a major victory for the millions upon millions of U.S. citizens who lack any real skills.

Under the Americans With No Abilities Act, more than 25 million important-sounding "middle man" positions will be created in the white-collar sector for nonabled persons, providing them with an illusory sense of purpose and ability. Mandatory, non-performance-based raises and promotions will also be offered to create a sense of upward mobility for even the most unremarkable, utterly replaceable employees.

The legislation also provides corporations with incentives to hire nonabled workers, including tax breaks for those who hire one non-germane worker for every two talented hirees.

Read more here.

Quote of the Day: Peak of Prosperity

“The economic situation during the past 20 years has been unprecedented in the history of the world. You will find no other 20-year period in which prices have been as stable – relatively speaking – in which there has been as little variability in price levels, in which inflation has been so well-controlled, and in which output (GDP) has gone up as regularly.

You hear all this talk about economic difficulties, when the fact is we are at the absolute peak of prosperity in the history of the world. Never before have so many people had as much as they do today.

I believe a large part of that is to be attributed to better monetary policy. The improved policy is a result of the acceptance of the view that inflation is a monetary phenomenon, not a real phenomenon. We have accepted the view that central banks are primarily responsible for maintaining stable prices and nothing else.”

Milton Friedman

Tuesday, October 17, 2006

Wal-Mart Has Done More for Poverty Than World Bank, IMF and United Nations?

Has any organization in the world lifted more people out of poverty than Wal-Mart, asks John Tierney in today's NYTimes? Probably not.... He cites an article from titled "Forget the World Bank, Try Wal-Mart":

Even without considering the $263 billion in consumer savings that Wal-Mart provides for low-income Americans, or the millions lifted out of poverty by Wal-Mart in other developing nations, it is unlikely that there is any single organization on the planet that alleviates poverty so effectively for so many people. Moreover, insofar as China's rapid manufacturing growth has been associated with a decline in its status as a global arms dealer, Wal-Mart has also done more than its share in contributing to global peace.

There are estimates that 70 percent of Wal-Mart's products are made in China. One writer vividly suggests that "One way to think of Wal-Mart is as a vast pipeline that gives non-U.S. companies direct access to the American market."

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.