Tuesday, November 28, 2006

Housing Market Remains Cool

According to a report today from the National Association of Realtors (NAR), the national median home price plummeted 3.5% to $221,000 from $229, 000 a year ago -- the largest year-over-year price drop since the NAR began keeping records in 1968, and "it's probably the largest price drop since World War II,'' said David Lereah, NAR's chief economist. It follows a 2.2% price decline in September and a 1.7% drop in August.

Further, the current housing inventory of 3.854 million homes in October 2006 is 7.4 months supply at the current sales pace, up from 4.9 months in October 2005.

Read the
WSJ article here about the housing report.

EU vs. USA

The data above are from a Sweden think tank Timbro, from its study "EU vs. USA. " A home appliance that we take for granted (clothes dryer) is fairly rare in many other countries like Spain (5%) and Italy (10%).

From the study "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."

Here is the
link to the study.

The Curious Economics of Temptation

Undercover Economist ("The economic mysteries of daily life") Tim Harford writes in Slate on the Economics of Temptation.

One of the results of the recent research is that we have a sense of just how strong the pull of the now actually is. The answer is that anything on offer right now is worth half as much, again, as it would otherwise be; that also means that any immediate cost, such as the pain of going to the gym, is similarly inflated. (That is, you'd much rather go to the gym next week than today.) Of course, the costs will vary across people and across temptations, but that seems to be a consistent finding.

Monday, November 27, 2006

Top Movies

According to RottenTomatoes.com, the top 3 movies by the Tomato-Meter rating (percentage of positive reviews):
1. The Queen (98%)
2. Casino Royale (94%)
3. Sweet Land (93%)

Lowest T-Meter rating:
Let's Go to Prison (7%)

Top 2 Movies for
highest weekend gross:
1. Happy Feet ($42m)
2. Casino Royale ($41m)

Top 3 Movies by
highest total gross:
1. Pirates of the Caribbean ($422.5m)
2. Devil Wears Prada ($125m)
3. Departed ($114m)

Golden Arches Theory of Conflict Prevention

According to NYTimes columnist Thomas Friedman, "No two countries that both have McDonald's have ever fought a war against each other since each got its McDonald's."

Charitable Giving

Per capita, Americans will give more to charity this December than most nations give all year long.

Survey data indicate that people who think that government is "spending too little money on welfare" -- are less likely to give food or money to a homeless person than people who oppose greater welfare spending.

Read more here.

Wal-Mart Goes to India

From today's WSJ, an article about Wal-Mart finalizing a joint venture with Indian telecommunications company Bharti Airtel (provides cell phone service to 24 million Indians) to to open a chain of hundreds of discount retail stores across the country.

India's booming retail market, estimated at about $200 billion, is currently dominated by more than 12 million mom-and-pop shops. Large, air-conditioned stores remain a rarity. Rising middle-class incomes and an increase in demand for branded products are driving the growth of retail business in India. Nevertheless, selling through company-owned network stores currently totals about $8 billion or less than 5% of market.

Wal-Mart Facts:

Wal-Mart has more than 2,700 stores in fourteen markets outside the U.S.: Argentina, Brazil, Canada, China, Costa Rica, El Salvador, Germany, Guatemala, Honduras, Japan, Mexico, Nicaragua, Puerto Rico, and the United Kingdom.

Wal-Mart's international stores employ more than 500,000 Wal-Mart associates, serving 49 million international customers each week.

Worldwide, more than 176 million people shop at Wal-Mart stores every week around the globe, proving that low prices is a message clearly understood in any language.


Sunday, November 26, 2006

The Ethanol Swindle

Cornell University Professor David Pimentel (College of Agriculture and Life Sciences) and University of California–Berkeley Professor Tad Patzek (Department of Civil and Enivornmental Engineering) have conducted extensive research that shows that the production of ethanol results in a net loss of energy: A scientific analysis of the 14 energy inputs that go into corn production, and the 9 energy inputs in fermentation and distillation operations, confirms that 29% more energy (derived from fossil fuels) is required to produce a gallon of corn ethanol than is contained in the ethanol.

Professor Pimentel responds to critics:

The pro-ethanol lobby have been attacking me for many years. The way that the pro-ethanol lobby are able to show a positive energy return is by omitting many legitimate inputs, including farm labor, farm machinery, hybrid corn-seeds, and irrigation. These are all inputs that are listed by noted agricultural economists when they assess enterprise data for corn production. Why do the pro-ethanol lobby omit these legitimate data? They provide no explanation. In addition, some take up to 60% credit for by-products when they should only take credit for 9%.

Concerning the energy inputs in producing gasoline, the pro-ethanol lobby again provide misleading data. Their claim is that it takes more energy to produce a gallon of gasoline than a gallon of ethanol. In fact, it is the opposite. A gallon of ethanol requires about 1.3 gallons of oil equivalents to produce 1 gallon of ethanol. It takes only 1.12 gallons of oil to produce 1 gallon of gasoline. Note, also that ethanol has only 66% of the energy that a gallon of gasoline has.

The pro-ethanol lobby also ignore most of the environmental impacts. These include:

1) Corn production causes more soil erosion than any other crop grown.

2) Corn production uses more nitrogen fertilizer than any other crop grown and is the prime cause of the dead zone in the Gulf of Mexico.

3) Corn production uses more insecticides than any other crop grown.

4) Corn production uses more herbicides than any other crop grown.

5) More than 1,700 gallons of water are required to produce 1 gallon of ethanol.

6) From 6 to 12 gallons of sewage effluent are released into the environment per gallon of ethanol produced.

7) Enormous quantities of carbon dioxide are produced and released during production, including the large quantity of fossil energy used in production, large quantities of carbon dioxide are released during fermentation, and when the soil is tilled soil organic matter is exposed and oxidized.

8) Related to the total operation, including the burning of the ethanol in automobiles, the air pollution problem is significant.

Ethanol is the most misguided public policy in a generation.

Wal-Mart Opens Banks in Mexico

From the International Herald Tribune, an article about the Finance Ministry in Mexcio giving final approval for Wal-Mart to open banks in Mexico in 2007.

Public opposition has all but killed a Wal-Mart plan to open its own bank in the United States. But in Mexico, the retailer's push for a bank is sailing through.

One possible reason for the different receptions in the United States and Mexico is that, by most estimates, as many as 80 percent of Mexicans do not have bank accounts. Working-class Mexicans have been largely shut out of traditional banks by high fees, minimum balance requirements and intimidating paperwork. Community banks barely exist.

Because Wal-Mart plans to offer bank accounts to working-class Mexicans, local groups apparently had difficulty trying to stir up public outrage.

In the United States, Wal-Mart's application for an industrial bank is frozen. The company said that it wanted the bank to process credit card transactions. But community banks in the United States and even larger banks joined the usual Wal-Mart foes like unions, labor activists, small merchants and community groups to oppose the bank.

Too bad for the USA. In a recent study, Professor Hausman from MIT estimated that Wal-Mart had shaved 0.75 percentage point off annual inflation in food prices in the four years ending with 2001. "These guys (Wal-Mart) have done much more than any antipoverty program," he says. We're probably all a little poorer now with Wal-Mart banks in the US.

Toy Scalping and Fake Bidding for PS3s on Ebay

There is a lot of bogus bidding on PS3s on Ebay, and the $20,000 sale I mentioned in the post below did not go through. Many of the winning bids for PS3s above $5,000 were from bidders who were "Not registered users" or suspicious "New users" with 0 feedback. For example, this Ebay auction ended with a winning bid of $5,000 from a user named "bigdaddy1923223231," who is: a) not a registered Ebay user, b) has only been a member since Nov. 19, 2006, and c) has 4 negative feedbacks, all for making fake bids on 4 PS3s on the same day! Here is another example of a fake bidder, Plasticadhesive, who made the fake bid for $20,000 mentioned in my posting below.

There appear to be hundreds of fake bids on PS3s, what's up with that? Is it intentionally malicious behavior like spreading a computer virus or what? How do we explain intentionally bogus bidding on PS3s? Comments welcome!

According to a
Washington Post article, 14,675 PS3s have been sold on eBay for an average price of $1,186 from November 17 to November 24. So the pricing puzzle remains: Why does Sony set the retail price of PS3s at $600 when the real market price is about twice that, $1200 (according to Ebay sales)? Why sacrifice $600 in profits to "toy scalpers" on Ebay? We assume Sony is not trying to avoid making profits, so what is the deal? Cheap publicity? CSR? Goodwill? Developing customer loyalty? What is going on?

We assume profit-maxizing sellers charge "whatever the market will bear," so why doesn't Sony? (I can guarantee that if you sold you house, you would charge "whatever the local real estate market will bear" and you wouldn't sell it for $600,000 if the market value was actually $1.2 million!) Comments welcome.

Saturday, November 25, 2006

Price Gouging for Christmas Toys?

From today's WSJ, an article about a new "crisis": toymakers who are wrecking Christmas by "price gouging" for some toys:

"As the holidays approach, a crisis has gripped America. Stores are running out of toys. Shoppers are waiting in lines for hours, sometimes days, to get items like the Play Station 3. Worse, the 10th-anniversary edition of the Tickle Me Elmo doll is almost nowhere to be found. In many communities, this "must buy" Christmas item for toddlers can only be purchased at a high price -- or it cannot be purchased at all. The going rate for Elmo has risen from $39.95 to $100, while PS3s are now selling for up to $3,000 on eBay. Who's to blame for wrecking Christmas?

Columnist Stephen Moore writes, "The price-gougers, that's who. Congress has investigated oil companies for high gas prices and pharmaceutical companies for high drug prices. Why let the toymakers off the hook?"

Stephen Moore then imagines:

"Mr. Dingell says that he will hold hearings early next year and will ask the CEOs of the Big Three toy producers to appear before his committee. A Democratic staffer notes: "Perhaps if these toy executives didn't command $50 million salaries, they wouldn't have to charge middle-class families hundreds of dollars for their toys."

Ms. Pelosi said that the House will consider enacting a windfall-profits tax on toy producers as part of "our first 100 hour agenda." On a trip to New Hampshire, Sen. Hillary Clinton stated that she would go further and form a commission to investigate the feasibility of a government takeover of the toy industry as a way to slow "the stampeding cost of dolls and computer games and to make toys affordable to every family in America regardless of income."

Lou Dobbs devoted all of his CNN show last night to the swirling toy scandal. "It's just another example of corporate America's war against the middle class," he said. "We are quickly turning into a nation of Tickle Me Elmo haves and Tickle Me Elmo have-nots."

MP: Actually Sony Playstation 3s are selling for up to $20,000 on Ebay -
check out this sale on Ebay for $20,000 + $65 shipping!!, here is another Ebay listing that sold for $14,900.

Actually even though he was writing "tongue-in-cheek," I think Steven Moore has it backwards. The real question is NOT "Why is Sony price-gouging?" but "Why is Sony selling a product for only $600 when the true market value is, let's say $10,000?" In other words, it seems like Sony could actually be more accurately accused of "predatory pricing" or "dumping" PS3s, and NOT price-gouging! The $600 price is obviously WAY BELOW the market clearing price, which then creates the secondary market on Ebay for something closer to the real market price. It seems like Sony is engaging in a tremendous act of charity (corporate social responsibility?) by almost giving away its PS3s this holiday season.

From economist
Steven E. Landsburg: "The curse of thinking like an economist is that you're perpetually baffled by things that everyone else finds completely obvious. Why, for example, is it nearly impossible to get tickets for a hit Broadway show like The Producers? Surely the producers of The Producers are not out to avoid making money. If they predictably sell out at $100 a seat, why don't they charge $150 or $200 or whatever it takes to reduce demand down to the theater's capacity?"

Likewise, Sony is not out to avoid making profits, so why not sell PS3s for the market price, instead of below? Maybe it should cut out the stores and go directly to Ebay?

Friday, November 24, 2006

Economic Growth Will Continue in 2007

The Conference Board's index of leading economic indicators headlined a light week of economic news, due to the Thanksgiving holiday. The index inched higher in October, following an upwardly revised increase in September, to post its first consecutive monthly gains this year.

The Conference Board's gauge of how the economy will perform over the next three to six months rose 0.4 percent, more than forecast, following no change in September. Fewer initial jobless claims, improving consumer confidence, rising stock prices and a jump in building permits paced the increase.

Consumers are benefiting from the drop in fuel prices that is making their paychecks stretch further. Average weekly wages adjusted for inflation rose 3.2 percent in the year to October, the biggest gain since February 1998, the Labor Department reported last week.

Economic data showing weak housing and tepid retail sales prompted investors to raise bets late last week that the Federal Reserve will reduce interest rates next year. Interest-rate futures on Nov. 17 suggested traders see a 40 percent chance central bankers will cut their target rate for overnight loans between banks to 5 percent in March from 5.25 percent. The odds were 11 percent on Nov. 16.

Apostrophe Abuse

CD's or LP's from the 1980's? No, CDs or LPs from the 1980s. Pizza at it's best? No, pizza at its best.

What's with the growing misuse of that puny piece of punctuation, the apostrophe? The
Apostrophe Protection Society was established in 2001 in the UK, with the specific aim of preserving the correct use of this currently much abused punctuation mark in all forms of text written in the English language.

The rules concerning the use of the apostrophe in written English are very simple:

1. It is used to denote a missing letter or letters, for example:
I can't, instead of I cannot.

2. It is used to denote possession, for example:
The dog's bone. But the exception is that that the possessive form of it does not take an apostrophe any more than ours, yours or hers do, e.g. "The bone is in ITS mouth."

3. Apostrophes are NEVER, ever used to denote plurals! Common examples of such abuse (all seen in real life!) are:

"Banana's for sale," should be "Bananas for sale."
"Menu's printed to order," should read "Menus printed to order."
"1000's of bargains here!" should read "1000s of bargains here!"
"New CD's just in!" should read "New CDs just in!"
"Buy your Xmas tree's here!" should be "Buy your Xmas trees here!"
"Growth in the 1980's," should be "Growth in the 1980s."

See Arianna Huffington's Salon.com article "America's apostrophe catastrophe. What's with the growing misuse of that puny piece of punctuation?"

"Think of it as the literary equivalent of the broken-windows theory of crime fighting, which holds that by fighting small quality-of-life crimes like graffiti and vandalism, police send a persuasive message that antisocial behavior, of any scale, will not be tolerated. In this case, putting an end to the chronic misplacement of apostrophes could eventually lead to a better-educated populace, a greater sense of harmony and order, more fuel-efficient cars, a slimmer, trimmer you, cleaner air, an end to the heartbreak of psoriasis, the cancellation of "The Bachelor," and, who knows, maybe even world peace."

More on Corporate Social Responsibility

From today's WSJ, an article by Henry Manne, Dean Emeritus of George Mason University Law School, titled "Friedman Was Right," about CSR (corporate social responsibility):

Milton Friedman famously declared that the sole business of the managers of a publicly held corporation was to maximize the value of its outstanding shares. Any effort to use corporate resources for purely altruistic purposes he equated to socialism. He proposed that corporation law should prevent managers from straying off the reservation to join the altruists, a power now almost universally granted them by state legislation.

Now I realize Friemdan was absolutely correct about the significance of proposals for socially responsible corporate behavior, whether they emanated from within or outside the corporation. These proposals reflect, as well as anything else happening today, the inability of many commentators to distinguish between private and public property -- in other words, between a free enterprise system and socialism. Somehow large-scale business success, usually resulting in a publicly held company, seems mysteriously to transform the nature of numerous individuals' private investments into assets affected with a public interest. And once these corporate behemoths are "affected with a public interest," they must either be regulated by the state or they must act as though they are owned by the public, and are therefore inferentially a part of the state. This attitude is reflected not merely by corporate activists, but by many "modern" corporate managers.

Like the citizens who were afraid to tell the emperor that he was naked, no responsible business official would dare contradict the notion of CSR publicly for fear of financial ruin, even though the practice continues to cost shareholders and society enormous amounts. This is especially so in large-scale retail businesses like Wal-Mart or Coca-Cola or BP that are highly vulnerable to organized public criticism. Our laws against extortion do not function effectively when it comes to corporations. And so to some extent these private entities have indeed, via the social responsibility notion, been converted into crypto-public enterprises that are the essence of socialism. Milton Friedman was right again.

Who Gives More: Liberals or Conservatives?

From a new book by Syracuse University professor and behavioral economist Arthur C. Brooks, "Who Really Cares? America's Charity Divide - Who Gives, Who Doesn't and Why it Matters:"

The conventional wisdom runs like this: Liberals are charitable because they advocate government redistribution of money in the name of social justice; conservatives are uncharitable because they oppose these policies. But note the sleight of hand: Government spending, according to this logic, is a form of charity.

Let us be clear: Government spending is not charity, because it is not a voluntary sacrifice by individuals. Because government spending is not charity, sanctimonious yard signs do not prove that the bearers are charitable or that their opponents are selfish.

To evaluate accurately the charity difference between liberals and conservatives, we must consider private, voluntary charity. How do liberals and conservatives compare in their private giving and volunteering? Beyond strident slogans and sarcastic political caricatures, what, exactly, do the data tell us?

An analysis of 15 sets of data tell us that the conventional wisdom is dead wrong. In most ways, political conservatives are not personally less charitable than political liberals—they are more so. Here is what the data show:

1. Conservative households gave, on average, 30 percent more money to charity than liberal households, within every income class, from poor to rich.

2. Conservatives were more likely to donate blood each year, and did so more often, than liberals. If liberals gave blood at the same rate as conservatives, the blood supply in the United States would jump by 45 percent.

3. Compared to liberals, conservatives were more than twice as likely to volunteer to help the poor.

Here a few links to articles about the book:

Religion News Service.

American Enterprise Institute.

Scientific American.

Why Do Movie Theaters Have Uniform Pricing?

Here's a puzzle: Why do movie theaters charge the same $9.50 for "Casino Royale" this Saturday night that they charged for the disappointing remake of "All the King's Men" on a Wednesday night in the middle of September?

Wouldn't they sell more tickets and popcorn, and make more profit, if they increased the price when demand is high, and lowered it when demand is low? (MP: That is, why don't they practice price discrimination instead of uniform pricing.)

After all, hotels and airlines have long varied pricing by day and season. And you'd think it odd if Macy's charged the same for a cashmere sweater as one made from a polyester blend. Yet the movie industry, facing flat or declining revenues, clings to a uniform pricing model that makes no sense.

Business columnist Steven Pearlstein tries to explain the puzzle of uniform pricing of movies in
today's Washington Post.

Thursday, November 23, 2006

Econ Bloggers: Slide-Rule Celebrities

Marginal Revolution mentions an article from today's LA Times Business Section, about how "economists who author blogs are drawing fans who see nothing dismal about the discipline." The article features the blog Marginal Revolution (Tyler Cowen and Alex Tabarrok at George Mason), and blogs by Nobel laureate Gary S. Becker and federal appeals court judge Richard A. Posner, former Harvard President Lawrence H. Summers, Harvard economist Greg Mankiw, and Chicago economist Steven Levitt (co-author of Freakonomics).

From the article:

Econo-fans are responding, Becker figures, because the blogs put important pocketbook issues into understandable language. Whereas former Federal Reserve Chairman Alan Greenspan had "Greenspeak" — the carefully convoluted jargon whose comprehensibility rivaled that of Klingon — the blogs connect economics to daily life.

"Most people are afraid of economics. It seems so technical," Becker said. "But what is surprising is that if you put economics in a simple enough phrase, people are very much interested in it."


Thankful for the Invisible Hand

You probably didn't call your local supermarket ahead of time and order your Thanksgiving turkey this year, did you? Why not? Because you automatically assumed that a turkey would be there when you showed up, and it probably was there when you showed up "unannounced" at the store to select your turkey.

And the reason your turkey was waiting for you? Because of "spontaneous order," "self-interest," and the "invisible hand" of the free market - "the mysterious power that leads innumerable people, each working for his own gain, to promote ends that benefit many." Even if it is because of the "selfish greed" or "corporate greed" of turkey famers and/or supermarkets, it works for me.

Boston Globe columnist Jeff Jacoby explains below why he is thankful for the miracle of the invisible hand that makes turkeys automatically available so efficiently for consumers at Thanksgiving:

"The activities of countless people over the course of many months had to be intricately choreographed and precisely timed, so that when you showed up to buy a fresh Thanksgiving turkey, there would be one -- or more likely, a few dozen -- waiting. The level of coordination that was required to pull it off is mind-boggling. But what is even more mind-boggling is this: No one coordinated it.

No turkey czar sat in a command post somewhere, consulting a master plan and issuing orders. No one forced people to cooperate for your benefit. And yet they did cooperate. When you arrived at the supermarket, your turkey was there. You didn't have to do anything but show up to buy it. If that isn't a miracle, what should we call it?

Adam Smith called it "the invisible hand" -- the mysterious power that leads innumerable people, each working for his own gain, to promote ends that benefit many. Out of the seeming chaos of millions of uncoordinated private transactions emerges the spontaneous order of the market. Free human beings freely interact, and the result is an array of goods and services more immense than the human mind can comprehend. No dictator, no bureaucracy, no supercomputer plans it in advance. Indeed, the more an economy *is* planned, the more it is plagued by shortages, dislocation, and failure."

Jeff Jacoby's article here.

As economist Steven Landburg wrote in "Armchair Economics" about the invisible hand: "It is something of a miracle that individual selfish decisions lead to a collectively efficient outcomes."

More Competition for Big Three, From India

From the NY Times, an article "Indian S.U.V. Maker Plans to Enter United States Market":

India’s leading sport utility maker plans to sell its S.U.V.s and pickup trucks in the United States, bringing Indian-made vehicles to the United States for the first time. Mahindra plans to initially introduce a sport utility vehicle and a pickup. A diesel-electric hybrid version of the S.U.V. would follow. The hybrid, the first of its kind to be built in India, has just been developed.

Mahindra & Mahindra plans to sell its vehicles through Global Vehicles U.S.A., a distributor based in Alpharetta, Ga. Global would import the first group of the Indian vehicles in about a year and distribute them through a dealer network. The distributor said it had signed on 130 dealers so far and would add another 70 in the coming months.

Wednesday, November 22, 2006

Consumer-Employee Greed, Blue Collar Crime?

We hear a lot about "corporate greed" and "greedy CEOs," but what about "consumer greed" and "worker greed"? Seems like a lot of shoppers and employees just can't keep their hands off the property owned by "greedy" corporations where they shop, or for whom they work.

U.S. retailers lost some $37.4 billion to theft last year (about $100 million per day), and employee theft remained the biggest source of losses for retailers. Overall, theft by employees, shoplifting, vendor fraud and administrative error amounted to 1.6 percent of retailers' sales in 2005, up from 1.54 percent the year before, marking the first time in four years that the rate has increased.

Read more here.

Read my article "What About Consumer Greed?"

Like Unemployment, Being Uninsured is Temporary

From today's Detroit News, an article by economist John Goodman titled "Myths Pump Up Ranks of America's Uninsured," here are some excerpts:

About 47 million Americans lack health insurance, according to the most recent Census Bureau report. But this figure is misleading, because almost every poor person in America is eligible for the federal Medicaid program, and millions of near-poor adults can enroll their children in a state children's health insurance program.

To call such people "uninsured" is a misnomer. We have been assuming the 47 million number is meaningful, but it isn't. Other government reports suggest the true number is as little as half that size. Like unemployment, the condition of uninsurance tends to be temporary. Of those uninsured at any point in time, 75 percent will become insured within 12 months.

Read the entire article here.

Free Trade Works

From today's WSJ:

"Free trade is the most important single way to promote growth," Milton Friedman said in an interview a few weeks before his death. Simply put, markets and free trade work. For example:

A recent Global Insight analysis concludes that Wal-Mart's 1985-2004 expansion of sales resulted in a 9.1% drop in the price of food, a 4.2% drop in the price of other goods and commodities, and a 3.1% decline in consumer prices overall, saving the average working family about $2,329 per year. And with that came a net increase of 210,000 Wal-Mart jobs in 2004 alone.

The North American Free Trade Agreement has expanded total trade between the U.S, Canada, and Mexico by 172%. U.S. exports to Mexico have grown by 189% and to Canada by 111%. U.S. agricultural exports to Canada have doubled, to $10.6 billion from $5.3 billion, and to Mexico even more--to $9.4 billion from $3.6 billion. More than one million jobs were created in America by NAFTA.

Overall, 10.4% of the U.S. GDP in 2005 is the result of U.S. exports of goods and services. The Peterson Institute says that globalization boosts the U.S. economy $1 trillion annually, or about $10,000 per household. There is no question that trade both increases jobs in some areas and decreases them in others, both internationally and domestically. When cars replaced carriages, computers replaced typewriters, and E-ZPass replaced toll-takers in America, some jobs were lost and other were gained.


Tuesday, November 21, 2006

College President Salaries!!

College president salaries approach $1m per year, and $500,000 is now very common, is that excessive CEO pay?

Detroit News article.

Chicago Sun-Times article.

Audrey K. Doberstein, retired president of Wilmington College in Delaware, topped the list with a compensation package totaling $2.7 million; much of it represented one-time payments upon her retirement.

Doberstein was followed by Donald E. Ross, retired president of Lynn University in Boca Raton, Fla., ($1.3 million) and Vanderbilt's E. Gordon Gee ($1.2 million).

David P. Roselle of the University of Delaware is the highest-paid public university president this year, receiving $979,571 in pay and benefits.

He is followed by Purdue University's Martin C. Jischke ($880,950), Mark A. Emmert of the
University of Washington ($752,700), and J. Bernard Machen of the University of Florida ($751,725).

Monday, November 20, 2006

Free Trade = World Peace

From today's Christian Science Monitor, an editorial by economist Don Boudreaux at George Mason:

When commerce reaches across political borders, the peace-promoting effects of economic freedom intensify. Why? It's bad for the bottom line to shoot your customers or your suppliers, so the more you trade with foreigners the less likely you are to seek, or even to tolerate, harm to these foreigners.

Senators-elect Sherrod Brown (D) of Ohio and Jim Webb (D) of Virginia probably don't realize it, but by endorsing trade protection, they actually work against the long-run prospects for peace that they so fervently desire.

Sunday, November 19, 2006

Tax Facts

From the most recent report from the Congressional Budget Office:

1. Corporate income tax revenues almost doubled over the last two years, from $189 billion in 2004 to $354 billion in FY 2006.

2. Corporate income tax receipts rose by 27.2% from FY 2005 to FY 2006.

3. Individual income tax revenues increased by 12.6% in 2006 to more than $1 trillion, the highest level in US history.

4. The budget deficit, as a percent of GDP, fell to 1.9% in FY 2006, the lowest level in 4 years, and well below the average of 2.3% since 1965.

Ethanol Recipe: Mix Corn with Tax Dollars

From an article by Professors David Pimtell (Cornell) and Tad Patzek (UC-Berkeley) in the current issue of BioScience (American Institute of Biological Sciences):

Our up-to-date analysis of the 14 energy inputs that typically go into corn production and the 9 invested in fermentation and distillation operations confirms that 29 percent more energy (derived from fossil fuels) is required to produce a gallon of corn ethanol than is contained in the ethanol. Ethanol is a bad choice from an energy standpoint. (MP: In other words, there is a net energy loss from producing ethanol, and it doesn't make economic or scientific sense to produce it.)

Moreover, the environmental impacts of corn ethanol are enormous. They include severe soil erosion, heavy use of nitrogen fertilizer and pesticides, and a significant contribution to global warming. In addition, each gallon of ethanol requires 1700 gallons of water (mostly to grow the corn) and produces 6 to 12 gallons of noxious organic effluent.

Using food crops, such as corn grain, to produce ethanol also raises major ethical concerns. More than 3.7 billion humans in the world are currently malnourished, so the need for grains and other foods is critical. Growing crops to provide fuel squanders resources; better options to reduce our dependence on oil are available. Energy conservation and development of renewable energy sources, such as solar cells and solar-based methanol synthesis, should be given priority.

Read more here.

Saturday, November 18, 2006

Milton Friedman from the WSJ Archives

In today's WSJ, there is a sample of Milton Friedman's editorial writings in the WSJ over the years.

On school choice: "We have been repeatedly frustrated by the gulf between the clear and present need, the burning desire of parents to have more control over the schooling of their children, on the one hand, and the adamant and effective opposition of trade union leaders and educational administrators to any change that would in any way reduce their control of the educational system."

On the free market:
"What most people really object to when they object to a free market is that it is so hard for them to shape it to their own will. The market gives people what the people want instead of what other people think they ought to want. At the bottom of many criticisms of the market economy is really lack of belief in freedom itself.

The person who buys bread doesn't know whether the wheat from which it was made was grown by a pleader of the Fifth Amendment or a McCarthyite, by person whose skin is black or whose skin is white. The market is an impersonal mechanism that separates economic activities of individual from their personal characteristics. It enables people to cooperate in the economic realm regardless of any differences of opinion or views or attitudes they may have in other areas."

Friday, November 17, 2006

Death of the Master

Friedman's most influential publication was the slender volume, Capitalism and Freedom, based on lectures given in 1956 but not published until 1962. In that book, he put forward one of the most powerful cases for the free market ever written. Its greatest virtues were the clarity and vigor of Friedman's exposition. It had enormous impact in making free market economics respectable once again, after being falsely blamed for the Great Depression. In his Monetary History of the United States, Friedman put principal blame for that disaster on the Federal Reserve, which allowed the money stock to shrink by one third, bringing on a massive deflation.

In 1976, Friedman was awarded the Nobel Prize in economics. The Royal Swedish Academy of Sciences cited his achievements in the fields of consumption analysis, monetary history and theory, and stabilization policy. The following year, Friedman retired from active teaching and took up residence at Stanford's Hoover Institution.

Although retired, he continued working until the very end. In 1980, Friedman probably achieved his greatest renown with the best-selling book and PBS television series, "Free To Choose," which explained to average people why free markets work best.

Read more here.

Milton Friedman on YouTube

Milton Friedman on YouTube: How to Cure Inflation, from the PBS series "Free to Choose" in 1980.

More here, see Milton Friedman in action.

The Tyranny of Controls.

Created equal.

Fed Chairman Bernanke on Milton Friedman

"Among economic scholars, Milton Friedman had no peer," Federal Reserve Chairman Ben Bernanke said yesterday. "The direct and indirect influences of his thinking on contemporary monetary economics would be difficult to overstate. Just as important, in his humane and engaging way, Milton conveyed to millions an understanding of the economic benefits of free, competitive markets, as well as the close connection that economic freedoms bear to other types of liberty."

Milton Friedman, 1912-2006

From today's WSJ editorial page:

For all of his academic accomplishments, Professor Friedman's role as a popularizer of free-market principles was arguably more important. He wrote a column in Newsweek for 18 years starting in 1966, preaching the importance of economic freedom to a generation that had never heard such things in school. His 1980 book, "Free to Choose," was a best seller, and the videos that accompanied it were smuggled behind the Iron Curtain like seeds of revolution.

Few people in human history have contributed more to the achievement of human freedom than Milton Friedman.


Why Wal-Mart Matters

From "Why Wal-Mart Matters" from the Mises Institute:

"Wal-Mart matters for anyone interested in human welfare and the alleviation of poverty. Economists have identified a large "Wal-Mart effect" on food prices. Recently, economists Jerry Hausman and Ephraim Leibtag have argued that consumer benefits from Wal-Mart entry are "substantial, both in terms of food expenditure and in terms of overall consumer expenditure."

Their study finds that "low income households benefit the most." In another study, they argue that the Bureau of Labor Statistics overstates inflation by failing to account for Wal-Mart's substantial impact on grocery prices. A study by the McKinsey Global Institute found that Wal-Mart accounted for a disproportionate share of US productivity growth in the 1990s.

In the United States, Wal-Mart's impact on food prices has been orders of magnitude greater than what the federal government spends on food stamps. Production for the markets opened by Wal-Mart has led a great many people to the road out of poverty in countries like China.

Those who vilify Wal-Mart do so not for Wal-Mart's political failings but for Wal-Mart's economic successes. The company's critics are making inroads, but the anti-Wal-Mart campaign is a campaign to strangle a goose that has laid a disproportionate share of golden eggs."

My Favorite Milton Friedman Quotes

1. There is nothing as permanent as a temporary government program.

2. Inflation is always and everywhere a monetary phenomenon.

3. Inflation is caused by too much money chasing after too few goods.

4. Sloppy writing reflects sloppy thinking.

5. All learning is ultimately self-learning.

6. I'm in favor of legalizing drugs. According to my values system, if people want to kill themselves, they have every right to do so. Most of the harm that comes from drugs is because they are illegal.

7. Nobody spends somebody else's money as carefully as he spends his own. Nobody uses somebody else's resources as carefully as he uses his own. So if you want efficiency and effectiveness, if you want knowledge to be properly utilized, you have to do it through the means of private property.

8. The government solution to a problem is usually as bad as the problem.

9. The Great Depression, like most other periods of severe unemployment, was produced by government mismanagement rather than by any inherent instability of the private economy.

10. The high rate of unemployment among teenagers, and especially black teenagers, is both a scandal and a serious source of social unrest. Yet it is largely a result of minimum wage laws. We regard the minimum wage law as one of the most, if not the most, antiblack laws on the statute books.

11. Industrial progress, mechanical improvement, all of the great wonders of the modern era have meant relatively little to the wealthy. The rich in Ancient Greece would have benefited hardly at all from modern plumbing : running servants replaced running water. Television and radio? The Patricians of Rome could enjoy the leading musicians and actors in their home, could have the leading actors as domestic retainers. Ready-to-wear clothing, supermarkets - all these and many other modern developments would have added little to their life. The great achievements of Western Capitalism have redounded primarily to the benefit of the ordinary person. These achievements have made available to the masses conveniences and amenities that were previously the exclusive prerogative of the rich and powerful.

12. President Kennedy said, "Ask not what your country can do for you - ask what you can do for your country."... Neither half of that statement expresses a relation between the citizen and his government that is worthy of the ideals of free men in a free society. "What your country can do for you" implies that the government is the patron, the citizen the ward. "What you can do for your country" assumes that the government is the master, the citizen the servant.

13. On the difference between public vs. private education: "Try talking French with someone who studied it in public school. Then with a Berlitz graduate."

Thursday, November 16, 2006

Milton Friedman, R.I.P.

Nobel Prize winner Milton Friedman, one of the most influential economists of the last century and a free-market champion, died today of heart failure in San Francisco at age 94.

Mr. Friedman was awarded the Nobel Prize in 1976. He long championed the cause of political and economic freedom and the links between the two. He originated, or was associated with, many breakthroughs in economics since the 1950s. He is best known for explaining the role of the money supply in economic and inflation fluctuations. He also developed, with this year's Nobel Prize winner in economics, Edmund Phelps, the theory in the 1960s that policy makers couldn't achieve a permanent tradeoff between lower unemployment and higher inflation, and that efforts to do so would simply result in the same unemployment rate and higher inflation, a view that holds sway at major central banks today, including the Fed.

Read the
WSJ article here.

Americans Voted for Gridlock: A Do-Nothing Seinfeld Congress

From NY Times columnist John Tierney: "I’m afraid the election results still haven’t registered in Washington. Democrats and Republicans keep making noises about working together to accomplish great things. But that’s not what Americans voted for. They voted for gridlock.

They gave Congress a Seinfeld mandate to do nothing. The Democrats offered no bold new ideas, and they were rewarded with victory. Voters would like them to mop up the messes made by Republicans, but that’s it. Find a way out of Iraq, and then avoid any more excellent adventures dreamed up by neoconservatives."

Read more here.

By the way, this is libertarian John Tierney's last NY Times column for now: "I hate to abandon my libertarian comrades here fighting in the belly of the beast, but this is the right moment to leave. After six years of libertarians reluctantly electing Republicans as the lesser of two evils, we’ve finally had enough. We’ve voted out big-government conservatism, and the result is the happy state of gridlock. For now, our work is done. See you in January in a new column on a new page."

Despite Big 3, US Auto Industry is Healthy

An editorial from today's WSJ:

"The U.S. auto industry as a whole is healthy and the troubles of GM, Ford and Chrysler are by and large unique to those Detroit players. This is an important distinction, because the auto executives who met with Mr. Bush are keen to present their current woes as industry-wide. And the Big Three are counting on Michigan's Democrats in Congress, who now find themselves in the majority, to help make the case.

GM posted a $10.6 billion loss last year and has closed plants and offered union-worker buyouts. Ford is downsizing its workforce in the wake of weak sales. Both companies are responding to self-inflicted wounds that result from weak product lines, plus labor deals with the United Auto Workers that include generous benefits and pensions, as well as GM's notorious Jobs Bank that pays thousands of workers for not working. GM is paying for the health care of more retired workers (and their dependents) than of active employees.

GM, Ford, Chrysler and their enablers in the new Congress would have you believe otherwise, but outside of Michigan the U.S. remains a great place to produce vehicles. Consumers have more choices in what to drive and better quality than ever. And prices are competitive. Government intervention in a market this healthy can only increase the chances that it won't stay that way."

Automobile Safety: Seatbelts Cause Accidents

Do automobile safety features like seat belts and air bags really save lives? Maybe not.

Economist Sam Peltzman argues that manadatory safety features like seat belts and air bags reduce the probability of death or serious injury to the driver in an accident, but the increased feeling of safety from seat belts or airbags would actually cause drivers to drive slightly more recklessly, which would increase the number of accidents.

Think about it: Who gets stuck in the mud or snow more often - drivers in 4-wheel drive vehicles or standard 2-wheel drive vehicles? Probably drivers in 4-wheel drive vehicles - feeling "empowered" by the 4-wheel drive feature, they take more risks, and get stuck more often.

Likewise, seatbelts and airbags make drivers feel slightly more "empowered" with the increased safety and protection, and would drive slighlty more recklessly. Drivers would be more likely to survive a serious accident with seatbelts and airbags, but the number of accidents would go up, so the net effect on overall deaths from car accidents could go up, down or stay the same. What does the empirical evidence show? According to Peltzman (
from Russell Roberts on Cafe Hayek):

"Holding other factors constant that might change the number of accidents (and this is never easy but he did the best he could with the data at hand), Sam Peltzman found that mandatory seat belts did indeed cause more accidents. But this effect was roughly the same as the effect in the opposite direction, that accidents were less harmful. So the net number of fatalities of drivers was unaffected by the law. Sam found some evidence that the effect of the law might be to reduce driver fatalities. Unfortunately, because drivers were more reckless, there were more accidents involving pedestrians and cyclists. So their death rate due to cars increased. Total deaths were unchanged."

Conclusions: 1) Incentive matters. 2) Mandatory safety requirements don't necessarily increase overall saftey, because of conclusion #1.

RPS World Championship, Who Knew?

The world championship rock, paper, scissors (RPS) tournament will take place this weekend in Toronto. There will be 500 top competitors from all over the world in Toronto to compete in the RPS tournament.

The winner will receive $10,000 Canadian currency, which is equivalent to $8,835 US dollars, along with the RPS world championship title.

Wonder how their determine who plays who? "Enie minie minie moe...?"

Wednesday, November 15, 2006

More on Rainforest "Math"

Meet the New Math, Much Worse than the Old Math

"It took parents 17 years to overturn the tragic 1989 curriculum mistake made by the so-called education experts who demanded that schools abandon traditional mathematics in favor of unproven approaches. The National Council of Teachers of Mathematics finally reversed course on September 12, 2006, and admitted that elementary schools really should teach arithmetic, after all.

The new report called "Curriculum Focal Points for Prekindergarten Through Grade 8 Mathematics" is a back-to-basics victory that rejects the type of math curricula that parents had derided as "fuzzy math" or "rainforest math." The experts preferred such hoity-toity titles as "New New Math," "Connected Math," "Chicago Math," "Core-Plus Math," "Whole Math," "Interactive Math," or "Integrated Math."

Whatever the title, these curricula imbedded the notion that estimates are acceptable in lieu of accurate answers to math problems so long as students feel good about what they are doing and can think up a reason for doing it. Fuzzy curricula were big on discussion, coloring, playing games, and early use of calculators. (MP: And group tests, too).

The 1989 report (which gives the word "standards" a bad name) flatly opposed drilling students in basic math facts, taught that memorization of math facts was bad, and failed to systematically build from one math concept to another. Children were encouraged to "discover" math on their own, construct their own math language, and flounder around with their own approaches to solving problems.

This silliness is based on the false notion that children can develop a deeper understanding of mathematics when they invent their own methods for performing basic arithmetic calculations."

Read more here.

Fuzzy Math: Fuzzy Thinking

From the NY Times, an article "As Math Scores Lag, a New Push for the Basics" about rethinking the teaching of "fuzzy math" in American schools.

"The changes are being driven by students’ lagging performance on international tests and mathematicians’ warnings that more than a decade of so-called reform math — critics call it fuzzy math — has crippled students with its de-emphasizing of basic drills and memorization in favor of allowing children to find their own ways to solve problems."

Here is an example of how fuzzy math works:

Fuzzy Math Problem: You have a nest with 5 birds. Three birds fly away. Question: How do the other birds feel? Well maybe that is a little bit of an exaggeration.

But many parents are concerned. From the NY Times article:

“When my oldest child, an A-plus stellar student, was in sixth grade, I realized he had no idea, no idea at all, how to do long division,” Ms. Backman said, “so I went to school and talked to the teacher, who said, ‘We don’t teach long division; it stifles their creativity.’ ”

The biggest advantage of learning and mastering the basics of math or writing at an early age: You have an advantage over your entire lifetime, because once you learn math/writing basics, you NEVER forget them. If you don't learn the basics of math and writing in grade school, it becomes increasingly hard to learn them later in life - the bad habits of poor math and writing skills become ingrained and well-established, and it is difficult to have to re-learn math and writing basics.

Poor math and writing skills are also consistent with poor thinking and poor reasoning skills. As Milton Friedman said: "Sloppy writing reflects sloppy thinking." Perry's corollary would be "Clear and careful writing reflects clear and careful thinking." And I would also say: "Fuzzy math promotes fuzzy thinking."

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.

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?


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.

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!

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.


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.