Monday, December 04, 2006

Holiday Shopping?

Best caramels on the planet from the Trappistine nuns at Our Lady of the Mississippi in Iowa.

Best deep-dish pizza on the planet from Lou Malnati's in Chicago, next-day delivery to your doorstep.

Best low-fat organic pork on the planet, order online from Dan Tollefson in Minnesota, his pigs are special - they listen to classical music, get massage therapy and pedicures, aromatherapy, empowerment counseling, motivational speakers, organic food, etc., they really live the good life.... just for your eating pleasure. You'll become a porkaholic if you try Dan's pork. Only available at the Minneapolis Farmer's Market, and now online direct from his farm in Minnesota.

Best two-ply cashmere on the planet from Land's End, it doesn't get any better than a Land's End cashmere sweater for winter comfort, style and fashion.

Best FWIs (fine-writing instruments) on the planet from Fahrney's Pens, get them engraved for somebody special.

Suggestions compliments of Santa Perry.

Interesting Facts of the Day

Fact 1: Agriculture accounts for only 20% of India's output, but it employs 60% of the country's workers.

Fact 2: The last time that 60% of the U.S. labor force worked on farms was around 1850.

Fact 3: Current percent of the US workforce in farming: 1.5% (2.21 million farm workers out of 145.3 million total employment).

Fact 4: The tractor was one of the greatest labor-saving inventions in history, and reduced labor requirements by almost 2 million farm workers and 23 million draft animals in the US.

Not All Call Centers Are in Bangalore

The invisible hand at work... the relentless pursuit of efficiency.....

The next time you place an order for fast food at a Wendy's or McDonald's drive-through window, the person on the other end taking the order might be 3000 miles away at a fast-food call center.

A Massachussets company called Exit 41 has patented technology called "Order Perfect" that allows call centers to take fast-food orders in drive-through lanes. "You have people in a remote area, all they do is take orders, they're very good at it," said the founder of Exit 41, a restaurant ordering center. "Inside the store, they focus on production and delivery."

Here's how it works: You place your order like you always do, but the order is taken by specialized agents at a remote order center, possibly thousands of miles away. The order is entered in real-time and sent electronically to the restaurant as it is received. A picture is taken of the customer and it follows them along through the entire process. As soon as the order is delivered those photographs of the drivers are destroyed.

Bottom Line: Because of call centers, there is a) increased order accuracy because of specialization, b) 50% increase in drive-thru transactions because of increased efficiency (125 per hour using call centers vs. 85 per hour), and c) reduced food costs by capturing all orders at the Order Center.

Exit 41 company link.

Yahoo Finance news story.

Another News item.

Sunday, December 03, 2006

Airline Pricing

When checking the return segment of flights on NWA from Minneapolis to Flint, Michigan on January 2, I found the following round trip fares:

Leaving Mpls for Flint on January 2 at:
6 a.m. $411
9 a.m. $543
10 a.m. $618
1:10 p.m. $931
1:11 p.m. $881

I guess I can somewhat understand the early morning-late morning-afternoon price differentials. Being the holiday season right after New Years Day, with a lot of non-business tourist/leisure travellers, who wants a 6 a.m. flight? Low demand, low price vs. a more leisurely time of say, 10 a.m. And you want to sleep in, relax, and get to the airport for an early afternoon departure at 1 p.m.? Well, it's going to cost you about $500 for that extra time!

What I don't understand is the $50 difference in flights that leave Mpls for Detroit only one minute apart! I think I'd book the 1:11 flight and save $50 for that extra minute, that's $3,000 an hour!

Bottom Line: Airlines are the masters of price discrimination, and they are trying to: a) charge whatever the market will bear for each seat, and b) fill the planes to capacity with passengers as often as possible (hence the overbooking strategy). As flights approach capacity, they raise the ticket prices for the remaining seats. If there are a lot of empty seats available, lower the prices until the plane is full, or at least don't raise prices.

Also, because the marginal cost of each additional passenger is zero, or close to zero, the airlines face a "pure selling problem" and just try to maximize revenue on each flight.

Puzzle remains: If airlines price discriminate, why don't movie theaters?

Mpls Mansion, FL Island, LV Penthouse on Ebay

A mansion in Minneapolis ("Mill City") is being auctioned on Ebay, check out the listing here. The 12,000-square-foot home, with turrets, 10 fireplaces and a third-floor ballroom, was built by grain magnate George Van Dusen. In 1994, the mansion had been abandoned for more than a decade and was within weeks of being demolished when Wisconsin businessman Bob Poehling bought it and restored it. The bidding started at $500,000 and now, 29 bids later, the price is currently at $3,550,300 (Tuesday).

Other expensive items for sale now on Ebay? A Florida island for $9.5 million and a spectacular Las Vegas penthouse for $9 million.

Look and Shop for the Foreign Label

Given the growing backlash against free-trade and globalization, e.g. the House defeat in mid-November of the bill to normalize trade relations with Vietnam (WSJ editorial on November 17: "...Communist Party is more intent on free trade than the current U.S. Congress."), it was rather surprising and refreshing to see such a spirited defense of free-trade in a recent column by Cokie and Steve Roberts (aren't they both Democrats?). Check out this excerpt from their column "Look for the Foreign Label,"

"A TV commercial 20 years ago, urging shoppers to buy American-made clothing, contained the memorable refrain: "Look for the union label." That era is long over. Buying only domestic garments would leave your kids shivering this winter.

But here's a heretical suggestion for the holiday season: As you purchase sweaters and games and bikes to put under the tree, look for the foreign label. Notice how many of your gifts are made abroad, and take a moment to realize you are benefiting from globalization and free trade.

Even though free trade creates far more winners than losers, the losers tend to be louder and more visible. It's easy to put a picture on TV of a shuttered factory or an unemployed worker. It's much harder to show a family who earns more from expanding exports, or pays less because of inexpensive imports.

Free trade is in America's national interest. That's why you should look for the foreign label this holiday season."

Milton Friedman couldn't have said it any better himself.

Here is a link to the full article.

Copper Prices Up, So is Copper Theft

The graph above show copper prices on the London Metal Exchange, in USD per ton. Copper prices have just about tripled over the last few years, due to a worldwide surge in demand for copper, largely from construction booms in China and India.

From
the NY Times, a recent article With the Price of Copper Up, the Plumbing Can Go Missing:

"Though the news media has reported thefts of copper wire from streetlights, electrical substations and cellphone towers across the country, most of it is taken from abandoned homes or homes under construction, usually by drug addicts looking for quick cash. The theft from Mr. Roscoe’s houses was among eight similar thefts in Pittsburgh over a few days this month. About 250 such thefts have been reported in the last year, compared with perhaps a dozen last year, the police said."

Also, the
Detroit Free Press ran an article about how the theft of copper plumbing in September led to the closing of Detroit's world-famous boxing gym Kronk Gym. Sylvester "Rocky" Stallone attended a charity screening of his new movie Rocky 25, I mean Rocky 6, in Southfield Michigan, and benefits go to Kronk Gym.

This Week's Economic Highlights

The most important economic news this week was a strong GDP report, which showed the U.S. economy continuing to grow at a modest pace, despite a slowdown in the housing market. Although sales of new homes fell in October, existing-home sales rose slightly. Among the week's other reports: personal incomes and spending rose, consumer confidence dipped, and a gauge of manufacturing activity (ISM index) dropped. For the week, the S&P 500 Index fell 0.3% to 1,397. The yield of the 10-year U.S. Treasury note fell 12 basis points to 4.43%.

Third-quarter GDP growth stronger than expected: U.S. real GDP—a measure of all goods and services produced in the U.S. economy—rose at an annualized 2.2% rate in the third quarter (see graph above). This "preliminary" reading was higher than October's "advance" estimate of 1.6%. The upward revisions to third quarter GDP were mainly the result of a downward revision in imports and stronger inventory buildup by businesses. Consumer spending—which represents 2/3 of the nation's economic activity—was also revised downward, although it was higher than in the second quarter. The biggest detractor to economic growth in the period was the housing sector's cooldown. Investment in homebuilding fell at an 18% annual rate, the greatest decrease in 15 years.

Upcoming this week: Friday's report from the BLS on November payroll employment and the November jobless rate (expected to be 4.6%) will headline this week's economic reports.

Also coming up the following week is the FOMC meeting on December 12.


Saturday, December 02, 2006

Ford Stumbles to 4th Place in November

1. Ford Motor Company dropped to 4th place in November (180,939 units sold) for US auto sales, trailing #1 GM (293,558 vehicles), #2 Toyota (196,695), and #3 Chrysler (186,665).

2. Compared to November 2005, Ford's sales dropped by almost 10% last month, and Ford's market share fell from about 16% a year ago to less than 14% in November 2006.

3. The combined market share of Detroit's automakers fell to a historic low of 51.9% in November.

4. Toyota's market share increased to 16.4% in November, up nearly two points from 14.5% market share last year.

Some of Ford's financial troubles can be traced to low worker productivity, the lowest in North America. For example, the Harbour Report does an annual analysis of productivity in the automotive industry. For 2005, here are the results of one of the most closely-watched statistics: Total Hours per Vehicle for Assembly, Stamping and Powertrain, i.e. how many hours of total production does it take to produce a car or light truck:

Nissan: 28.46 hours
Toyota: 29.40 hours
Honda: 32.51 hours
GM: 33.19 hours
Chrysler: 33.71 hours
Ford: 35.82 hours

Therefore, it takes Ford workers 7.36 more hours to produce a car than Nissan workers. Over the 2.85 million vehicles Ford produces, that is an additional 21 million hours of work time compared to Nissan producing that number of cars. Multiply 21 million hours of additional work time by the average compensation cost to Ford of a UAW worker ($65/hour), and you get about $1.365 billion of additional cost every year at Ford! Ford excepts to lose about $10 billion this year, and at least $1.365 billion of that loss can be traced to low worker productivity.

Friday, December 01, 2006

USD Slides, But It's Not All Bad

Yesterday, the dollar hit a 20-month low against the euro and a 14-year low against the pound. Over the past year, it has dropped 6.7% against a Federal Reserve index of seven major currencies.

As the graph above shows, the appreciation of the British pound from about $1.40 to almost $2.00 over the last 4 years (left scale), and the accompanying fall of the USD, closely follows the increase in the supply of dollars, measured by M1 (right scale). Supply of dollars goes up, the value of the dollar goes down, and it takes more dollars to buy a British pound. Simple. It shoudn't be any surprise that the significant increase in the US M1 money supply, because of expansionary monetary policy in 2001-2004 (bringing the Fed Funds target rate from 6% in 2001 to 1% by 2004), has led to a decline in the value of the dollar.

A falling dollar might sound bad, but there are many benefits:

1. Higher stock returns overseas in dollars, because of the appreciation of foreign currencies, see my post below.

2. Increased demand for US goods and services, because of the appreciation of foreign currencies, see this story in today's WSJ: "Shopping as the Dollar Drops: Europeans Flock to U.S. for Deals While the Pound and the Euro Soar; Scoring iPods, Tiffany, Nike Sneakers."
A hot destination for European travelers this winter: Minnesota.

At a Holiday Inn near the Mall of America, the giant shopping center just outside Minneapolis, foreign tourists shopped so much this week that the hotel had to set aside four guest rooms to hold their suitcases after filling up its baggage-storage room.

Europeans are flocking to U.S. stores for Christmas shopping because the dollar's weakness makes the U.S. look like a bargain basement to them. The British pound yesterday hit a 14-year high against the dollar, and the euro has hovered around historic highs, too.
3. A weaker dollar could help the U.S. deflate its ballooning trade deficit by making American goods cheaper abroad and foreign goods pricier for Americans. It also could help Treasury Secretary Henry Paulson fend off what he considers an alarming rise in protectionist sentiment. See WSJ article here.

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Shop Global, Think Global, Invest Global


From today's WSJ, an article titled "Dollar's Decline Boosts Overseas Returns: Money Pours Into Mutual Funds That Focus on Non-U.S. Stocks:" "Mutual-fund investors in the U.S. shipping their money overseas continue to have the wind at their backs. They are getting a lift from declines in the value of the dollar against other currencies that in some parts of the world have more than doubled the returns on their stock- and bond-fund investments."

As the table above shows, YTD stock returns throughout Europe have been about double the US stock market return of about 12%, and have been boosted by the double-digit appreciation of the euro and pound during the year. YTD Dollar returns in China, India and Spain are 3-4 X times higher than the U.S. return.

An often overlooked and neglected advantage of globalization are the significant benefits from global investing. According to the graph above, a $10,000 investment over the last three years would have generated about an additional $4,500 for a US investor from investing overseas ($17,000) vs. investing in the U.S. ($12,500). Globalization not only give U.S. consumers access to the world's cheapest and best goods and services, but it also gives US investors access to the highest stock returns. Disucssions about the "benefits of trade" often overlook the benefits of international investments.

Dollar returns in Spain and India this year are more than 3.5X higher than the 12% in the U.S., and the 55.55% return in China is more than 4X the U.S. return. We hear a lot about losing U.S. jobs to India and China due to globalization and outsourcing, but we don't hear much about the significant benefits to U.S. investors from "outsourcing" investments to China and India and getting returns 3-4X higher than the U.S.

Think about it: We get goods from China at lower prices than domestic prices, we get services in India at lower wages than domestic wages, and we get stock returns in those countries 4X higher than in the U.S.? What more could we ask for?

And I can hear protests already that only "the rich" can benefit from 40-50% stock returns overseas, but that is not true. According to my analysis at
Morningstar, using its fundscreener, there are almost 200 no-load international stocks mutual funds that have minimum purchases of only $500! A $500 investment overseas three years ago would now be worth about $850!

My advice: Shop globally, invest globally, travel globally, eat globally, think globally.

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Thursday, November 30, 2006

Do Economists Agree on Anything?

Do economists agree on anything? Yes, according to a paper by Wake Forest University economist Robert Whaples in a paper titled "Do Economists Agree on Anything? Yes!" In general, economists strongly favor free trade, outsourcing, vouchers and legalizing marijuana, and they strongly oppose tariffs, subsidies for farmers and professional sports teams.

See the
repsonses here to a list of questions posed to economists who are members of the American Economic Association, and their responses:

90.1% of economists oppose restrictions on employers outsourcing work overseas
87.5% of economists oppose tariffs and other barriers to trade
85.3% of economists say that the gap between Social Security funds and expenditures is unsustainable if nothing is done
85.2% of economists are opposed to subsidies for professional sports teams
85.2% of economists say we should end agricultural subsidies
69.2% of economists agreed that parents in poorly-performing schools should be given educational vouchers
62.2% of economists said the US should legalize marijuana

Also, see Greg Mankiw's post on this topic
here.

Publik Skools

If there is one thing the Department of Education does well, it is collect statistics about schools:

1. Between 1970 and 2002, average per-pupil spending in public elementary and secondary schools more than doubled, from $4,170 (in real dollars) to $8,802, an 111% increase!

2. From 1990 to 2003, real per-pupil spending increased 25 percent, from $7,692 to $9,644.

Did increased spending result in increased student performance in public schools? Not at all.

3. Reading scores for eighth-grade public school students remained static between 1998 and 2005. In 1998, eighth-graders averaged a score of 261 out of 500 in reading. In 2005, they averaged 260. Only 29 percent were rated grade-level "proficient" or better, and 71 percent rated less than proficient in reading.

4. Math results were a little better. Between 1990 and 2005, the average eighth-grade score rose from 262 to 278. But again, only 29 percent were rated grade-level proficient or better, and 71 percent rated less than proficient in math.

5. Private schools did better. Forty-nine percent of eighth-graders in Catholic schools rated "proficient" or better in reading, and 40 percent in Catholic schools, rated "proficient" or better in math.

Read more here.

Read my article here "The Educational Octopus."

Whoooooooooops!?

Former Senator John Edwards is on a crusade promoting his new book. Edwards has also embarked on an anti-Wal-Mart crusade. He instructs his staff members and all Americans not to shop at Wal-Mart, saying that wages at Wal-Mart are "too low."

"Wal-Mart makes plenty of money. They need to pay their people well," Edwards said at a Pittsburgh anti-Wal-Mart rally in August.

So naturally, when visiting New Hampshire to promote his book, Edwards held his book signing at Barnes & Noble instead of the Wal-Mart right next door. One big problem for Edwards? Wal-Mart pays hourly employees more than Barnes & Noble. The Barnes & Noble where Edwards promoted his book pays $7 an hour for new employees, and the Wal-Mart right next door pays $7.50 an hour.

Hmmmmmmmmmmmmmmmmmmmmm. Just wondering, will Edwards now release a statement saying "Barnes and Noble makes plenty of money. They need to pay their people well."

Wal-Mart Saves Consumers Two Ways


Research shows that Wal-Mart saves consumers billions of dollars in annual savings from the discount retailer's everyday low prices.

One study, by the economic consulting firm Global Insight, calculates that Wal-Mart saves American households an average of $2,300 a year through lower prices, or a $263 billion reduction in the cost of living. That compares with $33 billion savings for low-income families from the federal food stamp program.

In another recent study, MIT economics professor Jerry Hausman (former students include Fed Chairman Ben Bernanke) estimates that Wal-Mart has shaved 0.75 percentage point off annual inflation in food prices. "These guys have done much more than any antipoverty program," he says.

Wal-Mart gets all of the attention and publicity both favorable (consumers save billions) and unfavorable (Wal-Mart pays low wages, although they are about the same or more as Target, Borders, Barnes and Noble, McDonalds, etc.). What has received less attention is the additional cost savings to consumers from other non-Wal-Mart discount retailers, who compete with Wal-Mart with their own everyday low prices.

Today's WSJ has an article about the French retailing giant Carrefour (second largest retailer globally next to Wal-Mart), which started discount retailing in France in 1963, around the same time Wal-Mart started expanding across the U.S.

Carrefour's new CEO, 42-year-old José Luis Duran, is trying to whip the retailer into shape. Since taking over in February 2005, he's slashed prices in Carrefour's core French market to combat the rise of discounting rivals. He hopes to make the company quicker and nimbler.

Carrefour faces a bigger threat than ever from Wal-Mart, which is pushing overseas as its growth slows down in the U.S. Wal-Mart has a greater presence in North America and Latin America, while Carrefour operates in more European and Asian countries. But they face off in three of the world's biggest markets: China, Brazil and Argentina.

Bottom Line: Wal-Mart saves consumers billions of dollars annually all over the world who shop AT Wal-Mart, and the intense competitive pressure FROM Wal-Mart, saves consumers billions of dollars annually all over the world who shop AT non-Wal-Mart stores like Target, Carrefour, K-Mart, etc. So even those consumers who might hate Wal-Mart and shop at Target or other discount retailers, STILL benefit from Wal-Mart, because without Wal-Mart, Targets prices would be HIGHER.

Wednesday, November 29, 2006

Dollar Hits 20-Month Low vs. Euro

The euro reached a 20-month high against the dollar at $1.3210. Read about it in today's WSJ.

The Organization for Economic Cooperation and Development warned yesterday that a sharp appreciation of the euro against the dollar could stunt a euro-zone economy already expected to slow next year on the back of slower U.S. growth and domestic fiscal overhauls. A euro closer to $1.40 could prompt monetary policy makers and politicians to speak up.


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Drilling in the Gulf of Mexico, using new technology to drill in ultra-deep water, costs $120 million per well (see picture above).

Many people claim now that oil companies are somehow "underinvesting" or not investing enough in oil exploration and oil production.

Fact: Most oil companies spend about as much in investment as they make in profits. For example, ConocoPhillips makes about $1.5 billion a month in profits and is investing about $1.2 billion a month in oil exploration and oil production. For the U.S. to remain competitive globally for oil and gas, punishing and crippling our own oil companies with windfall profits taxes and fewer tax breaks doesn’t make economic sense.

Read my article in today's Detroit News titled: "Drill a hole in myth on oil investment: Companies actually spend more to find energy than they earn in profits."

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.

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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."

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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."

Read more of
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.

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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.

Amen.

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."