Saturday, December 30, 2006

Protectionism for US Airlines

This week the U.S. Department of Transportation grounded Richard Branson’s new airline, Virgin America because the airline didn’t meet the regulatory test that requires 75% American ownership. The question is, who benefits from this rule?

Certainly not consumers. One more choice on popular routes like New York to San Francisco could have made a tangible difference to prices.

No, this is old-fashioned protectionism of the kind that the US has been trying to erode in China, India, Brazil and other countries with tightly held markets for services ranging from air travel to banking. Even in those economies, ownership tests are often at 51 percent - not 75 percent. If American carriers can’t survive in the face of even a modicum of foreign competition, perhaps they’re weak enough that they really should be replaced by it.

R
ead more here.

SarBox Blues

There's something rotten at the heart of America's markets, and that something is the 2002 Sarbanes-Oxley Act. SarBox has put a hammerlock on America's small-time capitalism like no other law before. It's keeping small, innovative companies from getting the capital they need to grow and thrive. Along with the growing number of high-profile lawsuits against companies for what turn out to be differences of accounting opinion, U.S. capital markets are hurting.

As the chart shows, net equity issuance in the U.S. — a measure of how much equity is actually available on U.S. markets — has gone into an alarming decline since SarBox. The trend has accelerated as more companies go private.

It's pretty simple: Company CEOs, faced with lawsuits, a growing list of SEC requirements and the costs that go with both would rather be private and not have the headaches than list on a major exchange and be harassed daily. The SEC has eased some SarBox rules, but needs to do more to restore America's competitive edge.

From
Investor's Business Daily.

Economic Week in Review

Summary: This week's economic reports suggest that the housing market's steep slide may be bottoming out, while consumer confidence unexpectedly increased. And with the record books closing on stock market trading for the year, stocks are estimated to post almost a 16% total return for 2006, as measured by the S&P 500 Index—the fourth annual consecutive gain after three straight years of losses. For the week, the S&P 500 rose 0.5o% to 1,418, the 10-year U.S. Treasury yield rose 7 basis points to 4.70%, and the 30-year mortgage rate rose by 4 basis points to 5.72%.

Read
more here.

Quote of the Day

"Oil companies don’t set the world price of oil. That’s set in trading rooms in banking houses in New York and London and Hong Kong by young guys who make zillions each year. There is absolutely no evidence that the oil companies are colluding to fix prices at artificially high levels. Those prices are set, again, by traders with Ferraris, not by John D. Rockefeller, who has been dead for many years."

~Ben Stein, from
this article.

Friday, December 29, 2006

iPods: Made in China, Designed and Enjoyed in US

Assembling iPods in China does create jobs for Chinese workers that probably pay higher than average wages, so China does benefit. But who is getting rich from all the iPods Americans bought this Christmas, and who is getting the most enjoyment from them?

The answer: Americans. Read more here.

Thursday, December 28, 2006

More on Economic Disparities

People in the media, in academia and among the intelligentsia in general who are obsessed with "disparities" in income and wealth usually show not the slightest interest in how that income and wealth were produced in the first place.

They are hot to redistribute the existing income and wealth but seem wholly unaware that how you do that today can affect how much income and wealth will be produced tomorrow. Any number of schemes for redistributing wealth have ended up redistributing poverty in a number of countries.

From economist Thomas Sowell.

Economic Disparities

Who are these minority of the world's population who own a majority of the world's wealth?

They are the population of the United States, Western Europe, Japan and a few other affluent countries. How did these particular people come to possess so much more wealth than other people?

They did it the old-fashioned way. They produced the wealth that they own. You might as well ask why bees have so much more honey than other creatures.

The rhetoric of clever people can verbally collectivize all the wealth that was produced individually, and then they become aghast at the "disparities" that are magically turned into "inequities" in the distribution of "the world's wealth."

From
Thomas Sowell's latest column.

Soviet Light Bulb Story

Economists generally oppose price controls because they distort markets, and cause either shortages (e.g. rent control) when there is a price ceiling, or surpluses (e.g. minimum wage) when there is a price floor. Shortages (excess demand) and surpluses (excess supply) represent an inefficient use of scarce resources, and economists support market prices because they eliminate shortages and surpluses, and therefore lead to efficiency.

From the Soviet Union, there are many examples of distortions and inefficiencies from its long history of price controls, but here is a real classic.

Light bulbs, like most other basic goods and staples in the Soviet Union, were often in short supply because the official price was below the market price, resulting in excess demand and prolonged shortages. As a result of the chronic light bulb shortage, an informal, black market developed in the USSR for used, burned-out light bulbs. That is, Soviet citizens would actually pay a positive price for a light bulb that didn’t work.

How would it be possible for a burned-out light bulb to have a positive price, when it would normally just be thrown out? Of what use could anybody have for a used light bulb? Think about it first, and read the
answer here.


U.A.E. to Sell Dollars for Euros

The United Arab Emirates plans to convert 8 percent of its foreign-exchange reserves to euros from dollars before September, the latest sign of growing global disaffection with the weakening U.S. currency.

The Gulf state is among oil producers, including Iran, Venezuela and Indonesia, looking to shift their currency reserves into euros or sell their oil, which is now priced in dollars, for euros.

Central banks in Russia, Switzerland and New Zealand are also diversifying away from the dollar and into yen after the Japanese currency reached a 10- month low against its biggest trading partners in October.

From the
International Herald Tribune.

Wednesday, December 27, 2006

Castrocare: He Likes Capitalist Health Care

Nothing exposes the myth of Cuba's vaunted health care system quite like the news that ailing dictator Fidel Castro refuses to use it. Somehow, among all the abundant doctors in Cuba, Castroites couldn't find even one competent enough to care for their ailing leader. Cuban training is no match for that found in the free world.

Instead, Castro prefers medical care from Spain, opting for a free-world Spanish doctor whose accomplishments were developed in an atmosphere of open inquiry and market forces. Ordinary Cubans may get abysmal care, but under the country's two-tier medical system, the communist party elite get whatever they need. And if you are Castro, you can tap services from the capitalist world.

From today's
Investor's Business Daily.

Encyclopedia Updates, Information Age Style

In less than one hour after Associated Press announced at 12:19 a.m. (ET) that President Gerald Ford died, the online encyclopedia listing in Wikipedia for Gerald Ford had already been updated with information about his death, statements by President Bush and Nancy Reagan, details about funeral arrangements, etc.

Compare that example of the speed of information today (measured in minutes) to the old days of printed encyclopedias, when this type of information (death of a presdient) might have taken years to make it into print.

Tuesday, December 26, 2006

December Snow? Upper Michigan is a Good Bet

Click above to enlarge the chart of a ranking of U.S. cities by average December days with snow, and average inches of snow in December.

Endless Series of Imaginary Hobgloblins

"2006 to be the sixth-warmest year on record." Sounds quite scary. But it's as misleading a statement as it is accurate. 2006 will actually be cooler than the previous four years and cooler, as well, than 1998 (see graph above).

Read more at
Investor's Business Daily.

Below is a great quote from a related editorial "
Climate of Fear" on global warming, by Jeff Jacoby in the Boston Globe, mentioned in Cafe Hayek today:

"The whole aim of practical politics is to keep the populace alarmed (and hence clamorous to be led to safety) by menacing it with an endless series of hobgoblins, all of them imaginary."

~H.L. Mencken in 1920

The Wages of Growth

From a WSJ staff editorial today:

The latest reports on wages and income can discount one more canard about the current economic expansion -- namely, that wages are stagnant and workers are doing far more poorly than they did in the 1990s. For example:


  • Over the past year, the real average wage for nonsupervisory employees has risen 2.8 percent.
  • That equates to about a $1,200 increase in purchasing power for the typical household this year.
  • In 2006, real median household income was also up 1.1 percent after inflation
Thus the "stagnant wages" story can join the "jobless recovery," the "outsourcing" crisis and the runaway budget deficit as other tales of woe that have all turned out to be evanescent.

Obsession with Income Disparities

Nobody knows how to make a simple lead pencil - there is no single individual anywhere who knows how to grow the wood, mine the graphite, produce the rubber, and manufacture the paint.

If you cannot understand something as simple as making a lead pencil, why should you be surprised that you don't understand why someone is making a lot more money than somebody else? And often this obsession with income disparities means that somebody ought to "do something" to change what you don't understand.

Usually that means that the government -- politicians -- should impose policies based on your ignorance of what is going on. Can you imagine anything more dangerous than allowing politicians to decide how much money each of us can earn?

From Thomas Sowell's latest column,
read more here.

Monday, December 25, 2006

Only in India

Amazing footage of the chaotic traffic in India, notice the unbelievable mix of pedestrians, buses, trucks, cars, motorcycles, auto rickshaws (3-wheeled taxis), etc.

Hong Kong Passes U.S. for IPOs

HONG KONG: Hong Kong surged past New York this year to become the world's second most popular place — after London — for companies to float new stock listings.

The city's success was due to several factors, analysts say. Being next door to the booming economy of mainland China helped, and tough new U.S. accounting rules have discouraged many companies from listing in America.

Perhaps most important, Hong Kong has benefited from a new trend that involves the rise of regional markets, diminishing the importance of places like New York. With the help of powerful computers and increasing liquidity, capital can easily zoom around the world, scouting for the best investments.

Gives and the Give-Nots

"Our era's common sense of the matter -- that the political left is more compassionate than the political right, and that America is a remarkably ungenerous nation by world standards -- is demonstrably inaccurate. In fact, Sen. John Edwards's repeated claim that there are "two Americas" turns out to be correct but misstated: The line of separation runs most saliently not between the haves and have-nots but between the gives and the give-nots, between those Americans who respond to social needs with their own money and time and those who do not."

From a
book review in the WSJ of "Who Really Cares?"

Trade Deficit = Merchandise Surplus?

So far this year, the U.S. will sell about $1.2 trillion of our goods to the rest of the world, and we have purchased about $2.0 trillion of goods from the rest of the world. In other words, as a result of international trade, the U.S. will have a NET INFLOW OF $800 billion worth of merchandise INTO the U.S.

Although we call this a "trade deficit," it could just as accurately be called a "merchandise surplus," because we end up with more of other countries' production than they have of ours. That is, if you look at trade as "who ends up with the most stuff?" the answer is clearly the U.S., even though we call it a "trade deficit."

If we measured trade in terms of consumption, instead of production, we clearly have a "merchandise surplus" with the rest of the world.

Actually, because imports and exports are measured as part of the GDP statistics by the BEA, based on PRODUCTION of output, we focus on WHO produces the goods, and and not who CONSUMES the GOODS. Measuring trade that way, we often lose sight of the fact that a "trade deficit" is actually "net merchandise inflow" and a "merchandise surplus."

We end up with a net inflow of stuff from around the world every year, about $800 billion this year, but call it a trade "deficit"?

James Brown, Godfather of Soul, R.I.P.

NY Times article.

YouTube video "
Living in America"

YouTube video "
Soul Classics"

AllMusic Reference
biography and discography.

Progress

See the comparison above (click to enlarge) between "Households Below the Poverty Level in 2001" and "All Households in 1950." For example:

34% of poor households today have dishwashers vs. 2% of all U.S. households in 1950.

97% of poor households today have TV vs. 10% of all U.S. households in 1950.

56% of poor households today have clothes dryers vs. 2% of all U.S. households in 1950.

Due to technological progress, greater productivity and cheaper household goods, the average poor household today lives at a higher standard of living on many dimensions, than the average, or even high-income household 50 years ago.

Increase in Life Expectancy


In the early 1950s life expectancy in developing countries like China and India was about 40 years, and by 2005 it was 74 years in many developing countries like China. This is the greatest increase in life expectancy in such a short period that has ever happened in human history, an increase in life expectancy of more than .50 years, every year, for fifty years!

Sunday, December 24, 2006

Harvesting Cash: Myth of the Small Farmer

The cornerstone of the multibillion-dollar system of federal farm subsidies is an iconic image of the struggling family farmer: small, powerless against Mother Nature, tied to the land by blood.
Without generous government help, farm-state politicians say, thousands of these hardworking families would fail, threatening the nation's abundant food supply.

This imagery secures billions annually in what one grower called "empathy payments" for farmers. But it is misleading.

Today, most of the nation's food is produced by modern family farms that are large operations using state-of-the-art computers, marketing consultants and technologies that cut labor, time and costs. The owners are frequently college graduates who are as comfortable with a spreadsheet as with a tractor.

In 2003, the owners of the biggest family farms reported an average household income of $214,200, more than three times that of U.S. households on average, and in the top 3% of American households by income.

From a
recent article in the Washington Post's series on "Harvesting Cash: Working a Farm Subsidy."

Record Low Unemployment Rates in 15 States

In November, I reported that 14 states set historical record-low unemployment rates in 2006 through September. Based on November state jobless rates just released by the BLS on Friday, there are now 15 states that have set historical record-low unemployment rates in 2006:

Alabama: 3.2% in October
Arizona: 3.6% in August
California: 4.5%
Florida: 3.0% in June
Hawaii: 2.1% in October
Idaho: 3.2% in March
Illinois: 4.1% in November
Louisiana: 2.9% in July
Montana: 3.4% in March
Nevada: 3.6% in January
New Mexico: 4.0% in March
New York: 4.0% in October
Utah: 2.8% in October
Washington: 4.6% in March
W. Virigina: 3.8% in January

A Google News search indicates that nobody has reported this, shouldn't that be big economic news that almost 1 out of 3 states have set record-low jobless rates in 2006?

The Petition of the French Candlemakers

Written by French economist Frederic Bastiat in 1845 as a fictitious appeal to the French parliament on behalf of French candlemakers, seeking protectionism against a cheap, foreign rival:

"We are suffering from the ruinous competition of a rival who apparently works under conditions so far superior to our own for the production of light that he is flooding the domestic market with it at an incredibly low price; for the moment he appears, our candle sales cease, all the consumers turn to him, and a branch of French industry whose ramifications are innumerable is all at once reduced to complete stagnation. This rival, which is none other than the sun, is waging a merciless war on us.

We ask you to be so good as to pass a law requiring the closing of all windows, dormers, skylights, inside and outside shutters, curtains, casements and blinds -- in short, all openings, holes, chinks, and fissures through which the light of the sun can enter houses, to the detriment of the fair industries with which, we are proud to say, we have endowed the country, a country that cannot, without betraying ingratitude, abandon us today to so unequal a combat."

Read more here.

Free Trade with America Hurts Europe?

Imagine that this was written in the early 1800s, when Europeans might have seen globalization, and trade with America as a threat to their standard of living, in the same way that Americans today view China and India:

"How Free Trade with America Hurts Europe"

"That is what's at stake when we talk about trade policy: Europe's middle class and the European Dream.

The new mobility of goods with advances in global shipping, makes production of goods possible throughout much of the New World. Workers in the Americas are grossly underpaid, exploited and abused, and they have virtually no rights. Many, including children, work 10, 12, 14 hours a day in the New World, six or seven days a week, for only a few pence a day.

The result has been a global race to the bottom as British and French corporations troll the world for the cheapest labor, the fewest health, safety and environmental regulations, and the governments most unfriendly to labor rights. European trade agreements paved the way for this race: While rejecting protections for American workers or the environment, they protected European investors and corporate interests.

The results of such trade agreements are skyrocketing trade deficits with the USA as we import its cheap goods, and downward pressure on income and benefits for European workers. Why? Because these agreements enable countries to ship what their low-wage workers produce to the UK and France, while blocking many European products from entering their countries.

Millions of Europeans have lost their jobs as European corporations moved production overseas to build the same products with cheap foreign labor in the Americas. We must insist that all trade agreements have labor, environmental and other protections so that European workers can compete on a level playing field."

Paraphrased from this article in the
Washington Post.

Not All Politicians Took Economics

From yesterday's Washington Post, an article "How Free Trade Hurts," by two "Lou Dobbs Democratic" senators, here is an excerpt:

"Free-trade agreements have protected drug companies, international investors and Hollywood films, yet failed to protect our communities, our workers and our environment.

We believe there is a better way. Fair trade is not the enemy of more trade. It's how we expand international trade without reversing U.S. economic progress.

The result (of free trade policies) has been a global race to the bottom as corporations troll the world for the cheapest labor, the fewest health, safety and environmental regulations, and the governments most unfriendly to labor rights."

See Greg Mankiw's
critique here.

See a discussion on
Cafe Hayek here: "But what relevance do facts and logic possess when political grandstanding must be done to appease the greedy interest groups who are so vital to keeping arrogant, obnoxious, and utterly repulsive politicians in power?"

A few comments of mine:

1. Notice that the article NEVER once mentions the primary beneficiaries of free trade and globalization: CONSUMERS. The politicians ONLY mention the groups that are most threatened by trade and globalizaiton: workers and unions. Notice also there is NO politicial payoff (more votes) to politicians being champions for the U.S. consumers, who are unorganized and dispersed, but there IS a political payoff (more votes) being a champion for the organized groups like unions.

Even though there are NO economic reasons for protectionism, there are HUGE POLITICAL reasons for protectionism, and this article is a perfect example of the political payoffs possible when supporting protectionism for well-organized, domestic special interest groups like unions and domestic industries.

2. Almost any time somebody (Lou Dobbs, politicians, unions, etc.) says they supports "fair trade" over "free trade," it is almost a sure signal that: a) they don't really understand free trade, and/or b) their idea of "fair trade" means using the political process to support some type of unfair, biased, government-managed PROTECIONIST LEGISLATION to protect an inefficient, uncompetititve domestic industry from more efficient foreign producers, at the expense of the unorganized American consumers.