Tuesday, January 23, 2007

State of the Rich Union

Best comment so far on President Bush's State of the Union address:

"Once you live in a rich democracy like the U.S., it's pretty much all gravy. The fights over income inequality, national health insurance, immigration policy, and so forth, all take place within a remarkably narrow range of national well-being, compared to the variance that currently exists around the globe.

A big government health care system may cause your happiness to vary by a percent or so from this mean (which direction depends on your political persuasion), but it will not bring you within a few orders of magnitude of a peasant farmer living on the edge of starvation in Darfur. This brings me a certain equanimity when watching the successive presidents deliver their speeches."

The Economist blog Free Exchange.

Socrates and the Minimum Wage

Larry Reed of the Mackinac Center for Public Policy argues that what members of Congress need is not another lecture on the minimum wage from an economist, but rather an old-fashioned Socratic inquisition. If Socrates were with us, here’s how Larry Reed imagines such a dialogue might go.

Congressman: Look, a minimum wage of $7.25 per hour isn’t much.

Socrates: I’d like to know how you arrived at that figure. Was it some sophisticated equation, divine revelation or toss of the dice? Why didn’t you choose $20.00, which is not only a nice round number but also a lot more generous?

Congressman: Well, $20 would be too high, for sure. Too much of a jump at once.

Socrates: It sounds like you think the cost of labor might indeed affect the demand for it. Good! That’s progress. You’re not as oblivious about market forces as I thought. What I want to know is why you apparently don’t think higher labor costs matter when you raise the minimum wage from $5.15 to $7.25. Do you think everyone, regardless of skill level or experience, is automatically worth what Congress decrees?

Congressman: Now hold on a minute. I’m for the worker here.

Socrates: Then why on earth would you favor a law that says if a worker can’t find a job that pays at least $7.25 per hour, he’s not allowed to work?

Congressman: I’m not saying he can’t work! I’m saying he can’t be paid less than $7.25!

Socrates: I thought we were making progress, but perhaps not. Can you tell me, if your scheme becomes law, what happens to a worker who is worth only $6.00 because of his low skills, lack of education, scant experience or a low demand for the work itself? Will employers happily employ him anyway and take a $1.25 loss for every hour he’s on the job?

Congressman: Businesses need workers and $1.25 isn’t much, so common sense and decency would suggest that of course they would.

Socrates: So employers who employ people are too greedy to pay $7.25 unless they’re ordered to, but then when Congress acts, they suddenly become generous enough to hire people at a loss. Who was your logic instructor?

Congressman: Can we hurry this up? I’ve got other plans for other people I have to think about.

Socrates: I give up. You congressmen are incorrigible. You’re the only people on whom my teaching method has no discernible impact.

Dollar Stores a Hit in India

As Wal-Mart Stores Inc. and other retail giants prepare to enter India, an unexpected American rival -- California's My Dollarstore Inc. -- is already here and attracting the affluent middle-class customers Wal-Mart and others covet.

In the U.S., most of the so-called dollar stores that sell discounted products at a single price are in low-rent strip malls. In India, My Dollarstores target big spenders, setting up in prime ground-floor spaces at the newest malls. Even the prices are higher end. While everything costs $1 at My Dollarstores in the U.S., in India the same products sell for 99 rupees, or about $2, thanks to transportation costs and import tariffs.

Read more in the

Carpe Diem Exclusive

Carpe Diem exclusive: In December, I reported that 15 U.S. states set historical record-low unemployment rates in 2006 through November. State unemployment rates for December were just released today by the BLS, and although the number of states setting historical record low jobless rates in 2006 remained steady at 15 (see states below), several states like Hawaii and New Mexico had December rates that broke the previous record set earlier in the year. Here are the 15 states that set historical record low jobless rates in 2006:

Alabama: 3.2% in November
Arizona: 3.6% in August
California: 4.5% in October
Florida: 3.0% in June
Hawaii: 2.0% in October
Idaho: 3.2% in December
Illinois: 4.1% in December
Louisiana: 2.9% in July
Montana: 3.4% in March
Nevada: 3.6% in January
New Mexico: 3.8% in December
New York: 4.0% in October
Utah: 2.5% in October
Washington: 4.6% in March
W. Virigina: 3.8% in January

A Google News (and Yahoo News) search indicates that nobody has yet reported this, shouldn't that be big economic news that almost 1 out of 3 states have set record-low jobless rates in 2006? If I were George Bush, I think I would mention this tonight.

Strong Job Market for College Grads

From today's WSJ ("Class of '07 Gets Plenty Of Job Offers"): This year is shaping up as the strongest for college recruiting since the downturn earlier this decade, colleges report. Traditionally heavy recruiters, including management consulting firms, investment banks and accounting firms, are intensifying college recruiting efforts. They're also facing more competition from other employers in such fields as technology, consumer products, government and even nonprofits.

Employers plan to hire 17% more graduates from the class of 2007 than they got from the class of 2006, according to the National Association of Colleges and Employers. That would make this year the strongest job market since 2000-2001. More than half of the surveyed employers said they planned to increase hiring; only 5% planned a decrease. Salaries were forecast to rise 4.6%, according to another survey by the same group.

If You Regulate Something, You'll Get Less of It

NYC vs. London, NYC is losing....

Fact: NYC has 8 million people, but more than half the wages and salaries are collected by just a few hundred thousand workers in the financial services industry; and the businesses that serve that industry, such as law firms and printers, account for much more.

Fact: From 2002 to 2005, London's financial-services work force expanded 4.3%, while New York City's fell 0.7%, or more than 2,000 jobs.

Reasons (according to a recent McKinsey & Co. report):

1. The American regulatory framework, particularly the Sarbanes-Oxley Act, is "a thicket of complicated rules, rather than a streamlined set of commonly understood principles, as is the case in the United Kingdom and elsewhere."

2. The legal environments in other nations "far more effectively discourage frivolous litigation."

3. Immigration restrictions that make it difficult for skilled workers and foreign business visitors to come to the U.S.

Read the WSJ article
here and the IHT article here.

Quote of the Day: Globalization and Growth

"There are no examples of sustained high growth in the postwar period that do not involve integration into the global economy. The systematic reduction of barriers to trade and investment in the last 55 years, and the dramatically falling costs of transportation and information and communications technologies, have combined to raise the level of that integration. It is the combined effect of these trends that has made the global economy an increasingly powerful source of potential growth."

~Nobel economist Michael Spence, in today's

Milton Friedman Day: January 29

Next Monday, January 29 will be Milton Friedman Day: “a day of national celebration and remembrance of Friedman’s life and his influence on American society and economic systems.” It will feature, among many other things, a day of web-based discussion hosted by The Economist; debates and discussion at various universities; and a national PBS broadcast of "The Power of Choice: The Life and Ideas of Milton Friedman," see a 6-minute preview here.

Via Freakonomics

Economics as "Greed"?

In an era when our media and even our education system exalt emotions, while ignoring facts and logic, perhaps we should not be surprised that so many people explain economics by "greed."

Today there are adults -- including educated adults -- who explain multimillion-dollar corporate executives' salaries as being due to "greed."

If people who are capable of being outstanding executives were a dime a dozen, nobody would pay eleven cents a dozen for them.

Many observers who say that they cannot understand how anyone can be worth $100 million a year do not realize that it is not necessary that they understand it, since it is not their money.

All of us have thousands of things happening around us that we do not understand. We use computers all the time but most of us could not build a computer if our life depended on it -- and those few individuals who could probably couldn't grow orchids or train horses.

From economist Thomas Sowell's latest

iPod Parity

The iPod Index, based on Jan '07 prices for a 2GB Nano.

1. Brazil $327.71
2. India $222.27
3. Sweden $213.03
4. Denmark $208.25
5. Belgium $205.81
6. France $205.80
7. Finland $205.80
8. Ireland $205.79
9. UK $195.04
10. Austria $192.86
11. Netherlands $192.86
12. Spain $192.86
13. Italy $192.86
14. Germany $192.46
15. China $179.84
16. South Korea $176.17
17. Switzerland $175.59
18. New Zealand $172.53
19. Australia $172.36
20. Taiwan $164.88
21. Singapore $161.25
22. Mexico $154.46
23. U.S. $149.00
24. Japan $147.63
25. Hong Kong $147.35
26. Canada $144.20

Since 1986, The Economist magazine has annually reported its Big Mac index (also called "burgernomics"), based on the theory of purchasing-power parity (PPP), the idea that exchange rates should move to equalise the prices of a basket of goods and services across different countries. The Economist's "basket" is a McDonald's Big Mac (so they are actually testing "The Law of One Price"), which is produced in about 120 countries. The Big Mac PPP is the exchange rate that would mean hamburgers cost the same in America as abroad. Comparing actual exchange rates with PPPs indicates whether a currency is under- or overvalued.

Now there is the "iPod Parity" index, based on the price of a 2GB Nano in 26 countries. Brazilians pay the most for an iPod, shelling out $327.71, well above second-placed India at $222.27, and Canada was the cheapest place to buy a Nano at $144.20. Thus, like the Big Mac Index, the iPod index shows that PPP does not hold.

Read more here in
Yahoo! News about the iPod index.

Read about the iPod index in
Wikipedia, the digital encyclopedia at the speed of light.

Stock Picking is Dumb, Buy and Hold Index Funds

Best Investment Advice You'll Ever Get: "The stock-picking mystique is so deeply entrenched in our financial culture that it feels like heresy to suggest that it is, on balance, dumb. The facts are clear, however. For the vast majority of investors—including professionals—stock-picking efforts waste both money and time."

Solution: Buy and hold low-cost (sometimes as low as 1/10 of 1%) stock index funds. After taxes and after expenses, index funds usually outperform more than 97% of actively managed mutual funds.


Monday, January 22, 2007

The Smell of Profits, Here Comes LINUX

Microsoft sells $45 billion of software every year and makes about $12.6 billion a year in profits, about a billion dollars more than Wal-Mart($11.6 billion), and its profit margin is huge (28.5%) and its ROE is high (31%). That level of sales and profitability creates a redolent, attractive smell that permeates the economy, and attracts competitors like bees to a flower.

According to the
NY Times, the creation of the Linux Foundation is being announced today. Its mission is to help Linux, the leading example of the open-source model of software development, compete more effectively against Microsoft, the world’s largest software company, for the $45 billion software market.

Online Health Care?

While every service imaginable seems to have found a way to thrive on the Web, health care has always lagged. But things are heating up, as an Internet billionaire is about to launch a site of his own and an online-health pioneer (WebMD) is changing its services to meet the challenge.

In launching
RevolutionHealth.com today, Mr. Case says he aims to transform a "broken industry by putting health care back into the hands of the consumer."

Read more in today's

WSJ: Milton Friedman on India and China

WSJ: India -- how do you assess its prospects?

Friedman: Fifty years ago, as a consultant to the Indian minister of finance, I wrote a memo in which I said that India had a great potential but was stagnating because of collectivist economic policies. India has finally started to disband those collectivist policies and is reaping its reward. If they can continue dismantling the collectivist policies, their prospects are very bright.

WSJ: Any thoughts on a China versus India comparison?

Friedman: Yes. Note the contrast. China has maintained political and human collectivism while gradually freeing the economic market. This has so far been very successful but is heading for a clash, since economic freedom and political collectivism are not compatible. India maintained political democracy while running a collectivist economy. It is now unwinding the latter, which will strengthen freedom of all kinds, so in that respect it is in a better position than China.

From today's

Markets in Everything: Used Underwear in Kenya

The government of Kenya has banned the sale of secondhand underwear, socks and bras. Government officials say the move will stop the spread of skin diseases, but some doctors say the clothes should be alright to wear if they have been properly laundered. Critics say the ban hurts poor people who can't afford to buy new clothes.

Read the news report

At Least It Sounds Like a Good Idea

Perhaps no other so-called economic reform has been studied more than the impact of the minimum wage on poor-to-low income, unskilled, undereducated, unemployed Americans. The preponderance of these studies has shown time and again that raising the minimum wage does not live up to its promises. It doesn't create employment for those it is supposed to help; it reduces employment. It doesn't help the most vulnerable Americans, especially poor minorities; it worsens their plight.

Empirical evidence shows that for every 10% increase in the minimum wage:
-- Unemployment among minorities rose 3.9%.
-- Joblessness among Hispanics jumped 4.9%.
-- Teenage minority unemployment increased 6.6%.
-- Unemployment among African-American teens climbed 8.4%.

Read more

Sunday, January 21, 2007

Amazing Checker-Shadow Illusion

You won't be able to convince your mind, but squares A and B are the exact same shade of gray. Go here for an explanation.

Size of U.S. State Economies vs. Foreign Countries

We often lose sight of: a) how big the U.S. economy is, b) how productive American workers, and how much we produce vs. other countries. After all, who can get their mind around $13 trillion, the size of the U.S. economy measured by GDP ($13,000,000,000,000)?

World GDP is about $47 trillion according to the
CIA World Factbook, so the U.S. economy produces more than 30% of world output every year, with just 5% of the world's population. Reason: American workers are so productive compared to workers in other countries. That's why per capita GDP in the U.S. is $43,500 vs. the world average of $10,000, and why many single U.S. states are equal in size, or larger than, many foreign countries.

The fascinating GDP map above (click to enlarge) matches the size of state economies in the U.S. to the size of comparable countries. You can view GDP by state
here, and GDP by country here.

For example, Texas GDP is about $1 trillion, equal to the entire GDP of Canada. Georgia GDP is $363 billion, approximately equal to the GDP of Switzerland. Mississippi GDP is $81 billion, a little bit smaller than the GDP of Chile last year ($95 billion), so the comparisons in the map might be approximate, not exact.

Genesee County (includes Flint, MI) where I live, produces roughly twice as much output annually with a population of 400,000 people as the entire country of Honduras produces with more than 7m people! The state of Michigan produces more output ($376 billion) with 10 million residents than the entire country of Turkey produces with 70 million people!

Thanks to
Chapomatic for the pointer on the GDP map.

Disappearing Middle Class Graphically?

Do a Google searh of the exact phrase "disappearing middle class" and you'll get 16,500 hits.

Think about what it would mean statistically or graphically if the middle class of Americans really did disappear. Assume that income is distributed somewhat normally like Distribution 1 above (technically it would actually be skewed to the right to account for the Oprahs, Tigers and Bills, as in Gates). If middle income households really did "disappear" wouldn't we then have a) nobody left in the middle and b) two new distributions, one of low income households and one of high income households like the distributions above labelled "Low Income" and "High Income?"

Does anybody really seriously think that could ever happen in the U.S.?

Saturday, January 20, 2007

Disappearing Middle Class?

We hear a lot of handwringing these days about the "disappearing middle class," and how the benefits of the current economic expansion are going disproportionately going to "the rich." How does the middle class of the U.S. compare to countries in Europe?

In the graph above from the blog Back Talk, those in the lowest 10% in the U.S. have about the exact same disposable income as those in the lowest 10% in Europe. At the other end of the scale, the highest 10% in the U.S. have much higher disposable incomes than the highest 10% in Europe. All of these measures are relative to the U.S. median disposable personal income (which is set to 100).

Are only the rich making off like bandits? Well, look at the middle class (i.e., look at the median). The European in the middle makes only about 73% of what the American in the middle makes.

That's how America's economy distributes its benefits across the economic spectrum (relative to other nations). Those at the bottom of our economic ladder are similar to those at the bottom of other industrialized nations. One would imagine that, in all of these nations, the government tries to ensure that the basic needs of the poor are satisfied (e.g., adequate food, uncrowded living conditions, plumbing, electricity, etc.) without going much further than that. But as you start moving up the economic ladder, you are better off here in America. And that would appear to be true starting pretty far down on that ladder (somewhere below the median for sure).

Got Any LPs?

Long-playing (LP) records are gathering dust in the homes of many music lovers (like me), who hope to hear their contents one day on a CD player or iPod.

Now, an updated version of another audio relic, the phonographic turntable, may provide a fairly inexpensive way to do that. Two new consumer turntables on the market at $200 or less connect directly to computers to transfer cherished vinyl to MP3 files and CDs.

NY Times.

Tax Subsidies for the "Rich?"

Federally backed student loans regularly go to the wrong people – in 2003-04, nearly 30% of students from families earning more than $100,000 a year got them – and they make tuition more expensive for everyone. And while federally subsidized loans – on which Democrats are now focusing after promising to cut rates on all federal student loans during the campaign season - go to fewer wealthy families, they still tend to benefit well-off students and those whose parents understand how to game the system.

Read more

What Do "Meatlifting" and Meth Have in Common?

Meatlifting is a grave problem for food retailers: According to the Food Marketing Institute, meat was the most shoplifted item in America's grocery stores in 2005. (It barely edged out analgesics and was a few percentage points ahead of razor blades and baby formula.)

Meat's dubious triumph is due in part to a law enforcement crackdown on methamphetamine use. Meat used to be the shoplifting runner-up to health-and-beauty-care items, a category that includes cough medicines containing pseudoephedrine, a key ingredient in home-cooked meth.

In 2003, for example, a quarter of shoplifted products were HBCs, while meat took second place at 16 percent. But states began passing laws that require stores to move medicines containing pseudoephedrine behind secure counters. That was enough to cut the pinching of HBCs, which fell by 11 percent between 2003 and 2005.

Read more here in

See Faces of Meth
here, you won't believe it.

Friday, January 19, 2007

Corn Prices Hit Ten-Year High at $3.95/bu

1. Ethanol is already one of the most coddled and protected industries in America. Before even pulling into the filling station American taxpayers have already paid between $1.04 and $1.45 in government subsidies for each gallon of ethanol, according to a report from the Global Subsidies Initiative. That adds up to an annual total of about $6 billion. Read more here in today's NY Sun.

2. Skyrocketing prices for corn on the world market have pushed up the price of the humble tortilla, the mainstay of the Mexican diet, by nearly a third in the past three weeks, to 35 cents a pound in Mexico City and even higher in other parts of the country. Some economists blame the increased demand for corn from ethanol plants in the United States, and it is true corn prices in the States last week reached their highest point in a decade (see graph above). Read more from NY Times article
Cost of Corn Soars, Forcing Mexico to Set Price Limits.

Detroit Public Teachers, Private School Choices

What would you conclude about the quality of product or service X under the following circumstances?

1. The employees of Airline X and their families are offered free airline tickets as an employee benefit. The employees refuse to travel with their families on Airline X and instead pay full fare on Airline Y when flying.

2. The employees of Automaker X are offered a company car at a substantial discount and they instead buy a car at full price from Automaker Y.

3. Employees at Health Clinic X and their families are offered medical care at no additional cost as a benefit and yet most employees of Clinic X pay out-of-pocket for medical services at Clinic Y.

In each case, the employees' willingness to pay full price for a competitor's product or service and forgo their employer's product or service at a reduced price (or no cost) makes a strong statement about the low quality of X. What makes the inferior quality of X even more obvious is that the employees at Firm X, since they work in the industry, would have better information about product (service) X and product (service) Y than the average person.

What then should we conclude about the quality of public education in Detroit given the following facts? Public school teachers send their own children to private schools at a rate 50% higher than average--18.5% of public educators' children in Detroit are in private schools compared to 12.8% for all families.

Read today's editorial in the Detroit News

Quotes of the Day

"From the point of view of physics, it is a miracle that 7 million New Yorkers are fed each day without any control mechanism other than sheer capitalism."

~John Holland, scientist, Santa Fe Institute

"I am convinced that if the market system were the result of deliberate human design, and if the people guided by the price changes understood that their decisions have significance far beyond their immediate aims, this mechanism would have been acclaimed as one of the greatest triumphs of the the human mind."

~Friedrich Hayek, Nobel economist

"It is something of a miracle that individual selfish decisions (in a market economy) must lead to a collectively efficient outcome."

~Steven Landsburg in the Armchair Economist

Bollywood's New Capitalist Hero

From today's WSJ: "Guru," the latest Bollywood blockbuster by the respected director Mani Ratnam, is that rare film -- perhaps Bollywood's first -- in which free markets are lauded as a force for good. Aliens emerging from the Taj Mahal would be less surprising.

"Guru" stars Abhishek Bachchan as Gurukant Desai, a character inspired by Dhirubhai Ambani. Ambani was that rare tycoon who went from rags to riches during the worst years of India's license raj, building
Reliance Industries, which today is India's largest private-sector company. In the era in which Ambani flourished, the state strangled private enterprise with licenses, regulations and sundry restrictions.

School Choice Research

The vast majority of sound empirical studies comparing competitive education markets to state-run school monopolies give the edge to markets. A few find no significant differences, and only the tiniest percentage find any sort of advantage to government operated schools. Moreover, the superiority of free market education is not limited to higher student achievement, but extends to a variety of positive social effects as well.

From Cato Institute's "A Quick Guide to theScholarly Literature on School Choice" by Andrew Coulson.

Thursday, January 18, 2007


“America cannot be great if most of its workers are in the service sector or cashiering at Wal-Mart,” Senator Byron Dorgan (D-North Dakota) declares in his book "Take This Job and Ship It," who also has an anti-trade letter in today's WSJ where he says: "There is a growing public sense that blind support for unfettered "free trade" in Washington has cost our country dearly."

From a
review by Cato Institute's Daniel Griswold: "Most Americans do work in the service sector — about 80%, in fact — and most of those jobs pay much better than a retail cashier. In fact, the American middle class is built on good paying service jobs. Knock on the doors of any middle-class neighborhood and you will meet teachers, insurance agents, engineers, managers, bookkeepers, firefighters, police officers, small-business owners, and truck drivers.

As a nation grows wealthier, the share of the workforce in agriculture invariably falls and the share in the service sector rises. The share in manufacturing typically rises and then falls. According to the World Bank, countries with the lowest share of the work force in the service sector include Uganda, Vietnam, Romania, Sri Lanka, Indonesia, and Mongolia. Countries with the highest share in the service sector include, along with the United States, Sweden, Switzerland, Canada, Hong Kong, Japan, and Luxembourg. The first group is among the poorest nations, the second among the richest. Apparently one goal of Dorganomics would be to shift America from the rich group to the poor group."

Free Trade: Most Important to Promote Growth

Job outsourcing works both ways: outsourcing by foreign companies has created more than 6.5 million jobs for American workers -- with the Honda automobile plant in Ohio and BMW factory in South Carolina being two prime examples.

In short, trade helps people while protectionism hurts them.

Imports give people a wider choice of goods, often at lower prices; protectionism helps local industries maintain higher prices at the expense of broad social and economic prosperity.

Milton Friedman was right when he said ''Free trade is the most important single way to promote growth,'' and the protectionists in the new Congress are wrong.

From today's
Miami Herald, a commentary by Pete DuPont.

Resilient US Economy

A tight labor market is pushing up many workers’ wages, consumers are spending more at their local shopping malls and the skid in the housing market is easing in some areas of the country.

Together, the findings are consistent with some other signs of a muted but healthy expansion — including job growth and rising stock prices — that have come into clearer focus recently.

Read more here from today's NY Times Business section article "
Some Signs of Economic Resilience Seen."

Sound Economics = Unsound Politics

"The British historian Thomas Macaulay observed that free trade, one of the greatest blessings which a government can bestow, is in almost every country unpopular. Indeed, sound economics often makes for unsuccessful politics. That free trade is a great benefactor is one of the most convincingly established truths of economic science.

The economic case for free trade is essentially the case for voluntary exchange in general: no one freely enters into an exchange, whether as buyer or seller, unless he expects to emerge better off as a result of that exchange. Furthermore, the ability to exchange a single product one has produced for the many things one would like to consume makes possible the division of labor and the manifold expansion of production capacity that it permits. There is no economic reason why these gains do not apply equally to potential traders on different sides of national boundaries."

~ "Why Managed Trade Is Not Free Trade," By Robert Batemarco

The Chinese Are Coming

Detroit News: A Chinese automaker called Changfeng Group Co. is displaying five vehicles in its exhibit at the Detroit auto show, which opens to the public on Saturday.

Detroit News: China surged past Japan to become the world's No. 2 vehicle market after the United States last year as car purchases by newly affluent drivers jumped 37 percent.

Detroit News: To protect against this growing threat (of Chinese cars), industries and policymakers are likely to push for tougher legislation in the new Congress to protect U.S. industries.

Wednesday, January 17, 2007

$40B Budget Surplus in December

According to the CBO, as reported in the WSJ: "For the first three months of fiscal 2007 through December, federal tax revenues climbed 8.1%, building on double-digit revenue increases in the previous two years. Corporate income taxes were up a remarkable 22.2% in the first fiscal quarter, showing that the government continues to grab a nice chunk of the rising business profits that so many of our politicians like to deplore. Individual income taxes rose 8.8%, thanks to strong wage and salary growth. Much of this revenue comes from "the rich," believe it or not."

"The deficit has in fact declined by some $165 billion over the past two fiscal years, and according to the most recent data has continued to fall in the first quarter of fiscal 2007. The latest Treasury estimates for January show that tax receipts in December were $18 billion higher than a year earlier, helping to boost the budget surplus for the month to $40 billion, up from $11 billion a year ago."

Fair Trade = Protectionism

From an article by George Mason economist Walter Williams:

"Some people justify their calls for protectionism by claiming that they're for free trade but fair trade. That's nonsense. Think about it: When I purchased my Lexus from a Japanese producer, through an intermediary, I received what I wanted. The Japanese producer received what he wanted. In my book, that's a fair trade.

Of course, an American auto producer, from whom I didn't purchase my car, might whine that it was unfair. He would like Congress to impose import tariffs and quotas to make Japanese-produced cars less attractive and available in the hopes that I'd buy an American-produced car. In my book, that would be unfair."

MP: Based on past experience, whenever somebody calls for "fair trade," it's a sure bet that what they really want is some kind of protectionism for an inefficient domestic producer or industry.

Quote of the Day II

“When China's prime minister, Wen Jiabao, visited India for the first time last April, he didn't fly into the capital, New Delhi -- as foreign leaders usually do. He flew directly from Beijing to Bangalore -- for a tech-tour -- and then went on to New Delhi.

No U.S. president or vice president has ever visited Bangalore.”

~Thomas Friedman, NY Times article June 8, 2005

Quote of the Day

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

~P.J. O'Rourke

Time-Honored Washington Maxim Raises Tuition

The Democrats' eagerness to cut interest rates on student loans reflects a time-honored Washington maxim: If it's good, it should be subsidized. In this case, as in most others, the truth is just the opposite: If it's good, there's no need to subsidize it.

According to U.S. Census data, the average college graduate earns about $1 million more over his lifetime than the average high school graduate. That's a pretty good payoff for the investment in tuition, whether the money is borrowed at the rate promised by the Democrats (3.4%), at the current government-subsidized rate (6.8%), or even at the market rate (now between 7% and 11%).

Aid supporters also note that the cost of attending college has been rising faster than the rate of inflation for the last two decades. Yet easy money at taxpayers' expense fuels this escalation. Basic economic theory tells us that boosting the demand for a product or service, which is what government loans and grants effectively do, tends to raise its price.

Read more
here from Reason Magazine.

Tuesday, January 16, 2007

GM vs. Toyota, Nascar Style

After years of expanding its presence in the United States and beyond, the Toyota Motor Company of Japan recently issued a 2007 forecast that would make it first in global sales, ahead of General Motors.

And now, Toyota is about to begin competing with its American counterparts on yet another level: Nascar’s premier circuit, the Nextel Cup.

today's NY Times.

Quote of the Day, Joining the Innovation Fray

"Only 30 years ago, if you had a choice of being born a B student in Boston or a genius in Bangalore or Beijing, you probably would have chosen Boston, because a genius in Beijing or Bangalore could not really take advantage of his or her talent. They could not plug and play globally. Not anymore. Not when the world is flat, and anyone with smarts, access to Google and a cheap wireless laptop can join the innovation fray."

~ Thomas Friedman, from "The World is Flat"

The Poor Get Richer

From today's WSJ: Here's bad news for Lou Dobbs and those who oppose global free trade: Not only did the world-wide trend toward greater economic liberty hold steady over the past year, but the incomes of poor individuals across the globe are rising as result. The world isn't only growing richer. The gap between the per-capita income of have-not populations and that of the developed world is narrowing.

This good news for human progress is documented in the 2007 Heritage Foundation/The Wall Street Journal
2007 Index of Economic Freedom, released today. Neither another year of Islamic terrorism, nor record high oil prices, nor fear mongering on Capitol Hill about the China peril have been able to reverse a gradual global shift that reflects the basic human longing for individual liberty. While not all of mankind is participating in this advance, in those places where freedom has increased, people are becoming decidedly better off.

The 2007 Index finds that economically free countries enjoy significantly greater prosperity than those burdened by heavy government intervention. The per capita GDP of the top quintile of countries, ranked according to economic freedom, is now $28,000 while the bottom quintile is below $5,000. The associated higher GDP rates that come with economic freedom "seem to create a virtuous cycle, triggering further improvements in economic freedom. Our 13 years of Index data strongly suggest that countries that increase their levels of freedom experience faster growth rates," says the report.

#1 most economically free: Honk Kong (for the 13th straight year)
#157, most economically unfree: N. Korea
#4: United States

Something Fishy Going On

WSJ editorial: Economists of every political stripe agree that a higher minimum wage will cost some low-skill workers their jobs. But don't believe us; just ask Democratic Speaker Nancy Pelosi.

The House last week whooped through an increase in the minimum wage to $7.25, by a vote of 315-116. But, lo, included as part of this boon to the working man was a loophole: The new, higher wage floor applied to all of these United States and its territories -- save for the Pacific outpost of American Samoa. In the immortal words of Congressman Patrick McHenry (R., N.C.), "There's something fishy going on here."

It turns out that American Samoa has a big fish and tuna canning industry, specifically operations run by StarKist and Chicken of the Sea. Both companies are headquartered in California, and StarKist's parent is located in none other than Ms. Pelosi's own San Francisco district. So faster than you can say "middle class squeeze," Democrats rediscovered the eternal economic truth that a higher minimum wage can cost jobs and granted Samoa its reprieve.

Insead, a business school based outside Paris with campuses there and in Singapore, said the U.S. is the most innovative nation in the world when it comes to generating new ideas, adapting them quickly and profiting from them. Germany was a distant second.

The U.S. leads the second most innovative nation by almost a full point, putting it in a league of its own as far as global innovation is concerned," the Insead report said.

Read the WSJ story here.

Monday, January 15, 2007

Gas Prices Approach 3-Year Low

Michigan gas prices fall below $1.80, as low as $1.76 per gallon in Lake Orion.

Best Pictures of 2006

Best pictures of 2006 from
Flickr, e.g. "Sunset at the North Pole" (below) and "Iceberg - Upsala Glacier - Argentina" (above).

Competition Breeds Competence

From today's WSJ, an article titled "Why India Needs School Vouchers:"

"On India's Republic Day, January 26, the New Delhi-based Centre for Civil Society will launch a campaign for school choice. It's an apt day for the event. While India's constitution guarantees universal and free education, the government has utterly failed that mission. It's time to encourage the private sector to step in."

New Websites Offer Private Flights

Because private jet passengers typically remain at their destinations for a few days, their pilots often fly back to their home airports after the drop-off. As a result, the nation's 5,000 or so private jets that offer charter flights travel empty 40% of the time.

Aircraft owners are happy to fill those planes even at greatly reduced prices, to help defray the high costs of maintenance and storage.

Get an online price quote at
OneSky for booking a flight on a private jet. Flint to Minneapolis at the end of January is $4500 (round trip) for a light jet that seats 5-7 people, Flint to Jacksonville, FL is $6,000 to $15,000 for a light jet at the end of January.

Other websites offering private jets are
Blue Star and Jets.com, both offer online quotes.

More Engineering Students in Mexico Than US

When American engineers talk about the need for the U.S. to better compete in the global economy, the discussion almost always centers on two countries: China and India. People rarely mention another country that is geographically closer to the United States: Mexico.

Mexico has quietly been building up its infrastructure over the past decade to educate more engineers and attract companies with advanced engineering design work. Some 451,000 students are currently enrolled in full-time undergraduate engineering programs in Mexico, up 20% since 2000.

American universities enroll 370,000 engineering undergraduates, a number that has barely inched up since 2000, even as the overall number of undergraduates has grown nationwide.

Multinational companies, including GE, Siemens and Honeywell, that once located facilities in Mexico to produce products are now opening up small operations for design and testing work, much of which is done by engineers. GE employs more than 500 engineers at a facility in Querétaro that designs and checks jet engines. Officials there expect to hire another 200 this year.

One reason for the hiring spree? Low salaries. Engineers fresh out of college in Mexico make around $15,000 annually; compare that with their U.S. counterparts, who graduate to $45,000-a-year jobs.

Read more

Sunday, January 14, 2007

Piano Players

Dr. John and Christina Aguilera on Letterman, singing a duet of "Merry Christmas Baby." Wow!

Dr. John singing "
Such a Night" with "The Band" in the movie "The Last Waltz," directed by Martin Scorcese.

Diana Krall singing "
Charmed Life."

The Falacy of the Escalation of Commitment

"Escalation of commitment" is the phenomenon where people increase their investment in a decision despite new and often overwhelming evidence suggesting that the original decision was flawed, deficient and wrong."

Exhibit A: Mike Nifong.

From 2% to 3.3% Growth in Real GDP

Economists are upgrading their forecasts for the U.S. economy after a series of surprisingly strong reports suggesting the so-called "soft landing" may be over and growth is accelerating.

Lehman Brothers chief economist Ethan Harris on Friday boosted his forecast for fourth quarter 2006 growth to an annualized rate of 3.3%, a leap from the firm's prior call for just 2% growth:

"With the last of the major data in, we are now revising fourth quarter GDP to an above-trend 3.3 percent. A wide range of indicators have been stronger than expected. Most important have been the strong consumption data and the surprising improvement in the trade balance."

Outsourcing Health Care Isn't Always Cheaper

From today's NY Times ("Company Clinics Cut Health Costs"): "Frustrated by runaway health costs, the nation’s largest employers are moving rapidly to open more primary care medical centers in their offices and factories as a way to offer convenient service and free or low-cost health care.

Within the last two years, companies including Toyota, Sprint Nextel, Florida Power and Light, Credit Suisse and Pepsi Bottling Group have opened or expanded on-site clinics. And many other employers are adding or planning to add even more clinics.

For employees, on-site clinics can mean faster medical attention and lower out-of-pocket costs, since visits are usually free or carry only a small co-payment. For employers, on-site clinics can mean gains in worker productivity and lower health-insurance outlays."

Seems like win-win. Companies save money on health care costs, employees have access to convenient on-site health care and spend less time away from work for appointments, etc. The traditional practice of "outsourcing" medical care with employer-paid insurance insulates both the employer and the employee from the true costs of medical care, and gives neither much direct control over medical costs. Employer-paid on-site medical care makes everybody more cost conscious.

Cartels Aren't Forever

The diamonds above are real - but they are cultured diamonds that were produced in a laboratory, and might cost up to 75% less than similar diamonds from the DeBeers diamond cartel, and some have fewer flaws than natural diamonds. From today's WSJ:

"The $143 billion jewelry business -- and the would-be fiancés, Valentines and lovers of bling that it caters to -- are facing a shakeup. Lab-produced diamonds, once suitable only for industrial use, are being produced with color and clarity that match -- or exceed -- the quality of diamonds dug out of the earth. These lab-made diamonds have begun trickling into retailers at prices below those for natural diamonds of similar size and sparkle.

The long-term threat to established diamond producers: that mined diamonds could suffer the same fate as naturally occurring pearls. Cultured pearls, made when a small bead is inserted into a mollusk and grown, destroyed the natural pearl industry. Cultured pearls now account for more than 95% of all pearls sold globally, according to estimates by Gem World International, a research firm."

Read the WSJ article

"The larger question is whether lab-grown diamonds will gain acceptance with consumers....."

Prediction: Given the general acceptance, by both men and women, of breast implants, isn't the general acceptance of "fake diamonds" probably inevitable? After all, wouldn't it be irrational behavior to accept synthetic, artificial breasts, but reject synthetic artifical diamonds? Comments welcome.

Saturday, January 13, 2007

Disney CEO Underpaid?

The WSJ reports that Disney CEO Bob Iger received a $15 million cash bonus and $2 million salary for a first year on the job in which Disney's earnings and stock price surged.

Mr. Iger, who assumed the top job in October 2005, also received long-term incentive pay of $4 million; 411,000 stock options hypothetically valued at $3 million, and about $666,000 to cover costs including security, personal air travel and car benefit. Mr. Iger also exercised $8 million of expiring options over the period.

Total it all up and it's about $32 million in compensation. Sounds like a lot, but what happened to Disney's stock during that time? It went from $23/share in October 2005 to about $35 today (more than a 50% increase), and Disney's market capitalization went from about $48 billion to $73 billion, an increase of $25 billion in value for shareholders. Iger's $32 share of the increased $25 billion value for shareholders is about 1/10 of 1% (.13%).

Assuming that Iger played an important role in creating $25 billion of additional shareholder value, it's not a bad deal for shareholders to pay him only $32 million. For every $1 of CEO pay to Iger, shareholders got $781.25 in increased value, not a bad deal. Perhaps Iger is underpaid?

Thanks to David Boaz at Cato.

Economic Week in Review

Summary: This week’s slate of reports brought mixed economic news. Consumer credit soared twice as much as expected in November and retail sales were strong in December. Business inventories increased and the U.S. trade gap narrowed slightly. For the week, the S&P 500 Index rose 1.6% to 1,431. The 10-year U.S. Treasury yield rose 13 basis points to 4.77%, and the average 30-year fixed rate mortgage rose 5 basis points to 5.75%.

Read more details

Michigan Gas Prices Fall Below $1.85 per Gallon

Michigan gas prices fall below $1.85 per gallon, in some locations down to $1.82.

Union Productivity Gap (neg) AND Pay Gap (pos)

According to the Harbour Report, the productivity gap between unionized autoworkers and non-unionized autoworkers has narrowed recently to "only" 7.33 hours per vehicle in 2006, measured by total labor hours per vehicle.

As recently as 1998, the productivity gap was almost 17 hours between unionized GM and Chrysler autoworkers, and nonunionzed Toyota, Honda and Nissan autoworkers according to Harbour.

In 1998, Jim Harbour said that "GM still trails the pack in most key labor productivity areas. If it were as efficient as Toyota's benchmark operations, it would not need the equivalent of 40,000 extra workers." (And that doesn't include the thousands of idle UAW workers in the "jobs bank.")

Think about it. Unionized autoworkers are more expensive than non-unionized autoworkers and significantly less productive. Should it be any surprise that GM and Ford are losing money and contracting, and Toyota and Honda are making money and expanding?

One Way to Avoid Govt Censors? Psiphon

We take unrestricted access to the Internet for granted. But in many countries around the world, Internet access is controlled by the goverment, e.g. the red countries on the map above like China, Burma, Vietnam, Iran, Saudi Arabia, Iraq, Pakistan, Ethiopia, etc. View an interactive world map of Internet control here.

At the University of Toronto a team of political scientists, software engineers and computer-hacking activists, or “hactivists,” have created the latest, and some say most advanced tool yet to allow Internet users to circumvent government censorship of the Web.

The program, called psiphon (pronounced “SY-fon”), was released on Dec. 1 in response to growing Internet censorship that is pushing citizens in restrictive countries to pursue more elaborate and sophisticated programs to gain access to Western news sites, blogs and other censored material.

Psiphon is downloaded by a person in an uncensored country, turning that person’s computer into an access point. Someone in a restricted-access country can then log into that computer through an encrypted connection and using it as a proxy, gain access to censored sites. The program’s designers say there is no evidence on the user’s computer of having viewed censored material once they erase their Internet history after each use. The software is part of a broader effort to live up to the initial hopes human rights activists had that the Internet would provide unprecedented freedom of expression for those living in restrictive countries.

Read a NY Times article.

One Way to Avoid Copyright Laws? Buy a Country

Swedish file-sharing website The Pirate Bay is planning to buy its own nation in an attempt to circumvent international copyright laws. Read about it here.

Friday, January 12, 2007

If You Tax Employing Low Skilled Workers....

Greg Mankiw argues that the minimum wage is a policy designed to help low-skilled workers—paid for by a tax on employing low-skilled workers. That sort of policy is rarely considered ideal by any economist, because of the economic fact that "if you tax something you get less of it."

The Market for Body Parts

Late last year, The Economist took the position that people should be able to sell their own kidneys. This raised many ethical questions about the concept of selling body parts. However, there already exists an active industry that involves humans in developing countries selling a part of their bodies to richer people in the west: the traffic in human hair.

The market for human hair, used for wigs and extensions, has been booming. Wearing hair extensions, once considered the domain of strippers, has become fashionable for celebrities and the like. Of course the extensions must be top quality--raising the demand for human hair.

Read more here.

Thursday, January 11, 2007

Textbook Economics, The Decline of Unions

From George Will's most recent column: "Recently, the UAW has been retreating, crippled by economic forces beyond its control — and by its past successes in winning benefits that companies can no longer afford as they compete with foreign manufacturers in America who do not have unionized workers and the legacy costs of union retirees."

In other words, it priced its members right out of the competitive, globalized labor market. It's Econ 101:

From the
Gwartney textbook: "For a time, unionized workers enjoy higher wages. In the long run, however, investment will move away from areas of low profitability (e.g. Delphi, Ford, GM). To the extent that the profits of unionized firms are lower (MP: Delphi, GM, Ford), investment expenditures will flow into the nonunion sector (MP: Toyota, Honda, Nissan) and away from unionized firms. As a result, the growth of both productivity and employment will tend to lag in the unionzed sector. The larger the wage premium of unionized firms, the greater the incentive to shift production toward nonunion operations. Empirical evidence shows that industries with the largest union wage premiums were precisely the industries with the largest declines in the employment of unionized workers."

Classic textbook economics in operation: The UAW has seen its membership decline by almost one million members in the last 20 years, and is lower today than at any time since 1942!

Minimum Wage, Maximum Folly

Thanks to Cafe Hayek. (click cartoon to enlarge)

Upcoming: "The Power of Choice" Milton Friedman

Coming up from PBS at the end of January, a special program "The Power of Choice," the story of Milton Friendman, winner of the 1976 Nobel Prize in Economics, and the power of his ideas. See a 6-minute preview here with Gary Becker, Thomas Sowell, Alan Greenspan and Paul Samuelson. Thanks to Greg Mankiw for the tip.

More on COLA-Adjusted Mininum Wage

A proposed increase in the federal minimum wage to $7.25 will have vastly different effects on workers and businesses depending on where people live, because the cost of living varies so much. $7.25 will buy a lot more in some cities than in others.

To accurately adjust for differences in the cost of living, the $7.25/hour minumum wage should be adjusted to as high as $14.68 in NYC and $12.50 in San Francisco, and as low as $6.46 in Fort Worth and Omaha, according to a study by the National Center for Policy Analysis, see the entire list of
cities here.

"Why should we have one minimum wage that is the same regardless of where people live?" asks
Robert McTeer of NCPA. "If the goal for all low wage workers to have the same, minimum standard of living, we need different wages for different cities."

Bottom Line: Politically, it would be much harder to pass a COLA-adjusted minimum wage.

China Key to GM's Future?

"As the world’s top auto executives gather in Detroit for the annual auto show, one of the biggest questions is how General Motors will fare this year when Toyota may pass it to become the world’s largest automaker. The answer will depend to a considerable extent on how G.M. performs in China, its second-largest market after the United States."

From today's
NY Times Business Section, an article about how the vehicle market in China might be the key to GM's future success. Trade works both ways.

Quote of the Day II

"The language of economics, a field proud of its coldblooded rationalism, is ideally suited for otherwise volatile conversations." Like race and international trade?

NY Times article about Harvard economist Roland Fryer ("Toward a Unified Theory of Black America"), who was featured in the book "Freakonomics."

Gas Prices Fall Below $2 per Gallon, $3 in Canada

Michigan gas prices fall below $2 per gallon.

Minnesota gas prices fall below $2 per gallon.

Ohio gas prices fall below $2 per gallon.

Canada gas prices fall below $3 per gallon.

Quote of the Day - Consumer Greed?

"There's no brand loyalty so strong that the offer of a 'penny off'' can't overcome it."

~A marketing aphorism

More on Canadian and EU Unemployment

According to the ranked state unemployment rate data from the BLS, if Canada were the 51st U.S. state, its unemployment rate of 6.1% would rank #48, just slightly ahead of states like Mississippi and Michigan.

As a previous post pointed out, Canada is celebrating a 6.1% jobless rate as the lowest rate in 30 years. When a U.S. state like Michigan has 6% unemployment, it's called a "single state recession."

And if Belgium (8.2%), France (8.6%), Germany (8%), Spain (8.4%) were added as U.S. states they would each rank #51 with the highest unemployment rates in the U.S., behind Mississippi (7.5%).

Even the U.S. state with the highest unemployment, Mississippi at 7.5%, is below the AVERAGE for the Euro area (7.6%).

Wednesday, January 10, 2007

Minimum Wage Adjusted by Cost-of-Living?

An interesting argument from the Cato Institute suggests that a uniform national minimum wage of $7.25/hour is fundamentally unfair because it has a siginficantly different impact on different areas of the U.S. based on difference in cost of living, and the minimum wage should possibly be adjusted by Congressional districts, based on cost of living?

For example, the median home price in San Francisco is $750,000 and the median price home in Decatur, IL is only $86,000. Why should the minimum wage for unskilled workers be the same in both cities when there is almost a 800% difference in home prices?

From Cato: "In areas where the cost-of-living is close to the national average, the minimum wage would be around $7.25. In Manhattan and San Francisco – where it costs twice as much to live when compared to other areas, like Kansas City – the minimum wage would be at least $14.

This would set off all sorts of protests from congressmen in California and New York districts in which the upward adjustment is greatest. Now the businesses in their districts would feel a pinch they wouldn’t feel under a non-adjusted minimum wage. Those formerly enthusiastic congressmen might even start to question why it’s the federal government’s business to meddle in the often complex process – going on all around the country within hundreds of companies and cities, each of which are faced with vastly different economic situations – by which an employer and employee come to their own agreement on compensation for employment. And isn’t that the sort of debate we should be having?"

Bottom Line: If the minimum wage was adjusted by cost-of-living in a given district, it's a pretty sure bet that congressman in NY, New Jersey, CA, FL and Hawaii would be much less enthusiastic about raising it.

Law of Demand Operates, Whether You Like It

"The Law of Demand, which operates whether we like it or not, says that when the price of something goes up, people buy less of it. That's why environmentalists like higher gasoline taxes, and anti-smoking activists back higher cigarette taxes."

"The Law of Demand works in the labor market, too. If government mandates a higher minimum wage, some workers will get a raise. Some. But something else will happen. Employers will hire fewer low-skilled workers. Others will let some current workers go. Some will choose not to expand their businesses. A few will close altogether. If an employer believes a worker creates only $5 worth of value on the job, he won't pay $7, even if the government demands it."

"Let's face it. The higher minimum wage is a feel-good law. A slight increase will pass because politicians and poverty activists will be able to say they have "done something" for the poor, while the victims of the policy go unnoticed. Those who can't find jobs because they produce too little are not likely to blame the law or the politicians who tried to "help" them. Then the resulting unemployment will justify expansion of the welfare state."

As George Mason University economist Walter Williams says, "It's tempting to think of higher minimum wages as an anti-poverty weapon, but such an idea doesn't even pass the smell test. After all, if higher minimum wages could cure poverty, we could easily end worldwide poverty simply by telling poor nations to legislate higher minimum wages."

From a recent column by
ABC 20/20's John Stossel, who probably never had an economics class, but apparently understands the Law of Demand better than most politicians.

The Not So Dismal Future of Economics

From today's NY Times Business Section, an interesting article about economists:

"Economists have been using their tools — mainly the analysis of enormous piles of data to tease out cause and effect — to examine everything from politics to French wine vintages."

6% Unemployment in Canada, A 30-year Low

The unemployment rate in Canada just hit a 30-year low of 6.1% in December, the lowest rate since 1977 when Pierre Trudeau was Canada's prime minister and Jimmy Carter was U.S. president. During the last U.S. recession from March - November 2001, the unemployment never got higher than 5.5%. When the unemployment rate continued to rise to rise and peaked at 6.3% in June of 2003, it was dismissed as a "jobless recovery."

When the U.S. unemployment rate is around 6%, it's called a "jobless recovery." When the Canadian unemployment is about 6%, it's celebrated as the lowest jobless rate in a generation. The fact is that the U.S. economy, even its worst years, is still better than most other economies during their best years.

Tuesday, January 09, 2007

The War on Asparagus?

From the Concise Encyclopedia of Economics:

"The law of unintended consequences is that actions of people—and especially of government—always have effects that are unanticipated or "unintended." Economists and other social scientists have heeded its power for centuries; for just as long, politicians have largely ignored it."

Example: The War on Drugs, aka as the War on U.S. Asparagus.

The asparagus industry in Washington state has been decimated by a U.S. drug policy designed to encourage Peruvian coca-leaf growers to switch to asparagus. Passed in 1990, the Andean Trade Preferences and Drugs Eradication Act permits certain products from Peru and Colombia, including asparagus, to be imported to the United States tariff-free.

The National Drug Control Policy Web site currently notes that the Peruvian coca acreage, mostly in the highlands, is the highest it has been in eight years.

On the other hand, Peru has become a powerhouse in asparagus production along its Pacific Coast lowlands. Peruvian asparagus production has multiplied 18-fold. The industry has developed a vigorous market and attracted sizable capital investment.

Meanwhile, the Washington asparagus industry is disappearing. Acreage has been cut by 71 percent to just 9,000 acres. In 2005, Seneca Foods closed the world's largest cannery in Washington, and shipped its state-of-the-art equipment to — no surprise — Peru. So did Del Monte, when it also closed its Washington plant.

Chinese Market is Critical to GM

From the International Herald Tribune, "As the world's top auto executives gather in Detroit for the annual auto show there, one of the biggest questions is how GM will fare this year if, as is expected, Toyota passes it to become the world's largest automaker. The answer will depend to a considerable extent on how GM performs in China, its second-largest market after the United States."

Nations Don't Trade

We hear often of the U.S. trade deficit with countries like China and Japan, with the implication that nations trade with each other. Technically, nations do not trade with each other. Consumers and businesses in the U.S. buy products from businesses in Japan and China and other countries, and consumers and businesses in other countries buy U.S. products from American businesses. This is not just a technical issue, but a practical one, because we often lose sight of the importance of international trade when we talk about the "U.S. having a trade deficit with China," or hear about "an imbalance of trade," as if "countries" trade with each other. The "unit of analyis" in international trade is NOT countries, but individual consumers and individual businesses for the most part.

I think it would be more accurate to say, and it would increase our understand of trade, if we said "Conumsers and businesses in the U.S. purchased $75 billion more goods and services from Japanese businesses in 2006, than consumers and businesses in Japan purchased from U.S. businesses. On the other hand, Japanese investors invested $75 billion more in the U.S. economy than U.S. investors invested in Japan during 2006."

For example, if you take your family on vacation to the Bahamas or Europe or Canada, I don't think you would think of that action as contributing to the "trade deficit" or the "trade imbalance," even though your vacation would technically increase the "trade deficit of the U.S." And yet it is millions of individual transactions like your European vacation that make up the "trade deficit of the U.S."

So keep in mind that individuals buy and sell and trade globally, not countries.