Housing Market Continues to Soften
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Professor Mark J. Perry's Blog for Economics and Finance
"Everyone seems to think that ethanol is a good way to make cars greener. Everyone is wrong. The political rush to back ethanol is a mistake."
Slate.com: It's hard to dislike the idea of free municipal wireless Internet access. Imagine your town as an oversized Internet cafe, with invisible packets floating everywhere as free as the air we breathe. That fanciful vision inspired many cities to announce the creation of free wireless networks in recent years. This summer, reality hit—one city after another has either canceled deployments or offered a product that's hardly up to the hype. In Houston, Chicago, St. Louis, and even San Francisco, once-promising projects are in trouble. What happened—was the idea all wrong?
This is classic textbook economics, paraphrased from Gwartney and Stroup:
For a time, unionized workers enjoy higher wages and job security. In the long run, however, investment will move away from firms with low profitability (Ford and GM). To the extent that the profits of unionized firms are lower (GM, Ford), investment expenditures will flow into the nonunion sector (Toyota, Honda, Nissan) and away from unionized firms. As a result, the growth of both productivity and employment, as well as market share, will tend to lag in the unionzed sector.
The larger the wage premium of unionized firms and the greater the guarantees of job stability, the greater the incentive to shift production toward nonunion operations. Empirical evidence shows that industries and companies with the largest union wage premiums and greatest guarantees of job stability are precisely the industries and companies with the largest declines in the employment of unionized workers.
Bottom Line: Gains in the short run of higher-than-market wages and benefits, and greater job security, eventually undermine the companies employing unionized workers, destroying hundreds of thousands of union jobs in the long run. The more success a union has in the short-run, the greater the failure in the long run. The discipline of the market eventually dominates and prevails.
Among Mahmoud Ahmadinejad, Andrew Meyer and Lawrence Summers, the world has been treated recently to a carnival of free expression as our most treasured right was exercised on university campuses.
The Forbes 400 As a Lesson in Economics:
Washington Post: "The UAW got the assurances it wanted that GM would invest in building new products in the United States, thereby providing job security for members."
Here's another report on India's red-hot stock market, with a timeline on the rise of the Sensex through Indian stock market history back to 1990, when the BSE closed above 1,000 for the first time.
1. Carpe Diem is now officially one year old. This was my very first post on September 20, 2006, and this is now post #1424, which is an average of 3.84 posts per day.
One issue contributing to the UAW's strike against GM is that negotiations reached an impasse regarding the future of the "jobs bank," or what the Wall Street Journal calls "GM's Anti-Jobs Bank, the company's euphemism for a post-employment limbo in which GM pays laid off members of the United Auto Workers not to work." As the WSJ points out today, it's "Nice nonwork, if you can get it."
India is now outsourcing outsourcing, the New York Times reports today in World Busines:
The rise is a boon for Canadians looking to buy American real estate, stocks or just about anything for sale at the Mall of America in Bloomington, Minn., which has seen a 15% uptick in the number of Canadian customers this year. But it isn't good news for Canadian hotels or tourist destinations, or exporters of everything from beer and maple syrup to lumber and wheat.
The result has injected a touch of national giddiness into Canada's traditional reserve as a slew of opportunities present themselves, from real-estate deals south of the border to substantial breaks on college tuition for parents sending their kids to school in the States.
UPDATE FROM NY TIMES: On either side of the border, a buck is now a buck, or as Canadians call it on their side, a loonie. Coupled with high prices and high taxes for many things in Canada, the strength of the Canadian dollar is driving Canadians into the United States to shop for shoes, school supplies, gasoline, used cars and second homes.
MP: Compared to January of 2002, when the exchange rate was 1.6143 Canadian dollars per USD, everything in the U.S. is now on sale at a 38% discount for Canadians. The U.S. economy is now like a giant Wal-Mart for Canadians, with "everyday low prices."
The Twin Cities region has a high concentration of massive and diverse Fortune 1000 and S&P 500 companies. It also has a significant number of Forbes 400 private companies. Further, Minneapolis-St. Paul has a healthy array of up-and-coming companies on the Russell 2000 index. And it has more small businesses per capita than just about any other city.
2. Wall Street Journal -- There are 19 Fortune 500 companies with headquarters in the Twin Cities, including Best Buy Co., 3M Co. and Supervalu Inc., which have been attracting young professionals looking to begin a career. Average salary last year was $44,980 in the Twin Cities, almost $5,000 more than the national average according to the U.S. Bureau of Labor Statistics.
"For the past two decades, these economic prospects made the Cities one of the fastest growing metropolitan areas in the Midwest," says University of Minnesota geography professor John Adams. Adding to the growing population is an influx of African and southeast-Asian immigrants.
CARACAS, Venezuela (AP) — President Hugo Chavez threatened on Monday to take over any private schools refusing to submit to the oversight of his socialist government, a move some Venezuelans fear will impose leftist ideology in the classroom.
All Venezuelan schools, both public and private, must submit to state inspectors enforcing the new educational system. Those that refuse will be closed and nationalized, Chavez said.
Education based on capitalist ideology has corrupted children's values, he said. "We want to create our own ideology collectively — creative, diverse."
A new curriculum will be phased in during this school year, and new textbooks are being developed to help educate "the new citizen," added Chavez's brother and education minister Adan Chavez in their televised ceremony on the first day of classes.
MP: Venezuela already ranks #135 out of #141 for Economic Freedom in 2007, according to the Cato Institute, are they trying to lower their ranking with educational "reforms"?
Related Quote: "Every politically controlled educational system will inculcate the doctrine of state supremacy sooner or later. . . . Once that doctrine has been accepted, it becomes an almost superhuman task to break the stranglehold of the political power over the life of the citizen. It has had his body, property and mind in its clutches from infancy. An octopus would sooner release its prey."
--Isabel Paterson, The God of the Machine (1943)
(Thanks to Larry Reed.)
TORONTO (AP) — The Canadian dollar reached parity with the U.S. dollar today for the first time since November 1976 (see chart below, click to enlarge).
ADDENDUM: The world stock market capitalization is about $58 trillion according to Global Financial Data, and there was a 3.2% dollar increase in world stock markets after the Fed rate cut according to MSCI Barra, meaning that the world stock market capitalization increased almost $2 trillion ($1.86 trillion), the day after the rate cut.
2. According to Fed Funds futures contracts on the CBOT:
a. There is an 80% chance of an additional .25% rate cut at the next FOMC meeting on October 30-31.
b. There is a 100% chance of a .25% rate cut by December (FOMC meets December 11), and a 68% chance of a rate cut of .50% by December.
According to the NY Times, these are the Top 5 Reasons ethanol imposes high costs on the economy:
"Washington might have a love affair with ethanol for political reasons, but increasing ethanol production will only lead to higher taxes, higher prices for both food and fuel, and damage to the environment, making us all worse off in the process. Congress needs to say no to the ethanol hustlers and end its political addiction to corn."